There is No Such Thing as a Weak Private Label Program
By Milt Sender, Chairman, Daymon Worldwide Inc.
(www.daymon.com)
I am frequently asked by our young associates, what separates a strong private label program from one that is not? My reply is that there really are no weak private label programs, only misdirected ones. If a retailer is engaged to any degree at all in private label, it has the potential to be a solid program.
As with any aspect of a retail operation, private label must be properly aligned with the store’s overall strategy and directed at its target audience. Private label means different things to different consumers. It should also mean different things depending on the retailer.
For example, an established chain known for innovation, such as Wegmans or Whole Foods, can put its own brand on the shelf in an area of the store not known for private label and the impact that store makes visually and ethereally on the consumer will virtually pre-sell the brand.
If you are a large supermarket chain with a good reputation, consumers will likely deem items bearing your own name to offer better than adequate value.
Smaller retailers, on the other hand, may not have the size or clout to put their own name on a private label. Companies such as this might be best served using a buying organization, such as Topco or a large wholesaler such as Supervalu, to establish a private label identity. Going this route allows smaller players to identify the banner hanging over its stores with quality products available under a sub brand. Over time, consumers will come to think of these labels as being the store’s own brand.
Of course you don’t have to be huge to have a label with your name on it. Ukrop’s can pull it off because it has a reputation for quality and tremendously loyal customers. Where it makes sense, Ukrop’s uses its own name on private label. Alternately, it uses Topco brands very effectively when it makes sense to achieve economies of scale.
In a recent conversation on the various approaches to private label, I was asked if I believe in an opening price point tier in private label. My answer: It depends on the retailer and what it is attempting to accomplish. A Pathmark in New York City, for example, needs an opening price point brand. A Whole Foods or Wegmans does not. If you are Kroger, you probably need an opening tier in some markets but not in others.
Many retailers believe unconditionally that they need to offer opening price point values for consumers, and so they throw together disparate brands and products just to have one. They do so in total disregard for establishing an identity, or worse, in risk of diminishing their existing identity.
An opening price point tier in private label should be part of the company’s long term vision and be positioned as a strategic advantage, not a hodgepodge of low cost, low price merchandise. A smart retailer with a good reputation in the market can create a unique label at great prices that offers attributes and value the consumer will understand.
Editor’s note: Daymon Worldwide is holding its private label forum, “Partnering in a Smaller World,” with senior level retail and manufacturer
executives prior to the FMI Show in Chicago next May. For information, go to http://forum.daymon.com.
Moderator’s Comment: What separates strong store brands from weaker ones? Which retailers have the strongest private label programs in the value/price,
premium and super premium segments of the business? –
George Anderson – Moderator
The key to ANY brand (Private Label or so-called National Brand) is to meet the consumer need. Retailers STARTED with private label before abandoning them for advertised brands or nationally recognized brands marketed by manufacturers. If the brand meets a consumer need and is properly marketed – it will succeed and thrive.
There is no “connect the dots” (as referenced in the author’s article) approach. Each retailer must decide WHAT their strategy is, WHO they are seeking to target, HOW they will meet the needs of that target group, etc. It may be through price, it may be through quality, it may be through uniqueness of offering, etc.
The days of retailers merely being the conduit between manufacturers and consumers/shoppers are dwindling (if not already dead) – competition has thinned the ranks of those that were not willing to step up and address (or anticipate) consumer needs. With more and more shopping trips being fragmented across multiple retailers and channels – store brands/Private Label provides one key reason to shop with one retailer over another.
In the homogenized world of retailing where “everyone sells the same stuff” – PL is where differentiation can occur.
Nothing gives one better insight, and perhaps “mis-sight” too, than experience. Having led both Kroger’s and Supervalu’s private label programs in the past, and having worked with Milt Sender at Kroger (although he wasn’t in private label then) before he saw the philosophical and financial wisdom in joining Daymon, I have preconceived ideas. May they be correct today.
I think what separates private label programs are: 1) the perceived quality reputation of the retailer as a brand, i.e., the perceived level of quality, uniqueness, “sense of theater” and psychic income that consumers feel they get overall from the retailer; 2) how well the retailer aligns private label product quality and packaging design with the retailer’s overall marketing strategy; and 3) how well the retailer’s strategy for its private label program is managed. If these three elements are managed with excellence, then corresponding acceptance, higher price points and profits will follow.
Private label is not just for making price impression anymore. For instance, in the Midwest you will see the “perceived” high quality products under upscale Byerly’s label in numerous other stores … and at very high price points. SuperTarget, capitalizing on their fine reputation, is working to create Archer Farm products to equate to or exceed the perceived quality of national brands and are pricing the product line accordingly. Wegmans, already mentioned, is trusted as a quality, cutting-edge retailer and its private line is fully embraced in that context. And there are numerous other such examples.
Bottom line, at least mine: Private label’s beauty is in the consumer’s overall perception of the retailer as a top brand plus the quality level that the retailer delivers in its private labels. Price points can be set accordingly.
Private label must be an expression of the value that the consumer sees in the RETAILER as a brand. Wal-Mart will give you Old Roy as a value brand, as they are seen primarily as a value retailer, while Target can give you more upscale brands as control or Private Label as they are seen as (slightly) more upscale. A value retailer will have an uphill (but not impossible) time selling a private label brand at a premium to national or regional brands.
With all due respect, I have to stand by the point I made about price gaps, in many, many categories. To refine my point, you don’t want to do this with destination categories or ones where shoppers really know the prices and judge you vs. your competition. (There are very few such items, by the way. Research has shown that time and again.) You look at category by category, and consider these variables as well as brand strength and category mission. A long price gap in many categories actually signals to the shopper that you’re giving them a poor quality product, and… perhaps your PL quality is good! So you are cheapening the image of both the product and your own private label. You can choose to meet your lowest price competitor on private label in every category if you wish (and yes, ideally, your PL is heavy up with unique items) but it’s just plain silly. Most retailers could bring up their PL pricing, in most categories, and their shoppers wouldn’t know the difference. Moreover, the retailers would make more money. We still like profit, right?
Some important things to remember about Private Label are: 1.) PL today goes well beyond center store and frozens, with the sales of PL perishables often included in the so-called “growth” of Private Label. 2.) Much PL growth can be attributed to major chains who simply muscle national brands off the shelf and replace their facings with PL (hello, Safeway). 3.) Every time generics are reintroduced or short-code PL products appear in dollar stores, the image of PL takes a negative hit. 4.) There is a difference between Private Label and “Control Label,” a distinction germane and important to Mr. Sender’s remarks. 5.) “Brights” (or “brites”) are unlabeled canned goods that sit in processors’ warehouses awaiting an order from one chain or another. That chain’s label is then affixed, the order is filled, and the so-called “Private Label” is shipped to stores to meet the “unique” needs of their “unique” shoppers. Caveat emptor.
Here’s the skinny: Retailers can afford to gamble on PL — i.e., approach it without a plan or strategy — because they’ll always have National Brands to fall back on. In other words, NBs provide a safety net for poorly-designed PL programs. Sometimes, NBs even participate in and contribute to poorly-designed retailer PL programs. You could look it up.
The difference-maker in successful PL programs is proprietary (or aided) development and consumer research. “Acting like a NB” is key, because it takes into account all of the marketing input upon which NBs rely. Trendy PLs from Whole Foods, Trader Joe’s, Wild Oats, et al, are simply transitory — never designed for the long haul. And therein lies a question: In contrast to NBs, should PLs be purposely designed for quick-hit, short-term, trendy consumer impact? (For the answer, be in attendance when I address this topic at The Retailers Private Label Forum in San Diego on February 1.)
Private Label in department and clothing stores is successful when design talent is used to create unique and interesting products that will separate the store from very similar competitors. Department stores seldom, if ever, do this………….they are so infatuated with the margins and so reluctant to invest in design or take risks, they all do generic, vanilla (read; BORING) products they can take huge mark up on and then play their phony and silly pricing game that fools only those who want to be fooled.
Private label items will always have a quality identity problem as long as supermarket retailers use them as only lower price alternatives to the national brands. Everyone knows that most private label products’ quality is well below that of the national brands. I’ve never understood why any retailer would want to put their name on an inferior product.
The exceptions are Costco, Trader Joe’s, Whole Foods and Wild Oats. But their goal is to create a destination brand based on quality, not just price.
I disagree with the notion that prices can be raised on private label. THE reason people buy private label is because of the price. As a personal story, the other day I needed to purchase an item and the PL was only 20 cents cheaper. For me that wasn’t enough savings for the risk of questionable value, so I bought the name brand. If you expect people to pay more for PL then you have to change their perception of PL drastically.
And because I haven’t seen it mentioned yet, Trader Joe’s is tops in supplying quality PL goods at prices that are below comparable items at the traditional grocery store.
I disagree with the statement that a lot of money is left on the table because of the spreads between name brand and private label are too small. I think that is the old school thought of pricing your private label. In the past you would price your store brand ibuprofen off of Advil and show a savings. Today, private label items have become so mainstream, that customers use the generic term vs. the associated name brand (remember when name Tylenol was used in the same way as, Jell-O or Kleenex to refer to a whole category?) Your competition today for ibuprofen is not Advil, but rather Wall-Mart’s or Walgreens’ ibuprofen and that is the price you need to watch. It’s much easier to be way out of the ballpark on a private label item vs. a name brand with your competition because 30-60% margins don’t throw up a flag. This will hurt your price perception just as much as being 10 cents higher on bread or milk.
Private label brands abound everywhere. Their growth is a tribute to their ability to sell large quantities of products at good or better than average profits. Private label products can do this by using premium placement next to national brands, delivering a proven product (often made by a national brand, or to the same specification) and offering the consumer a better value (i.e. lower cost). Store brands are the final bastion of profits in an area where national brands are competing at a commodity level.
Many grocers price most items by applying the same margin percentage to everything in a category. If the canned fruit section is at 1.15, then everything is simply marked up 15%. It’s true that some margin may be left on the table. But it’s also true that if your competitor prices their inventory “irrationally low” (leaving margin dollars on the table) it’s hard to be more expensive. Many customers track prices pretty carefully. The best strategy is to sell private label items that aren’t easily comparable as commodities. Then the margins are up to the retailer. Furthermore, some grocers have a low-price commodity private label as well as a different premium private label.
Quality, Quality, Quality, Quality, Quality, Quality, Quality, Quality, Quality!
This may sound simple, but a quality product is the end result of a quality process. If the final product is excellent then the process that delivered the product is excellent. We judge most of our durable and consumable products based on the final product. Our perception of the producer is almost always totally based on the finished product. A high quality finished product is the surest way to success. Let me say it again:
Quality, Quality, Quality, Quality, Quality, Quality, Quality, Quality, Quality!
Except in a very few cases, I believe that successful PL becomes a function of value. I agree with Warren that some of the PL I see is unnecessarily low-priced. The true value shopper is not shopping Whole Foods in the first place. So, as long as they provide the value in terms of the quality of the product relative to its price (which they clearly do), they will win. (As a consumer I hope they’re not reading this.)
At some point, no price point works if the product isn’t worth eating. Stores need to remember that when they put their name on a product, they are identifying their brand with the quality of that product. Unless they truly believe the product reflects their store value, they should not put it out there.
Sender said it all very well. To answer the question: Follow what he said, and you’ll likely have a strong private label program. Ignore his advice, and I’m sure you won’t. The only build I can make on this is that many retailers do a poor job of pricing and promoting their private label. The price gap between the store brand and the national brand is often unnecessarily wide, and profits get left on the table. I love Whole Foods and their PL program, but the gaps in some of their categories sometimes make me wonder. Here’s an example that really is illustrative of what can happen in many categories: Birds Eye just did a study on frozen vegetables, which showed that store brand frozen veggies are relatively inelastic compared to branded frozen veggies. (If prices are raised by 10% and purchases decrease by less than 10%, the pricing is inelastic.) Yet despite this inelasticity, there are often significant price gaps between private label and branded frozen veggies. If retailers were to go around, category by category, and check relative elasticities/inelasticities, they’d often be able to improve category profits by raising private label prices, since volume would not drop significantly.
This may be a little after the fact, but I would like to make one more comment. I noticed a lot of responses to this statement were referring to personal experiences. The majority of today’s shoppers live paycheck to paycheck; I’m guessing the majority of the individuals responding to your site do not. Ask a new mother where they get their prescriptions, where they get their diapers and where they buy their groceries. I’ll bet you get 3 different responses even though they could get all 3 at a number of locations. We hate to admit it, but I think shoppers are much more savvy than we give them credit for. I do think they compare private label to private label and not the name brand counterpart we would still like to believe. Just a thought.