PL Buyer: Walking the Private Label-National Brands Tight Rope
Through a special arrangement, what follows is a summary of a current article from Private Label Buyer, presented here for discussion.
"Step with care and great tact. And remember that life's
a great balancing act."
- Dr. Seuss
More traditional supermarket operators are beginning to realize that their private labels (PL) provide them with marketing points of distinction in today's cluttered food retail landscape. So they're introducing new lines and moving up and down the value chain with more premium private label, lower-priced lines and more niche offerings such as organics.
Will it reach a saturation point when it comes to private label? The knee-jerk reaction from private label advocates is to say no, pointing to European penetration rates in the 30-50 percent range or higher, far above where most U.S. retailers stand today. The average private label penetration rate for PL Buyer's Top 30 list of North American retailers of all kinds was 23 percent in 2009.
Another easy answer is to point to the success of Whole Foods, Trader Joe's or Save-A-Lot , retailers where private label predominates, as proof that there's a long way to go before most food sellers reach the private label saturation point.
But such quick answers miss the complexity of the topic and could lead retailers to make private label choices that eventually come with high costs -- lost customers, lost national brand promotional dollars or both.
"They're walking a tightrope because they know they need to promote private label, but at the same time they get a lot of funding to promote national brands," said Carl Munyon, a former vice president of purchasing with Aldi and a member of the PL Buyer editorial advisory board.
Some experts contend that the more aggressive a chain gets with private label, the more likely national brands will be to offer more rather than fewer promotional bucks to keep their products moving at that retailer.
"A lot of the promotional dollars that are out there are being brought on by the threat of private label," said Martin Meloche, associate professor of food marketing at St. Joseph's University, Philadelphia.
If worries about promotional dollars don't figure into the discussion of how much private label to sell, then what should?
"It's easy to forget about the most important part of this equation -- the customer," said Natalie Berg, research director with PlanetRetail. "The most important thing for the retailer is balancing the assortment to make sure that they're offering the right products for their shoppers, whether that's private label or national brands. If they're not, shoppers can vote with their feet, leaving retailers to risk losing an entire basket."
Indeed, Kusum Ailawadi, a marketing professor at Dartmouth, said her own research shows that when private label is more than 35-40 percent of a shopping trip, retailers began attracting more cherry pickers who go wherever they find the lowest price rather than remaining loyal to a specific retailer.
If retailers "start pushing private label too much, they're headed into direct competition with Trader Joe's and Aldi, you can't get there," said Prof. Ailawadi. Retailers "need to start with the customer."