PL Buyer: Private Label Merchandising Support Back In the Spotlight
By Denise Leathers
Through
a special arrangement, what follows is a summary of a current article from Private
Label Buyer, presented here for discussion.
One positive outcome of
the recession: renewed emphasis on private label merchandising that drives
home the all-important value message.
A new Times & Trends report from
Chicago-based Information Resources Inc. (IRI) indicates that, after
falling for several years in the wake of clean-store policies, merchandising
activity is once again on the rise, and declines in grocery displays
are slowing as retailers seek new ways to communicate value to increasingly
price-conscious consumers. In fact, IRI reports, 54 percent of consumer
packaged goods (CPG) categories captured 30 percent to 49 percent of
their sales over the 52-weeks ending March 29 with the help of merchandising
support — a four-point increase over the previous year.
However, the report continues, merchandising
activity around private label products remains lower, on average, than
that in support of national brands. According to IRI, store brand merchandising
trails national brand merchandising in 58 percent of categories the company
tracks across food, drug and mass merchandise outlets.
Why the discrepancy?
Part of the problem lies in retailers’ reluctance to give up trade monies
offered by national brands in exchange for prime shelf and display space.
But according to John Wilkins, vice president of client and retail strategy
for the Atlanta-based strategic design firm Miller Zell, many chains
also lack the merchandising know-how of large national brand manufacturers.
These manufacturers often use sophisticated shopper insights to design
relevant, pointed merchandising programs.
“I also think private label manufacturers
and retailers have really been more focused on improving product quality
and packaging than on merchandising,” he added. “But they’ve done such
a great job … that that’s become the cost of entry. So now, for retailers
to really push private label forward, they’re going to have to pull other
levers. And the one immediately adjacent to quality and packaging is merchandising.”
Jon Hauptman, a partner at Willard Bishop
retail consultancy, says retailers are beginning to see a lot of reasons
beyond just sales and turns to keep private label on the shelf. Store brands
help to strengthen the store’s price image, “which is a key reason shoppers
choose one store over another,” he said.
Putting that realization into practice,
however, has been a bit of a challenge.
“I often see misalignment between strategy
and execution,” explained Craig Espelien, vice president and managing director
for retail brands at Plano, Texas-based Crossmark. “For example, the president
of the company wants to build private label sales, but the category manager
is still being rewarded for bringing in trade dollars rather than growing
store brand sales, so there’s no reason to change their behavior.”
And then
there’s the question of money.
“There’s a belief that ‘We can’t merchandise
private label because there’s no budget for it,’” said Mike Snell, a former
retail exec who is now vice president of sales at Dover, N.J.-based Blanc
Industries. “But there is. … Smart retailers expect and understand that
they need to invest in private label merchandising and build it into the
price.”
Discussion
Questions: Why is in-store merchandising support around private label
products lower on average than national brands at supermarkets? Is
now the right time for grocers to become more aggressive in merchandising
store labels? If so, how should merchandising around private as well
as national brands be rethought?
Well, the article pretty much answers the question of why there is less support for PL than for national brands–because of the financials. That said, there is nothing to keep retailers from “free” merchandising–shelf talkers, PL on an end-cap display next to the national brand, and so forth. Don’t have to cut the price on these products, just push the value message.
Change is in motion. Visit Trader Joe’s, where there are no national brands. Shop Super Target and observe the huge emphasis on Archer Farm and Market Pantry products. Walk through a Kroger store and you’ll be “private labelized.”
Some reasons why national brands still get the lion’s share of displays: 1) NB trade dollars; 2) Lack of belief among retailers that their private label has as much pull and appeal as NB; and 3) retailers still are in the early cycle of sophistication in marketing PL–but it is on the march.
Retailers have been dependent upon manufacturers for in-store merchandising support. And, those manufacturers have become increasingly adept at building their merchandising tool kits to focus on consumer/shopper patterns.
Retailers are learning and building on these concepts; a solid example lies in the front of grocery stores when they point to offerings of locally-grown produce. Other chains make use of their ‘nutritionists’, ‘meat experts’,…’bakery’ to let consumers know of their strengths and value.
The merchandising messaging doesn’t have to be expensive, but it does take a commitment on the part of the retailer to coordinate communication efforts and–they have the best of all venues. It’s at the point of decision; their own stores. Private Label is likely to continue to grow, as retailers add focus to merchandising.
Great topic and in my experience, the problem isn’t isolated to one brand “owner” group (retailers). Brand marketing firms also tend to think that merchandising is the retailer’s job and that it is outside of their pure marketing purview and, since retailers aren’t always willing to step up (they are essentially licensees for the brands and don’t want to write another check to support them), merchandising support falls between the cracks. I find it baffling that the entities that own the brands would wash their hands of in-store execution! Merchandising support has not caught up with the realities of brand brokering and brand ownership.
No great mystery why private label merchandising support lags behind branded support:
Follow the money!
… retailers make lots of profit charging branded manufacturers for merchandising, display space, POP, ads, etc. Branded manufacturers pay a great amount of money to retailers for events and for account development funds all year long.
Traditionally, the USP of private labels has been price which has done well with recession-struck shoppers. However, with economy showing signs of recovery, private labels need to deliver “value” more than just lowest price. Now this brings us back to the dilemma–should we focus on private labels or let the national brands take back the lead. National brands have done their homework too–creating an attractive proposition for customers. Hence, retailers need to really focus on the ‘contribution profit’ of the products in each category. Grow private labels where they think the opportunity lies.
Accordingly, set targets for their category managers. It’s true that retailers do not have deep pockets when it comes to shopper insights. With ever-changing customer dynamics, it’s becoming difficult to piggyback on the national brand insights since the customers for both–national and private labels–vary significantly now more so with signs of economic recovery. Perhaps adopting smaller analytics projects on select lines could help them to get much needed insights, rather quickly.
I have toured dozens of stores around the country and I am seeing an increase in Private Label merchandising.
One example of this is the Publix approach to driving trial through head-on National Brand comparisons. “Buy the National Brand and we will give you our Brand of the same product for free to try at home.” Publix can only run this approach a few times each year since they are fully funding the program and it is very expensive. Another example is HEB’s Combo Loco program that they have been running for years. It ties together several brands, both National and PL. I am not on the inside at this retailer, but the approach seems to have some merit since it does not try and directly have PL brands compete head-on with National Brands. I can only assume National Brands are helping support these programs.
Craig Espelien brought up a great point that needs to be seriously considered. In a recent meeting at a large retailer, I did run into the issue of misalignment between the retailer’s objectives and how merchandising was rewarded. The executive team at this retailer needs to explain the role of PL and make a shift in how buyers are rewarded to better align with the retailer’s long-term objectives, if they are truly interested in growing PL.
It will be interesting to see how this shakes out in 2010. Private Label is here to stay and we can only assume retailers will want to continue its growth. Retailers will need to explore creative ways to drive this growth with merchandising and advertising support. How they fund this activity and still keep prices competitive and quality high will be the challenge. Willard Bishop hosted a webinar panel that included both retailers and National CPGs to discuss the challenges related to Private Label. You should be able to request the white paper from their web site.
The answer is simple. A majority of retailers don’t have a real strategy for Private Label. The strategy should include marketing and merchandising plans, in addition to a pricing plan. It takes all of their effort just to get the package on the shelf. Determining formulation, designing the package, negotiating with vendors and preparing the plan-o-gram are all that get accomplished. By then, it is time to move onto the next item.
Retailers who put their bottle next to the brand name are missing the boat when it comes to private label. PL has evolved so much in the last 5 years that we are actually seeing a separation from brand names, and house brands are dominating certain categories.
Loblaws is a great example of a deep and thorough private label program. Most of their President’s Choice line has no name brand equivalent and the merchandise support is exceptional. You always see more facings of PC brands then you do of the name brands.
Dollarama has also put forth an initiative to brand some of the merchandise under their own label.
Merchants and retailers know the margin opportunities are excellent but the caveat is that there has to be a strong program behind it. Walmart is revamping their Great Value line but in my opinion, the line looks even more generic than past attempts. Plain packaging and no alternative to price out could be another recipe for disaster for Great Value. If you want in on private label, you need a top notch assortment whose label conveys an image of quality. The era of a no name ketchup sitting beside Heinz is essentially over for private label.
I think the article covers the primary reasons merchandising for private label brands falls short against the barometer of national brands. One reference to the lack of shopper insights among retailers struck me as odd.
Retailers are responsible for providing an overall satisfying experience for shoppers. They have guidelines for the flow of products, the width of aisles, lighting, etc. However, it appears that they have not taken this knowledge to heart in the promotion of their private label brands.
I don’t think they lack the knowledge. I think the retailers are hesitant for some of the reasons stated in the article.
Shopper insights research (which my firm conducts) focuses on how consumers interpret their experience. The research uncovers their behavior (tracking their eye movements as they shop) and aligns their behavior and attitudes in order to increase the opportunity for client brands, while enhancing the shopping experience for consumers. I’m frequently surprised at how straightforward and uncomplicated some of these outcomes can be.
Shoppers’ expectations are not that high, so what retailers and marketers do for them is greatly appreciated and very much integrated into their purchase decision behavior. There is a wonderful opportunity for all brands, including private label, to see merchandising, i.e. signage and point of purchase displays, as a cornucopia of what delights the shopper and increases sales.
It’s a matter of examining the behavior of consumers and how they interact with what is in the store. But most importantly it will be connecting the dots between behavior, attitude, and outcomes that set the foundation for future successes. Private label can make this happen for their own brands as well as their national brand colleagues.
I’ve spent a large part of my career examining private brands and the conditions that prevent growth. There are several reasons why we do not see the European marketshare of close to 50% in the US. 1. The US grew up with brands, not store-created labels. Very different from Europe; in fact, they had the opposite conditions. 2. Money; the essence of private brands is to eliminate activities that inflate the final cost. Marketing and merchandising services are typically removed from the promotion of private brands. 3. Branded manufacturers are devoting millions of dollars to advertisement, preferred placement, product innovations and brand recognition; something most private brands do not have at their disposal. 4. Duplication and clutter on the shelf. Consumers do not want duplication, they want differentiation. As long as private brands represent a knock-off only, they will not achieve the consumer attention that the brands receive. Those retailers who develop innovative products that are “sold only at” are realizing impressive gains. 5. Pricing; retailers do not price private brands correctly. Pricing private brands, especially when there are good, better, best qualities, is a science. These items should not be priced at some arbitrary gap from the leading products and then percents different between the qualities. Use price optimization, understand what the consumer wants to pay and use that as the price. Actual price savings will differ between categories and across the store.
There are specific solutions retailers can use to address each of these areas. When a retailer focuses as much as the brands on the promotion, innovation, and marketing of private brands, retailers will see dramatic improvements.
National brands aren’t as important as private label at Safeway. There is no doubt that the West’s most innovative ‘middle market’ grocer has taken the lead with this issue; to the point that they are actually selling their private label goods to other grocers! And why not? Their PL goods are high on quality, packaged and merchandised well, and stand out on the shelves for their desirability and timeliness. In other words, they’re at least just as good and mostly better than national brands.
Besides, like several industries before, regardless of how much pay-ola crosses the desk, the fact that you can control so much and for a higher margin will win out in the end.
Executives at Walgreens, CVS, and Rite-Aid should fly to Toronto and spend 15 minutes in a Shoppers Drug Mart store to see what a well executed PL program looks like. Their line of cosmetics, called QUO, is especially impressive. Shoppers Drug Mart has been raising the bar for over 20 years, just as Loblaws has paved the way for nearly 30 years in the supermarket category.
Anyone interested in PL should read the book “The Edible Man.” It profiles Dave Nichols, former President of Loblaws, who was the face of Loblaw’s President’s Choice line and helped that brand take flight in the 1980s.
There are signs of change at retail, indicating they want to put their private brands in play. We are starting to see Great Value from Walmart, in its new white packaging, with its own TV advertising spots. Target is moving to new packaging, value tiers, and categories with its private brands–ads and promotions are more prominent. Loblaws advertises its private brands in most of its commercials–continuing to drive presence and growth from the foundation for President’s Choice–good reference in previous email. Safeway as well.
Successful private-label programs require more than prominent placement and lower prices to drive growth. More retailers are moving into creating brand status with more support, but there’s much work to be done here.
Moving consumers out of branded products into private label involves changing a consumer mind set. We typically are saturated with advertising for the primary CPG brands and are programmed to look at them first. Traditionally they occupy the best merchandising position too.
With the economic downturn, consumers are now weighing purchasing decisions and price has become a much more important factor. Consumers are seeking alternative brands that offer value at a reasonable price. The appearance and the quality of private label packaging has dramatically improved. No longer is it considered second tier merchandise.
It’s not a trend either – private label is here to stay. Retailers must take a more aggressive approach to giving them better positioning to raise awareness of their brands. Premium position or comparison position are good methods for emphasizing the value of the brands. Once a customer is satisfied with private label, then they never go back without serious inducement.
It occurs to me that store managers/owners/operators bear more responsibility for PL merchandising than the category managers because they have more power to implement it (and sometimes plan it). My background includes long stints with Fleming, SuperValu, and 7-Eleven (i.e., lots of independent operators); and similarly long stints with Kroger, Safeway, Ahold, and Raley’s (i.e., lots of chain direction). In my experience, the independent operators did a much better job of clever and innovative PL merchandising. With a minimum of direction and some generous incentives, they were off to the races and enjoyed exceptional success. Empowering and incentivizing chain store managers would have a similar effect. Have a PL sales contest!
There remains a major disconnect with most retailers’ private brands: they want customers to believe in them, but the retailers themselves don’t seem to show the commitment internally.
Most private label products are priced as a percentage off the competing national brand. This “follow” strategy keeps retailers from seeing their products as stand-alone offers that have value of their own. In addition, more and more we’re seeing pricing that undercuts the national brand by more than 20%. At that point there’s a diminishing return in that the cheaper the price, the less likely the shopper is to see the product as a quality alternative.
Better to maintain a pricing strategy based on the value of the product, based on its position in the category. Use the incremental margin to drive marketing to shoppers, building on the trust shoppers have in the retailer–and that the national brands can’t claim.
The shelf edge is the right place to do this; not with generic shelf talkers, but with relevant communication that informs the shopper and plays to the strength of the product.
In short, retailers need to take a page from the book of the major CPGs, and think of their store brands as viable offerings with a unique value proposition. This doesn’t take more money, only commitment and focus.
Most people who have responded feel that it is the money that is driving the retailers’ decision not to better support Private Label. Either they don’t have the funds, or they don’t want to give up the funds that they are able to charge the national brands. While this may be true, I believe it is only a part of the story.
the other factor is that most retailers do not understand brand strategy, or if they do understand it, they don’t do anything about it. If the corporate executives truly understood that each product, each package that had the retailer brand on it, and makes it home to the consumer’s pantry or refrigerator, is an opportunity to reinforce the retailer brand, they would do more to make sure that the brand ended up in the consumer’s shopping cart. Trader Joe’s gets it. Radio Shack gets it. Staples gets it. But most retailers still believe that customers purchase their product based on price, and therefore the retailer treats it as a “cheap” alternative to the brand. Only when they realize that it is a brand in its own right, and therefore needs to be treated this way, will we see merchandising efforts increase.