Private label manufacturers believe an emerging retail environment will give a real boost to retailers’ continuing private label efforts. “Deliberate and orderly” SKU rationalization will compel national brands to respond with new products and other investments, according to a report, “Store Brands 2010: Post-Recession Strategies for Private Label,” by the Private Label Manufacturers Association (PLMA). But panel members who contributed to the report say they want to work more closely with retail chains to maintain private label momentum.
“Private label manufacturers are ready to meet the challenge to innovate but are powerless without the full support of the chains,” one panel member says. “Retailers have to operate like brands. Private label has to learn how to become more like traditional pull marketers, driving consumers in to the store, a talent that national brands have long mastered. As well, national brands are themselves coming down hard; in some categories they are coming with lots more money in order to regain share.”
The report notes that soon there may be upwards of 20 percent fewer products on store shelves. It cites several chains reducing SKUs in earnest: “SuperValu's goal is to ‘increase holding power for our best-selling items and add space for owned brands.’ Industry watchers are convinced that Kroger also is in the middle of an aggressive SKU-optimization process. CVS Caremark has jumped into the fray as well.”
In fact, SuperValu says it will reduce the number of items it offers per store, in some cases by as much as 25%, so as to more prominently feature store brand items and extract lower prices from vendors, the report states.
Retailers link the idea of assortment rationalization to the promise of in-store efficiencies and enhanced customer satisfaction. With fewer products on the shelf, merchants can potentially reduce labor costs and have fewer out-of-stocks. At the same time, it lifts retailers' bargaining power with suppliers whose products remain on the shelves.
The report concludes that retail chains are at a crossroads, with an opportunity to differentiate from competitors and raise share with store brand expansion. “Retailers are much more involved now in their private label,” says another panel member. “Just look at the money retailers are spending in keeping the quality of their store brands up: testing, sampling, light product development. I cannot imagine that, after all this investment, retailers will let resurgent national brands walk over them in the post-recession.”
Increasingly, a third panel member noted, major retailers target private label share at about 25 percent across the store – “a new gold standard.” But it won't be easy to attain that level across the board. The panel concedes there will be chains that -- for one reason or the other -- will allow national brands to buy their share back.
