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
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.
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
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.
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
private label or national brands. If they’re not, shoppers can vote with
their feet, leaving retailers to risk losing an entire basket."
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
Discussion Questions: How should a retailer gauge the correct mix between private labels and national brands? How much should — and how much do — promotional dollars from vendors play into those decisions?