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Do retailers need a new approach to store brand marketing?
We’ve all heard about the impact Millennials are having on retailing and we all know Baby Boomers are still a generation of economic consequence, but what about Gen X? Well, it turns out this group — born between the early 1960s and 1980s — was hardest hit of all generations by the Great Recession and has spent much of the last decade learning how to be thrifty. That includes looking for value, specifically store brands, when the quality meets their other shopping requirements, making Gen Xers a great opportunity for retailers.
Speakers at the 2017 Private Label Manufacturers Association (PLMA) conference held in Chicago this week described several other opportunities for retailers and their store brand suppliers in the next five years. Nielsen reports that more than one of every five items sold in the country’s supermarkets in 2016 was a store brand and Kantar Retail predicts that private label growth between now and 2022 will outpace the previous five years.
The reasons for the growth include not only the changing demographics and economy, which are having a huge impact, but also improved product quality and packaging, increased promotion and enhanced curation of the assortment. The overall shift in shopper perceptions of private label brands and the value they offer is also helping retailers drive sales and capture market share.
So, what can retailers do to capture more of the private label pie and build up their own brand? Industry consultant Jim Wisner says, “Store brands need to be promoted or they won’t grow. Less than 20 percent of the categories get the support for store brands comparable to national brands and that’s not enough.”
PLMA estimates that about $150 billion worth of store brands were sold last year and that shoppers save $30 billion annually by choosing store brands. These figures alone should give retailers the impetus to devote resources to the sector in a big way.
Discussion Questions
DISCUSSION QUESTIONS: What are retailers doing right in promoting store brands what could they do better? Which are doing the best job?
Poll
BrainTrust
Kiri Masters
Founder and CEO, Bobsled Marketing
Cathy Hotka
Principal, Cathy Hotka & Associates
The rise of grocers who carry store brands only — think Aldi and Trader Joe’s — proves how powerful exclusives can be. Shoppers love good quality at a bargain price. Grocers and drug chains should take every opportunity to tout their own products for the values that they are.
Hey Cathy, I agree with all of this. I’d add Archer Farms, one of the Target brands — most consumers don’t actually know that Archer Farms is a Target brand at all. Retailer-owned brands are poised to move fast and have the inside track on profit and analytics, so retailers just need to continue by putting together a real brand plan and treating those owned brands like number one market leaders.
Retailers who do not promote their private label products are missing out on an opportunity for more sales. Today’s consumers are more price-conscious than any other time. Private label brands are typically less expensive, but the consumer still feels often that the products are inferior when it comes to quality. That is no longer the case for many of the private label items sold today, and it’s up to the retailers to make the consumer aware of that. So promote, advertise, use in-store signage and whatever it takes, like you would feature any other brand or item. The more consumers learn about the quality of the private label products along with the attractive prices, the more the retailer will sell. It’s a win for everyone.
I agree with the PLMA that store brands must be promoted more. Many of these brands are good quality and often manufactured in the same plants as national brands and sold at a lower price point. Costco and Target are just two examples of high quality and great price. So Target’s private label is a private label but Target is national, so what was the difference again?
Value, quality and transparency resonate very well with the cost-conscious consumer. Private label store brands are on the rise, as demonstrated by Whole Foods’ push with their 365 brand. This provides consumers with a high-quality product without emptying their pocket. The company also offers both natural and organic selections at different pricing tiers.
There are significant opportunities for other grocery and drug store chains to take advantage of these emerging categories, which drive not only significant value to their consumers, but also an excellent profit margin for the company.
My personal favourite has been the PC brand by Loblaw. Years ago, they started curating high quality goods to white label. As such, the white label brand became a premium brand unto itself. They also provided the low-end white label brand “No Frills.” Doing this has served them well and has given customers a clear indicator of premium quality product vs. the generic. Great strategy to capturing both ends of the white label market.
Private label in retail helps paint the picture of the brand’s identity. Providing value in a defined range of consumer and household needs describes what the brand intends to be as they are a part of the family’s life. So promoting store brands is to the promote the store identity as an overall brand. Canada’s President’s Choice store brand includes excellent packaging and promotion that often make it the product of choice. In linking the store brand with the company CEO at store brand launch, the brand was personified at the product and chain levels.
Very informative article! Getting to the topic at hand, here are some cost-effective ways to highlight these products:
To add an online perspective to the mix, this is a business model that Amazon is pursuing on a massive scale.
The vast quantities of data that Amazon holds can be mined to identify assortment gaps as well as emerging product types. In some categories (batteries, baby wipes), Amazon’s private labels dominate. However, Amazon aren’t overly promotional about their own private labels, and for some brands consumers wouldn’t know they are an Amazon brand.
The placement of Amazon’s private labels within the wider ecosystem seems almost democratic — the most popular product wins whether it’s an Amazon brand or a national brand. Products which don’t succeed are quickly and quietly killed.
What can other retailers learn from this? Let consumer purchase data do the talking.
The role of store brands has changed dramatically. While these brands have always had a value perception, the better food retailers have recognized that these brands provide them with a real opportunity to create a differential advantage versus other brick-and-mortar retailers as well as the online retailers.
Retailers need to think like a brand and act like a retailer. Thinking like a brand means more than focusing on the brands on its shelves. Instead, it needs to be considered as all of those things/products/attributes that give customers permission to drive past another retailer or abandon the website in search of your store. Plus, store brands can be a strong defense against the assault on center store.
Private label store brands provide such an opportunity to provide uniqueness. Some suggestions to enhance store brands are as follows:
In my opinion, a conventional retailer who is doing a terrific job in this area is Ahold.
Retailers are not great marketers. So expecting them to develop a brand and get behind that brand is foreign to their core.
The reason national brands get better exposure is that there is funding behind it. The merchants have no incentive to market private brands because the more sales coming from private brands, the less funding from national brands. Retailers don’t think in terms of net profit or differentiation. They think in terms of gross profit, rebates, discounts and accruals. When they do put private label on sale, it is generally a price focus vs. a quality focus.
That said, Costco has done an amazing job turning Kirkland into a national brand. It is even sold on Amazon and other marketplaces online. Target does a good job in specific categories and Nordstrom as well. I am not certain concepts like Brandless will survive. Once they got past the initial hype, the retention does not seem to be there primarily because of quality issues.
Private label products and controlled brands have the potential to provide a point of differentiation for many retailers. The strategy and execution need improvement in order to be successful.
It depends on the retailer. Aldi and Trader Joe’s, for example, have built a unified brand front where the promise on the nameplate is reinforced by the products on the shelf. Wegmans and H-E-B have used the brands they control to demonstrate superior quality and lots of those Millennial values — locally produced, artisanal recipes, fresh with no bad ingredients, etc. Other retailers are still a half step away from the old, tired “private label” wall of values.
So the better question might be, “What are industry best practices when it comes to retailer-owned, or controlled, brands?” And they would include things like: higher quality, an emphasis on perishable products, reinforced by more shelf-stable items, promoting items as “only available at,” developing signature items, etc. And perhaps the most important things — telling the story of your brands as Trader Joe’s and Loblaw learned to do years ago and tightening the connection between your brand and the items you offer under your own name.
Promoting store brands shouldn’t be accepted lightly. They are less expensive in large part because they do not have promotion costs eating up profits. As my friend Mike Anthony often says, promotions need to be targeted. With that in mind, clever promotions that entice shoppers to try the store brands and see how good they are (like extra loyalty points as mentioned above) would be targeted and on the point. The low prices are the reward in and of itself.
Store brand sales can grow to existing customers. However, investments to attract new customers may pay large dividends. Learning how to reach new customers will not be found in store sales data. Serious marketing research is needed.
The most obvious way, and one at which I look personally, is to make the private label packaging as close to the branded product as possible while making sure to prominently display the private label name.
Surely we can agree that store brands offer a significant opportunity to capture top line growth, protect or expand margins and, if sufficiently strong, serve as a negotiating lever with national brands. What if we get a bit more controversial here?
Doing private label is not easy and it necessitates a different type of thinking and doing from the usual processes of retail buying and merchandising. That does not mean you shouldn’t do it, only that you can’t undertake this effort based on a wink and a nod. How will you create awareness and trials, and how long can you do that? How do you communicate the unique value you wish to impart? Does your proposition depend primarily on price and is that defensible and appropriate in the categories of interest? Additionally, while retailers control the physical store shelves — and by extension some leverage with national brands — in a digital world such an advantage may be fleeting.
So to get to the heart of the matter, any strategy about store brands cannot be an afterthought or a bolt-on to existing business strategy. It can’t be another or the latest, margin boosting strategy to be employed. It needs to be in sync with the overall strategy supported by processes from idea to customer consumption and repeat purchase. The fundamental element though must be a genuine trust by the consumer of that store banner and what it stands for. Inferred product quality can be communicated through packaging and ingredients, but if the banner lacks a strong quality attribute in the minds of their customers, the results of any promotional efforts will underwhelm.
For me, the best examples are in places like Trader Joe’s with a near exclusive, and wildly successful, own-branded product strategy and H-E-B’s experiential shopping feast with its own unique approach to “private” label. These two examples represent opposing price points and store sizes, yet each boasts strong fan base that trusts the banner and the quality/value of the products on the shelves. Their success with own (or controlled) store brands is baked into their strategies.
I think all of us in the biz are aware of the best-in-class performers with private label in food stores. Especially that great brand (Trader Joe’s) that is probably 95 percent private label across their assortment. That brand proves that there is a great market for private label in the U.S. And we are far behind the private label adoption across the globe, especially in parts of the EU and Asia. What can other retailers do better? Promote it! (Surprise, surprise). Take a look at the flyers — the best still print in hard copy each week. Take a look at your shelf merchandising and see if it is conducive to side-by-side comparisons with national brands.
Safeway appears to be successful by creating a specific brand of store brand products aimed at smart eating: low salt, low sugar, and healthy ingredients. They have a genetic store brand but creating one that appeals specifically to healthy eating as a separate store brand appears to be a smart move.
Sure, grocers should promote their store brands more — if they are quality products comparable to or better than national brands. Not all are. But, given the widespread acceptance of store brands nowadays, that is enough of a reason to improve quality across all private label products on store shelves.
Store brands are a tremendous opportunity. They are also a tremendous risk.
Many store brands merely offer inexpensive products of nearly the same quality as what brands offer. Customers clearly buy these. But strategically, too much growth of those products hurts stores — because it opens them to attack by competition. There’s nothing inherently differentiating among most store brands.
That means stores need certain of their store brands to shift from discount strategies to product innovation strategies. That’s been happening in home and hardware for several decades and has built brands like Kobalt, Craftsman, and Kenmore. These brands are part of what brings people to those stores. Well, Kobalt does for Lowe’s. The Sears brands used to before Sears undercut them.
Without seeking an innovation strategy somewhere in the private label line, stores are doomed to blandly generic offerings that might be okay financially in the near term, but won’t create long term growth and certainly offer no significant advantage against Amazon.
The potential of private label brands can’t be understated. Shoppers need to have the value propositions front and center to sway them from established (and well advertised) brands. I agree that one of the reasons private label brands are so effective is that retailers don’t have to pour tons of advertising dollars into them. With that said, advertising should be invested in sparingly and strategically. Upgrading signage in-store to show the benefits would be a good place to start.
I believe that mass market brands built on TV advertising are in a long slow decline with e-commerce, Amazon and voice being the main reasons. So this is a great opportunity for retailers to take market share with high quality (and quality does matter) private label brands or for new brands likes “brandless” to emerge. The best private label brands that I see in the market are Amazon basics, Whole Foods 365 and Costco Kirklands which accounts for 25% of company sales.
I read this somewhere else and copied it to evernote – “The crux of the problem for traditional CPG marketing and branding is that the 4Ps of marketing that the marketers were trained in – Product, Price, Promotion, Placement – have been replaced by the 4Es – Experience, Exchange, Evangelism, Everywhere.”
Store brands do represent a way to build additional value around existing customers — but, if the consumer doesn’t understand that the private brand is a product of the parent brand, then the benefit won’t be there — i.e. the “parent” brand isn’t getting the “credit” that they seek.
For example, at some retail brands, many consumers think that certain private label merchandise simply represents brands you couldn’t find anywhere else; they don’t realize that these items are designed, manufactured, imported, and sold by the parent brand through the private-brand division. The upshot: beyond a tangible link to the parent brand, private brands and labels should be marketed like any other product, so that the consumer understands the product benefits when compared to more well-known competitive brands. That being said, sometimes the parent brand must further promote private brand and private label products to communicate that their quality is just as good — if not better for the price — as other well-known brands. Obviously, this requires a well-rounded, robust marketing program!