Store Brands Grow Faster at Specialty Grocers
Private label sales grew faster in specialty food stores
such as Trader Joe’s and Whole Foods than at supermarkets between 2005 and
2009, according to the Private Label Food and Beverage in the U.S. report by
Packaged Facts.
According to the report, private label dollar sales grew to
$87 billion last year with store brands accounting for 17 percent of all food
and beverages sold at retail. That 17 percent figure was up from 14 percent
at the beginning of 2005.
Private label sales grew at an annual compound rate
of 14 percent between 2005 and 2009 in specialty grocers. Sales grew nine
percent in club stores and four percent at traditional food retailers over
the same period.
Don
Montuori, publisher of Packaged Facts, said, “Private labels entered
into new territory where the additional power of the retailer name and its
inherent benefits are aiding private labels to emerge as brand name. Store
reputation alone may be the driving force in the success of chains, such as
Trader Joe’s and Whole Food Markets, in attracting more affluent consumers
to the category.”
Discussion Questions: How effective are traditional supermarkets at private
label brand building? What lessons should traditional grocers take from the
growth of private label foods and beverages at chains such as Trader Joe’s
and Whole Foods?
Food retailers like Trader Joe’s and Whole Foods epitomize the concept of thinking like a brand and acting like a retailer. Their own label offerings support their branding strategies. On the other hand the “big middle” food retailers do not appear to have a “private label” strategy, other than price, that enhances the positioning of their chains.
Private label is a terrific opportunity to positively differentiate food retailers. However, a well-defined strategy is needed to accomplish this task of using private label as a brand defining tool.
No one on earth should be surprised that store brands are growing much faster in specialty stores than they do in traditional supermarkets. Whole Foods and Trader Joe’s do not offer many “traditional” brands, and they treat their store brands as though they are in fact, “national brands,” that are made available exclusively in their own retail stores. Specialty store brands have upscale packaging, equal or superior formulation, and they are priced nearly the same or higher than other “national brands.”
In contrast, most traditional supermarkets are still using store brands to lure consumers on price alone. The majority of products offered are still knock offs and frankly consumers still don’t know or believe that these store brands in traditional supermarkets are national brand equivalents, because in truth, many are not.
This really is an apples and oranges comparison. Whole Foods and Trader Joe’s started from the beginning as a place to buy proprietary brands (which aren’t necessarily “Trader Joe’s Salsa,” of course). Traditional supermarkets started life as a place to buy other people’s brands. The real difference is that the former made the decision to own the brands they sold across the spectrum of value from the beginning. The latter are trying to emerge from the extreme value niche they entered with. That’s tough sledding on any hill.
I think traditional supermarkets, including Wal-Mart, are doing just fine with private label. I’d rather grow 9% with a 70% market share than 14% with only a 10% market share any day. Specialty grocers are doing a better job but overall, their market shares are minimal.
Really no surprise. Trader Joe’s, for example, builds their private label around new, unique, and trendy items. They have created a brand where you can go and try something new. This is in contrast with conventional retailers which just look at a category and knock off the leading flavor and create either a two tier choice or no choice at all (think the recent decision backed away from by Walmart).
One thing I would be interested in seeing develop is the Stop & Shop program by Ahold. They seem to have gone out and created flavors and items that are complementary to the categories they have already launched, which I would guess will be successful.
As already discussed, comparing specialty to traditional grocers is like comparing Barneys to Macy’s–apples to oranges. There are, however, some traditional grocers that have done very well in the PL efforts. Publix, in the Southeast, has done a very fine job of offering Private Label products that are equal to or, in some cases, superior to national brands. Their Greenwise label has done a very effective job of standing up to the intrusion of Whole Foods into their markets. Their straight PL products are also very well-packaged and of an equivalent quality to the nationals.
The key here, I think, is a commitment to move beyond the original PL goals of cheap and margin-building and producing quality products in packaging that reinforces the overall brand message.
To say Private Label grew at Trader Joe’s is meaningless, as the chain has always been 99% Private Label.
Specialty retailers approach the issue of product selection differently than the traditional supermarket. They are not are not trying to cover all categories, only the ones that support their vision. They have more difficulty finding products than the traditional supermarket due to CPG companies manufacturing for the mass market. This gave the specialty retailers a head start on developing Private Label.
The more enlightened supermarket chains are making solid progress, but they have to overcome the branded product deal addiction.
Specialty retailers like TJ’s and Whole Foods have built a very loyal base of shoppers. “Their” stores know who they are, what they like, and deliver. Private brands allow for exploration and development of unique products that meet local needs and aspirations. By continually refreshing the offering, shoppers keep coming back.
Private label started as a lower-cost alternative backed by the store “name.” Traditional retailers have moved far beyond this basic tier, to a multi-tier approach, and some into exclusivity. Interesting, innovative, premium, and good-value alternatives are becoming part of the portfolios of many supermarkets.
The game has changed, and traditional retailers have their own brand marketing groups. Retailers like Safeway have taken over these functions, previously handled by others. Food retailers are actively hiring account executives who once worked for CPG companies as well as many of the brand designers and package developers.
The new private brands have very well designed packaging–both functionally and graphically–that enables strong differentiation at shelf and promotes a connection with the consumers.
Specialty retailers like Whole Foods and Trader Joe’s have a point of difference. That’s why people shop there. Extending that through to product is natural.
Traditional grocers are trying to appeal to everyone…making their unique points of difference, well, not so unique.
Previous comments have covered the primary reasons retailers such as Trader Joes and Whole Foods do so well with their private label. Anne’s remarks about packaging focus on what happens during the purchase decision process. And my experience suggests that this component of marketing can’t be stressed enough. When private label is most successful the shopper sees the package and it quickly reinforces quality, appetite appeal and what the brand represents in her or his mind. As stated previously, Trader Joe and Whole Foods have created brands that embrace the consumer with trust and credibility for their products. Their packaging supports the brand and the ultimate achievement occurs as the shopper sees the package and it becomes the product.
One of the reasons that shoppers go to Trader Joe’s AND Whole Foods is because they aren’t CPG oriented. These retailers are the anti-CPG operators. They want the customers who believe mainline consumer products are un-wholesome and/or too expensive. TJ and WF exist because of these shoppers.
These retailers are selling their brand above that of the products they carry. Their brand profile says shop with us and you will get the best possible products for your needs.
While we like to think that the mainstream retailers are also a “brand,” consider what they sell. Every week they are publishing a flyer featuring CPG products. Go to their websites and most will have an array of CPG products. Whether consciously or not, rather than saying “Think A&P” to the consumer, they are saying “Think Tide.”
Is there opportunity and value to mainstream retailers being effective with private label? Absolutely! But they can’t have it both ways. They must take the mindset that their PL lines are the best in the house and if you want CPG, we have them, too. This strategy puts them in a strong competitive situation as their mainstream brethren can’t carry their PL line.
Trader Joe’s and Whole Foods have built an entire brand and reputation around their name as opposed to the traditional grocery retailer whose brand is usually built around either service, quality or lower prices.
Because of that the Trader Joe’s and Whole Foods are able to easily market their brands effectively and successfully. Warehouse brands have not been as successful as Trader Joe’s or even Whole Foods.
I do not see the advantage of a traditional grocery chain crossing over and trying to become a brand unto themselves. They continue to be successful in their own right as the private branders are in theirs. There are enough crossover shoppers who have no problem going to the traditional store for many products then to the private branders for the balance of their shopping needs.
It is impossible to answer this question at the macro channel level. Supermarkets are all over the board in the effectiveness of their private label strategy when viewed across all the priority criteria: store banner building, competitive differentiation, margin-enhancing, SKU optimization, shelf productivity, and more.
Certainly, specialty retailers have an inherent advantage in building private brands–defined target consumer, more focused retail strategy, more limited product assortment, and just less to do. Supermarkets are saddled with a fundamental business model of being all things to all people. To win in private label, supermarkets must define and become intimate with their priority shopper segments and then structure their store brands toward their most valuable shoppers. Think the Safeway O line, Target’s separate lines of Archer Farms and Market Pantry, and the plethora of private brands building built by Stop & Shop. All great progress toward building retailer-specific brands that leave behind the private label mindset of the past.
Trust is the key here. Private label grew faster in brands that consumers trust to make goods. So logical. Just ask yourself who you’d like to buy private label food from; Whole Foods or just about anyone else. And almost all of Trader Joe’s product is private label so, that’s an unfair measurement.
A great study to see would be which “traditional” grocers’ private label is working and which aren’t. I would bet that the more trusted brands, like Safeway, would clearly dominate that study.
What is a brand…anyway? It is something ephemeral–usually a “promise,” representative of “something meaningful,” and based on trust, credibility, and authenticity. That is true for products, services, and stores. Over the pond, and north of the border, private label products are brands–“corporate brands,” “own brands,” etc.
Store brands, or private label is growing faster at specialty retailers because in most cases, they did not grow up with the traditional supermarket heritage (see Ben Ball’s comment earlier). However, the success of Trader Joe’s, et al–and Wegmans for that matter, is predicated on the trusted relationship they enjoy with their consumers. That extends from the shopping experience to the (ir own) products on the shelf.