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?