What’s holding back innovation in grocery private label?
Through a special arrangement, presented here for discussion is a summary of a current article from Frozen & Refrigerated Buyer magazine.
Although it should be a great place to make small bets, "Private label has historically had a high aversion to risk. And innovation requires risk," says Bob Shaw, president and CEO of Concentric Marketing.
Although he thinks today’s retailers are innovating more, "There’s still a long way to go."
In fact, retailers have passed on some potential blockbusters simply because there was no national brand equivalent at the time. But look at the success of chains like Trader Joe’s that are creating "wow moments" with private label all over the store rather than just rolling out me-too versions of national brands, says Mr. Shaw. If that’s a little too much innovation, he suggests easing into new items.
"Even if you aren’t going to add longer-tail products, you can certainly build a better mousetrap through superior packaging, unique sizes or better-for-you varieties," explains Mr. Shaw.
"I also think there are opportunities to ‘test’ in-and-out items much more than retailers have done," he continues. "That includes unique seasonal items and additional flavors. The upside is great — and the downside is a relatively small bet."
Yes, there is a lot of turnover in the private label ranks and job security is a major concern, "But retailers shouldn’t be afraid to try new things," adds industry consultant Craig Espelien. Unfortunately, says Mr. Espelien, the innovation vacuum extends beyond product assortment.
"There’s no creativity in how we merchandise, how we grow sales, how we position our products. Instead of constantly pushing our products, we’ve kind of gone back to, ‘Here are our price gaps, buy what you want.’"
Moreover, while everyone loves private label margins, they also play a critical role in shaping a retailer’s brand image. Explains Mr. Shaw, "Whether you want to own foodies, the last-minute shopper, Millennials, budget-conscious consumers, the fresh-focused segment or whoever, there should be some strategy and intentionality around your private label mix."
The problem, adds Mr. Espelien, is that retailers are no longer focused on brand building and other long-term goals. Instead, buyers are rewarded for filling certain buckets today (think slotting fees) instead of taking risks that require them to sell in order to fill those buckets.
Mr. Espelien adds, "Private label executives are looking more at ‘How do I buy?’ rather than ‘How do I sell?’ and that’s a real negative for the industry."
What is holding back innovation in private label in the grocery space? Are food retailers looking at private label assortments as margin enhancers versus brands builders and, if so, is that wrong?
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7 Comments on "What’s holding back innovation in grocery private label?"
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I’m not sure private label issues are related to a lack of innovation. And pointing to Trader Joe’s as an example of the success of PL is never a good idea, their whole store is mostly private label and all at a pretty good price — that’s the attraction. The assumption: “build a great private label and they will come” has no basis in data or our experience.
I feel like private label is actually more innovative today than 20 years ago. You see a lot more variation of store brands and positioning. And I agree that it does seem like a ripe area for lots of testing to lower the risk of innovation.
That aside, I imagine a lot of the risk aversion comes from the history and economics of the traditional private label business, where price was the only differentiator and all possible costs were eliminated (or not there to begin with). It is hard to change and remnants of that world still exist, folks like Trader Joe’s aside.
Yes. It’s time to look at private labels for their ability to build the store brand — to give consumers unique reasons to come to YOUR store.
Unfortunately, as Zyman has observed, in the absence of reasons to buy, consumers will always fall back on price. And that encourages merchants and buyers and store executives to also fall back on price — because it gives the appearance of strength.
Except price is a purely short-term advantage in most cases. It’s not quite as short term in grocery but still misses the opportunity to build more stable reasons for consumers to shop your store.
I agree with Dr. Needel; Trader Joe’s is not a good example in regard to private label sales.
By definition, a private label is not a brand builder, it’s a margin enhancer. Additionally, we are just exiting an economic downturn that saw a growth of private label brands due to the consumer’s desire to save money. The focus by private labels should be on maintaining the quality and value of the product. Private label consumers are not looking for innovation in the same manner they look for it on branded products, but they will be more open to additional presentations, and innovations, when the branded products introduce them.
There is no direct and immediate ROI in the pursuit of innovation. Innovation is driven by marketing and marketing is a step child to merchandising in today’s retail organizations.
Case movement, promotion, and global category management are concepts which can be properly managed across far flung locations because these activities can be measured. Innovation is risky, expensive and difficult to manage because it is difficult to measure, especially when it comes to products. The percentage of failed product launches every year is staggering.
Let us not forget, most retailers are in the business of satisfying demand. It is much safer to let someone else create a demand, while they concentrate on being the lowest priced provider of the items consumers demand.
Innovation comes from organizations who are NOT caught up in the struggle to compete on price.
Innovation requires risk and proper problem identification. Neither of these are items which today’s grocers embrace. Their business model does not complement the creation of private label in any form.
For innovation to be unleashed in the store brand world requires partnerships with manufacturers. The producer develops product to that fit the retailers needs while the retailer assures the support required to provide a reasonable ROI for both the supplier and themselves. Partnership in the store brand world is nearly nonexistent as retailers focus on price only, leaving the supplier with limited margins and with no ability to fund the resources required for innovation.
Trader Joe’s is an exception. When they seek an innovative item, suppliers are assured the full backing of Trader Joe’s to drive volume and thus a reasonable ROI.
This is really all about the shape of the relationship. With mutually beneficial thoughts comes benefit for both parties.