Kroger has an edge with private labels
Kroger is a notch above most of its competitors when it comes to own brands. While private label represents about 20 percent of dollar share in all supermarkets, according to Nielsen, the number is 25.2 percent across Kroger’s businesses, excluding fuel and pharmacy.
Kroger has gone after the market on both the low and high ends. According to a Cincinnati Enquirer report, Kroger’s Simple Truth natural line is on its way to annual sales of $1 billion. Recently, the supermarket chain operator rolled out lower-priced private labels to attract cash-strapped shoppers.
Gil Phipps, Kroger’s vice president of corporate brands, told the Enquirer that the Great Recession spurred an expansion of the company’s private label offerings.
While price is important, product quality has ultimately been the reason for Kroger’s success, said Mr. Phipps. "We’re not offering knock-off versions. We want to be a knock-out," he told the Enquirer.
Kroger’s recent acquisitions of Harris Teeter and Vitacost.com should only help the organization further expand its private label. Both Teeter and Vitacost are seen as a natural fit for the Simple Truth brand.
The company currently operates 37 food processing or manufacturing facilities responsible for producing about 40 percent of Kroger’s private label products.
Discussion Questions
What are the keys to Kroger’s success with private labels? Do you expect to see more growth in value or upscale private labels over the next several years?
Raises another question—is this a function of Kroger’s strategy or of who shops at Kroger? Here in Atlanta, the perception is that Publix is more upscale, leaving Kroger in the downscale-midscale range. I’m guessing it’s who shops there that has made their private label business stronger.
There are at least two keys to Kroger’s success with private label brands.
First and foremost, they differentiated “Kroger” as a brand that stands for quality and consumer experience.
Second, Kroger continues to differentiate by choosing quality private-label products over the lowest price. “We want to be a knock-out … [not] knock off.”
In this age when retailers are racing to the bottom to compete on price, it’s great to see a case study where consumers are voting for quality over price.
As Kroger has so effectively done in other areas of operations, they established a long-term objective back in the early ’90s to grow private label. At that time, they had about a dozen private label processing centers.
Recognizing that the consumer had to be in the center of the equation, and that private label could grow if they held a focus on quality, Kroger was able to position all portions of the organization around the strategy. They never let this vital interest be siloed. merchandising, operations, finance, IT, manufacturing and distribution were all in on the strategy.
Dillon, and before him Pickler, knew the numbers and believed in the strategy. McMullen is a similar disciple of helping people remain focused on key strategies, and then effectively executing upon them.
Based in category after category in the Prosper Monthly Consumer Survey, Kroger private label brands continue to grow.
From the beginning of a largely unsuccessful campaign to get the consumer products industry to stop calling private label “Private Label” and to instead use the term “proprietary brands” (credit to Dave Nichols and Loblaws), I have felt that Kroger understood this fundamental difference better than any other major U.S. grocery retailer. This is simply the payoff they earned for understanding that they were now brand marketers—not just distributors of products.
I think that Kroger is leveraging a holistic perspective by not treating their private label as a cast away, but rather an integral part of their marketing strategy. Broadening their portfolio on the outside. With Harris Teeter as an example, they recognize the value of being part of the diverse portfolio of brands on the inside.
Quality and value sum up Kroger’s private labels. With any of the brands, you get consistent quality and in some cases product innovation that you’re not even seeing in leading CPGs. With Simple Truth Organic, Kroger has done an amazing job pricing key items aggressively (e.g., milk, which is consistently at least $1 less expensive than Great Value Organic in my market) which has a halo effect on the rest of the assortment. Also, Kroger also does a great job promoting its private labels through its loyalty program.
They have a good private label mix and it’s priced well in most of the divisions. It also helps that they attract a more price-conscious shopper who is willing to buy and try these items.
Upscale Private Selection has been a confused brand ever since it was at Ralphs in the ’90s, then as a knockoff to the nearly dead Safeway Select brand, on items ranging from soda to paper towels to canned pineapple. I don’t see much success with upscale private label dry and frozen goods and feel those resources would be better spent on exclusive fresh department items, or a Trader Joe’s-like brand that has great unique dry and frozen items at great prices.
Hurrah for Kroger, I guess, but I’m not that sure it’s much different than average, particularly if the 20% number includes independents and small chains whose private label presence is nil (of course that number also includes chains like Aldi and TJ’s, which are 100% PL, so maybe they do deserve an extra round of applause).
Certainly the so-called “Great Recession” may have induced the growth of private label across not just Kroger, but most supermarkets with a strong private label offering.
The differentiation here is balancing the high end and low end so in doing so they impact top line, as well as the margin of private label.
In addition, their increased sophistication implemented in managing service level assists them in delivering the experience level to retain and repeat a higher-end shopper.
Together, a one-two punch.
Just check their year over year comp sales.
For Kroger, it hasn’t been just talk. It has been results.
When extrinsic factors, such as value pricing, are paired with intrinsic motives, such as the instinct to save money during difficult economic times, consumers are more likely to switch brands.
The last decade offered a perfect scenario for private label growth and retailers have recognized the value of quality/premium PL brands as a traffic driver, not just a lower-cost alternative.
I do expect to see growth in premium PL. Consumers will be loyal to the brand and try natural extensions so long as the product delivers on expectations.
One key to Kroger’s success with private label—or really with all their products—is simply being the best at execution. Kroger continues to relentlessly find new ways to run their business more efficiently in terms of supply chain, merchandising and stores.
Product perception, on-shelf and label marketing and of course price. By having two brands of private label, Kroger is doing the right type of target marketing and will greatly increase their house branding presence.