March 26, 2012
Retailers Put a Premium on Store Brand Growth
It’s not new news that retailers are looking to upgrade their private labels. Today, many see the creation of national brand equivalents at a lower price as the starting point for their business. Some are now looking to deliver super premium items at premium level prices.
Quality is the watchword with a whole host of merchants, including Costco, Kroger, Publix, Safeway, Target, Trader Joe’s, Wegmans and Whole Foods, producing private labels that many consumers prefer to national brands.
While many consumers are first attracted to a private label because of price, that is not typically enough to keep them coming back.
In a 2010 RetailWire poll, 84 percent of respondents pointed to product quality as the most important factor for retailers looking to maintain or build on store brand gains made during the Great Recession.
"It starts on price — that’s why people gravitate toward it," Steve Rosenstock, consumer products industry leader for Clarkston Consulting, told The Associated Press. "But what we’ve seen is they develop loyalty to store brands that is commensurate with the loyalty they had with national brands."
Discussion Questions
Discussion Questions: What are the keys to success in the premium and super premium segments of private label? Does the development and marketing of higher quality labels require a different internal approach and skill set than what retailers have traditionally needed for their own brands?
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The key to a premium/super premium private label is a product that is at least at parity to the national brand and at a meaningfully lower price — no different from the other price tiers.
I have seen this trend many times before since the late 1980s when I was personally and professionally involved in upgrading private label to premium private brands. The bottom line is that in order for premium private label to work, the brands must be treated like real brands with the right image, graphics, fanfare, marketing, merchandising, and even advertising, and the brands need to be managed within the domain of marketing, not within buyer circles and small manufacturers that lack the skills and talents to do it right.
The article says it all. Consumers initially purchase private label to save money. They purchase it again based on satisfaction with quality. Retailers need to communicate the quality of their private label offerings through advertising, sampling and packaging, skills that might require new in-house advertising teams. Trader Joe’s has been a master of this. Other retailers are beginning to catch on.
Keys to success in developing premium private label product is to exceed the value proposition than the national brand. Ideally the retailer can innovate in the space and create compelling reason to leave the national brand. It’s not just about price for the consumers.
The skill set for premium private label is different than typical category management. Retailers need someone that can design packaging, focus on manufacturing and build a brand.
The first key to success in the premium segment of private label is imagination, determination and perseverance by the retailer. Thirty years ago, who ever would have thought that Costco, Trader Joe’s, Whole Foods, Wegmans, Kroger, Target, and some others would develop the inventive and high-quality private labels that they do today?
Successful retailers have re-oriented their mindsets and are going deeper into the marketing world … and several are doing it successfully as they have learned that down-and-dirty pricing was not the necessary formula for their future assortments.
One question not asked in this discussion: What does this evolving trend portend for CPG companies?
With the margins being greater than regular brands and the desire for consumers to get super premium product at a discount ala Costco. I think that properly marketed, the potential is great.
Times have changed. Today many retailers have bigger names than the national brands they carry. Successful retailers don’t just put products on the shelves and wait for the CPG companies to promote them. Successful retailers stake their own ground and become the primary focus of their customers. Nobody shops at Trader Joe’s, Wegmans, Whole Foods, et.al. to buy Oreos or Tide. They shop there for entirely different reasons.
Add to that the breakdown of broadcast marketing against the younger demographics and the traditional brands will lose their perceived cachet.
This premium private label opportunity is huge as long as the retailers approach it with quality and value. And, quality comes first. A better product at the same price as national brands is the target for success. Get off the price mentality.
I agree with Steve that PL may have started with price, but over time this has and will continue to change and quality, value, and retail loyalty will play a much larger role. VALUE is very different than lower price. Value says the consumer believes the product is worth at least or mare than what it is selling for. You sometimes see this with closed end stock funds. The stock sells for a premium of the actual value of the underlying assets (holdings). This is usually caused by demand for that closed-end fund. This example is similar to a retailer’s PL brand. If the customer enjoys the flavor, packaging, etc., of the PL item, they put a higher value on the item. Trader Joe’s and Kirkland are the masters of this. Neither of these PL brands put all of the savings back into a lower price. They put it into higher quality products that shoppers will want and appreciate the VALUE for. More importantly, customers will shop a retailer specifically for certain PL brands.
I am a huge believer that the best competitive advantage a retailer has is outstanding PL brands that consumers demand and shop specifically for. If you love Trader Joe’s Granola cereal there is only one place in the world to buy it. Price is a starting point, but if that’s the only point, the retailer is missing the larger opportunity.
The premium segments of private label can be a key point of differentiation for retailers. This is an excellent opportunity to develop unique products, offered exclusively that resonate with target shoppers.
Traditionally, retailers relied on wholly owned or partner companies to create Private Label products — to reach premium level requires new partnerships/new corporate areas to successfully manage these strongly differentiated products. New brand identities for premium are developed for quality products with innovative package design supported by marketing/merchandising programs. Developing these products requires deeper investment for development, and commitment to market as a Brand.
Yes, PL has gotten much better — in some retailers, but not all, and in some categories but not all. And yes the PL stigma has been removed. Wegmans, with a high-end shopper base, has gone so far with PL brands; it sometimes seems hard to find the branded products. But I also agree with Michael Howatt that in many cases, shoppers are determining which products they’re willing to trade down to “good enough” based on what’s important to them individually. For me it might be trash bags, for you laundry detergent, for others sandwich bread or pasta sauce.
A Booz study done at the height of the recession showed that shoppers felt they had to trade down given the economy but if given an economic incentive (i.e. a coupon or TPR) would use that as an excuse to buy the branded product they liked better. Net, net, if the quality of the PL product is high enough to satisfy, or if it’s in a category that is of less importance to the shopper, they’ll stay with PL. But if it was just “good enough” and in a category of higher importance, they’ll go back to their preferred brand when they’re feeling more economically secure, or they’re able to rationalize doing so.
In addition to all the great comments made herein, promotion of the P/L items is also critical. Penetration of these products in the US is far less than in Europe and much of Asia. I remember when I was a store manager in Chicago and the company wanted all stores to display a full endcap of one SKU, P/L chocolate chip cookies. We did that on the most prominent endcap in every store for 13 weeks straight. Guess what happened: That cookie outsold Chips Ahoy by the end of the promo period. Surprise!