Source: Kroger.com
Are grocers under-marketing their store brands?
While grocers have earned credit for upgrading the quality and branding of their private labels, a new study finds store brands receive little marketing support.
Among the findings from a survey of 117 U.S. grocers taken in the fourth quarter from Incisiv and Wynshop’s Grocery Doppio platform in partnership with FMI:
- Ninety-seven percent are currently using marketing emails for national brands versus only 32 percent for private brands;
- Ninety-five percent are using banner advertisements on internal channels for national brands compared to only 16 percent for store brands;
- Ninety-one percent are using internal web or app search results for national brands versus 41 percent for store brands;
- Fifty-seven percent use in-store promotion screens for national brands versus only two percent for store brands.
Private label pushes may face conflicts with national brand partners. The study stated, “Grocers are in the difficult position of building their private brands to compete with the national brands while continuing to foster a mutually beneficial relationship with their trade partners.”
Eighty-three percent of grocers surveyed also felt they needed more dedicated marketing resources to realize private brand successfully. The top private brand challenges cited included limited in-house resources, inadequate budgets, lack of IT resources and skills, and lack of relevant content to personalize.
The study comes as reports indicate shoppers are trading down to store brands amid inflationary pressures.
FMI’s second installment of its “Power of Private Brands” study, which came out last September, found more than 80 percent of food retailers and manufacturers expect to increase investments in private brands over the next two years. Based on retailers’ stated goals, the average dollar share of private brands is expected to jump from 18.2 percent to 22.6 percent within two years.
Online, private label growth drivers cited in FMI’s study included prioritizing store brands in search results, upgrading product images, tagging attributes such as health and sustainability in search, and cross-selling/upselling in search. At the store level, potential private brand growth’s drivers included endcaps and eye-level displays, cross-merchandising, better signage and sampling.
- State of Digital Grocery Marketing: Unlocking Private Brand Growth – Grocery Doppio
- FMI’s new research finds more than 80% of food retailers and manufacturers expect to increase investment in private brands over the next two years. – FMI
- FMI study: Private brands not just about price – Supermarket News
- Private-label brands are becoming an increasingly big deal – Winsight Grocery
- Walmart sees higher demand for private label products in the fourth quarter – ModernRetail
- Private label, promotions drive Q4 grocery sales at Loblaw – Supermarket News
- Analysis | Inflation May Soon Peak in the Grocery Aisle – The Washington Post
- Going Private: How to Succeed in Store-Brand Sector – Progressive Grocer
BrainTrust
Ananda Chakravarty
Vice President, Research at IDC
Lucille DeHart
Principal, MKT Marketing Services/Columbus Consulting
Gene Detroyer
Professor, International Business, Guizhou University of Finance & Economics and University of Sanya, China.
Discussion Questions
DISCUSSION QUESTIONS: Are conflicts with national brands hampering grocers’ efforts to market private labels? Where are food retailers missing opportunities to drive private brand growth?
Private label brands are designed to compete with national brands. Their main attribute is lower price, not so much the brand. Localization branding helps, but is secondary. If retailers were seeking to completely replace the national brands, Aldi or Lidl would be good places to look for examples. If private brand growth is the objective, then retailers need to treat their private brands as they would the national brands – placing them front and center with the customer and decreasing facings, endcaps, and marketing (including trade dollars) of national brands.
If the retailer pulls back on support for national brands, it costs the retailer money. The promotional funds that national brands pay is often the difference between profit and loss for a retailer.
Gene,
Yes those marketing funds are pretty nice, but if those major brands are passing along cost increase after cost increase, you better believe I am going to use private label as leverage to counter multiple cost increases — especially if I can grow my private label sales in that category. The sword cuts both ways.
True. But do it carefully. Trade dollars from national brands far surpass a retailer’s profit on that all-important bottom line.
Good for you, looking out for your customers over the long haul, but also in seeing your own ability to manage a healthy operation regardless of what promotional money is available. You can operate with freedom in this.
Retailers receive funding for promoting national brands, they do not for promoting their own brands, they rely on consumers trusting the brand over their door and picking up the retailer’s brand as an alternative to the national brand based on price and value for money. Very often the amount of space devoted to the various brands will help drive the sales response they want. In the UK there is now differentiation across retailer brands: basic or value. Standard and best quality own-brands are creating real competition for the national brands.
This is the time to push private label brands. With a shaky economic outlook there is a window of opportunity to cement your brand in the minds of consumers. Private label is higher margin product and the quality in most cases is comparable. There is certainly conflict with things like slotting allowances, marketing, and promo dollars. When there are marketing dollars available from vendors, it’s almost a given to push their brands. Private label needs a champion within each organization who fights the fight for plan-o-gram space—and attention to marketing needs. By the way, who is manufacturing the grocer’s private label SKUs? Are there co-op dollars there, too?
One more thing. (I sound like Columbo.) The SEO and social suggestions in the article are valid, but grocers will need to be sophisticated about this. Not too many shoppers are searching for “sales on local store’s private label beans.”
The big dollars are with the large CPG national brands where many of the top manufacturers spend anywhere from 6 percent to 8 percent of top-line revenue on promotional campaigns for their brands. That’s a lot of coin for retailers and therein lies the tough balancing act retailers have to make between promoting their own brands and those of the large CPGs. Costco has done an amazing job of balancing this and driving significant brand awareness and revenue for their Kirkland brands.
National brands are the cost of entry for grocers. The marketing effort should be around the customer experience, service and unique benefits of the brand. Too few supermarkets position themselves differently. Contrast this to a Trader Joe’s or a Whole Foods, both of whom conjure up images of experiences.
There are two ways to increase private label sales. One, make a better product. The other, eliminate the national brands. Trader Joe’s and Whole Foods chose the latter.
Yes to these. And not unlike some really good independent stores around the country who offer an electric combination of true own products with value (better quality OR lower cost but still better) wrapped in experiences not offered at typical grocery chain stores.
Of course private brand growth benefited at the store level from endcaps and eye-level displays, cross-merchandising, better signage, and sampling. The problem is that every endcap reserved for private labels is an endcap the retailer cannot “sell” to a national brand.
There are two ways the retailer can increase private labels: They can make a better product, or they can discontinue the competing national brand.
National brands pull in consumers to traditional grocers. Private labels provide a lower price and, properly marketed, a higher value option that relies on the trust the grocer has created with their customers. Traditional grocers must navigate their reliance on CPG co-op dollars with the desire for higher private label margins. Focusing on their customers regarding needs, tastes, and desired value should guide their strategy and mix. Unlike traditional grocers, Trader Joe’s is a private-label oasis that leverages its brand to attract consumers while delivering consistently higher value and service.
The most powerful tools I see are shelf placement and comparative pricing. I used to be on automatic pilot with some national brands. But when the private label option is a foot away and the $$$/ounce pricing is staring me in the face, it began to feel silly to not at least try the store brand. I now buy store brand protein bars. Taste and texture are indistinguishable from the national brand, at literally half the price.
I prefer to use the term “own label.” Own label provides retailers a way to positively differentiate their stores. At the outset, retailers viewed price as the sole difference between national and private label brands. The good retailers like Wegmans, H-E-B, etc. realized that own label offerings would give customers permission to bypass their closest market and shop in their stores. I remind retailers to “think like a brand and act like a retailer.” Own labels provides a strategic component of the equation and should be marketed and merchandised accordingly.
It’s definitely a tightrope act for retailers to put emphasis on their own brand while also relying on national brands for promotional support. But it’s an act worth focusing on.
As the statistics suggest, more than eight in 10 grocers felt they needed more dedicated marketing resources to realize private brand successfully. This is largely because consumers are demanding value, have come to trust the private brand offerings, and now shop retailer-exclusive offerings just like they are national brands.
There are three imperatives that I see: 1.) Private label (own brand) must be marketed by the retailer; 2.) Innovation in packaging and product differentiation must be a focus; and 3.) Consistency and value have become table stakes.
Grocers have always talked to me about two realities regarding this subject. One – national brand co-marketing and display plans and the dollars they bring in are critical to their stores’ top and bottom-line performance. Two – private label investments are being made in ingredients and labeling to drive revenues without spending big on advertising, sales promotion, and displays.
Yes, George. The biggest reality is difficult to ignore. National brand co-marketing and display plans and the dollars they bring in are critical to their stores’ top and bottom-line performance.
There is no place for the retailer to get the resources needed to support private label.
Private label brands that occupy consumer minds should be on the minds of store managers … always. It is a margin play. These items must be well merchandised in the store … always. They are the differentiating factor between stores. Big labels will always have sway with high dollar advertising campaigns.
I guess you need to consider “store brand” in two broad categories. There’s the (formerly yellow) low price store brand, that only needs to be on the shelf as a comparative product with a price advantage. Customers buy it because it’s cheap, and maybe the type of product isn’t differentiated (I mean it’s granulated sugar … who cares what the label says?). That gets a retailer so far in the overall scheme of things. Then there’s Private Label, which, as others have noted, is a real brand, that needs the same care and feeding and investment as any other National Brand. The Private Label requires the retailer to be a CPG company with all the requirements that come along with brand marketing. Retailers look at CPG and figure they can do that too, and (some) CPG companies look at retailers and figure they could do that better than their retail customer. Reality is, neither is that simple.
Grocers would do well to decide to either make, promote and tell stories about their own food brands as tasting better/better for you, or rip a page out of Trader Joe’s book, promoting the value for what the customer gets for their money (interesting flavors and combinations at a relative lower cost). If committed, the results will yield not just the potential of increased sales, but in higher gross profit $, while earning a higher level of loyalty and marketplace differentiation.
In an inflationary environment such as the one we are currently living through, Private Brands provide an opportunity for consumer savings on what is essentially an exclusive product for the retailer. Every report we have seen on the surprising strength of US Retail Sales, along with the commentary from retailers on the consumer focus on basics rather than discretionary purchases, suggests that now is the perfect time to lean in on promoting private brand products.
Done right, either online or in-store, the retailer can provide the consumer with a choice on PL vs. national brand items. There shouldn’t need to be a “conflict” … just a promotion of choice for the consumer.