Special Report: Beyond National Brand Equivalent

June 6, 2008
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Retailers are capitalizing on their carefully built brand equity and customer loyalty to make their private label offerings the first choice for consumers.




Retailers are capitalizing on their carefully built brand equity and customer loyalty to make their private label offerings the first choice for consumers. New premium, organic and natural product rollouts; more sophisticated and aggressive marketing; and in many cases, simply better products mean the days of store brands trailing behind their national brand counterpart are all but over.

Nowadays, retailers that ask: “What does our consumer expect from us?” are finding, more often than not, that the answer is not just “good value/low price.”

“If the consumer’s perception of a retailer’s NBE offering is low price, not much innovation is going to occur there, which is fine,” says Ken Ludeke, principal of Johnson & Lou’s, Naperville, Ill. “But this approach is a race to the middle, since your opportunity is tied to your competition.

“For more and more retailers, the answer is that the consumer expects quality, perceived luxury, best of category or innovation,” he continues. “Now the retailer has an opportunity to leverage their name equity to launch new products or whole categories to loyal consumers who trust the retailer to deliver on those promises.”

Vincent Fantegrossi, CEO of Richelieu Foods, Randolph, Mass., agrees.

“Certainly there are plenty of retailers who abide by the traditional NBE formula, meaning the goal is to simply offer the same product at 15 percent to 20 percent less than the national brand,” he says. “That’s a fine strategy for retailers who are market leaders and looking to simply offer a value brand to their customer. But an increasing [number] of retailers are seeing great success by distinguishing themselves through their private label lines, primarily by bringing higher-end offerings to their customer.”

Retailers embracing a “beyond-NBE” approach see this as a way to compete within their marketplace.

“They’ve already trained the consumer that their product is NBE or better. With a solid customer base, retailers are gaining premium dollars within their categories by trading their consumers up to the beyond-NBE products,” explains Curt Edmonson, director of sales for Amish Naturals in Fortville, Ind.

So as the orthodox NBE price strategy becomes less relevant for many retailers, what’s the next step in private label? The answer lies in the new “ultra,” “upscale” and “high-end” premium-tier lines retailers are developing to stand out from the crowd, augmented with specialty items and in-demand organics.

“In California, we see innovative retailers of varying size, like Safeway, Raley’s and Nugget Markets, offering food product lines more at home in a Williams-Sonoma than in a grocery store,” says Tim Sullivan, director of sales and marketing for Mad Will’s Food Company, Auburn, Calif. “Savvy food consumers know quality ingredients and are willing to pay for them. We’ve already seen it in grocery in recent years with artisan-style breads, single-origin dark chocolate, exotic coffee, varietal wines, fine cheeses, estate-grown olive oil and aged balsamic vinegar.”

Retailers also are deviating from national brands in categories where price doesn’t necessarily play a factor, and customers have demonstrated they’re willing to pay for premium products. In the pizza category, for example, retailers are using proprietary recipes and going upscale in toppings with fancier cuts of meat, Alfredo sauces and high-end cheeses, Fantegrossi explains. Amish Naturals offers a variety of pasta products, but the main difference from their national brand competitors lies in the upscale approach: Amish Naturals offers gourmet sheeted pastas versus extruded, unique flavoring options that use premium ingredients, and the flexibility to produce organic or all-natural pastas on demand.

Not to be outdone, Cuisine Solutions in Alexandria, Va., uses proprietary technology, recipes and the sous-vide cooking method to create its line of high-end fully-cooked home meals.

“Three years ago, we had one or two retail clients using three to four of our gourmet products in their line,” says Lillian Liu, the company’s retail marketing manager. “Now we’re re-launching lines with 10 to 14 products. Retailers are asking for items with long cooking items like pork and beef shank, osso buco or seafood entrees with upper-end sauces.”

The niche market of “foodies” is growing, Liu says, and it’s an opportunity for retailers to appeal to that niche and earn their loyalty with high-quality gourmet offerings in the home-meal replacement category. The company recently partnered with gourmet celebrity chefs, including Charlie Trotter, Daniel Boulud and Thomas Keller, to launch new products in its Five Leaf line. 

But are customers still buying premium lines in the current economy, even as families downsize their budgets and look for ways to stretch their dollars?

“Absolutely,” Sullivan says. “In a down economy when consumers are not eating out as much and trading down to save money, some are still looking for the occasional restaurant-quality experience at home. These products offer a solution for those of us who want to be a Food Network chef.”

The payoff for retailers who can provide a luxurious home-dining experience is significant, and a key factor in building brand loyalty and identity with the growing group of “food adventurous” customers.

“Retailers understand these upscale SKUs won’t match NBE, but they understand the products enhance the chain’s lifestyle image, contribute to experiential shopping and appeal to a very profitable consumer group, Sullivan says. “These products become another way to siphon more business from restaurants and keep customers coming back to the retailer.”

Great-tasting products with better-quality ingredients are must-have trademarks for a successful ultra-premium private label line, but so is distinctive packaging. In other words, “flavor rules and packaging sells,” Sullivan says. He points out that the right packaging is a must for retailers marketing a premium line. Glass instead of plastic containers, custom capsules instead of standard neck bands, non-rectangular shaped labels and distinctive colors a retailer can “own” are key components of distinctive packaging that appeals to specialty food consumers.


The Sustainability Factor

And the sustainability factor also plays a role.

“There was a time when shelf presence was the primary driver in packaging,” Fantegrossi says. “Today, shelf presence is viewed with an eye toward sustainability; there has to be a balance. You’re marketing to a green customer.”

Speaking of “green,” it presents another opportunity for retailers to differentiate themselves and go beyond the national brands - with their own lines of organic, natural and other more eco-friendly products. Although deviating too far from the national brand traditionally has been viewed as risky business, in today’s climate - when “different” means healthier or better for you - it’s generally a safe bet.

And Minneapolis-based Nash Finch Co., owners of the Our Family brand, is putting the final touches on a new premium organic and natural line to be rolled out later this year.

“We’re doing it differently than some of the lines that are out there already,” says John Paul, vice-president of sales and marketing. “We think it will help us avoid some of the pitfalls the CPGs have had to contend with. The line has several points of differentiation, which ultimately is good for the customer.”

When organic and high-end are, for the most part, perceived as synonymous in the eyes of the consumer, it’s natural for retailers to want to rush a premium organic line to their shelves. But manufacturers stress that most of them are too smart to hurry the process.

“Retailers are asking for guidance,” Paul says. “They see what’s happening with organics, naturals and premiums and are looking to private label for help in understanding the dynamics in a broader sense.”

Careful category management means retailers are savvy enough to know that simply having more premium products on the shelves isn’t the answer. The right mix of correctly sized products is key, even if a retailer down-SKUs on some items to make room for organic products.

“It’s not just about slapping a big green organic logo on the front of a box,” Paul says. “Do customers want organics? Yes. Do they want it in all categories? No. Do they want value-added organics that taste good? Yes. It has to be a balanced approach to work successfully for a retailer.”

Manufacturers in other categories see “going green” as a positive way to differentiate. For example, Webster Industries, Peabody, Mass., is currently the only supplier to offer trash bags and liners certified by Scientific Certification Systems (SCS), a company that certifies environmental claims on manufactured goods and materials. The certification allows Webster to use the familiar SCS “Green Cross” on its packaging.

“We went to the trouble of getting the third-party certification because it’s the retailer’s name and reputation on the package, and if you’re going to make ‘green claims’ today, they had better be accurate and truthful,” explains Jack Shields, Webster Industries’ president. “The goodwill that retailers have built with their customers extends into their private labels. An extra step like this certification is an example of what national brands don’t necessarily do.”

Can retailers afford to ignore the call to go green altogether?

“For a short period of time, maybe, but that window is closing,” Shields says. “There is a core section of consumers who want to buy green because it’s the right thing to do, but will buy the alternative if the green product isn’t there.

“The other group, the ‘hard core,’ will turn around and get those products from another retailer if they have to, and the hard core is growing,” he adds. “They’ll wield convincing buying power to force retailers to carry green lines. It’s not a fad like in the 80s; it’s here to stay.”


Innovation-minded

Retailers expect that kind of “extra-mile” from their private label manufacturers, as well as the innovation that once lived almost exclusively in the realm of the national brands, explains Steve Pankow, executive vice president sales and marketing of Associated Hygienic Products, Duluth, Ga.
 
“The days of corporate brands that simply try to succeed with a copycat strategy are behind us,” he says. “Because of restrictive IP, blurred brand loyalty and other limitations, it’s more about meeting or beating function, while developing your own proprietary solutions.”

In the diaper category, Associated Hygienic Products has developed its own better-performing materials, including the patented Accordion-Stretch material, a feature no national brand can copy.

Shields agrees that private label manufacturers no longer can wait for the brand to innovate before following suit.

“There is more innovation running through our patent process today than a year ago,” he says. “In the past, we always asked, ‘The brand doesn’t have this; can it be successful?’ Now it doesn’t matter who has it first; it’s who can make it successful.”

Other suppliers innovate not only in the area of product development, but also in packaging. Johnson & Lou, for example, produces ready-to-light charcoal packs made of all-natural hardwoods, anthracite coal and wheat starch to provide a clean-burning grill fuel that requires no harmful lighter fluids. Sixty percent more efficient than charcoal briquettes, the bricks are individually wrapped in foil packages that have an organic instant-light ignition layer.

“Basically, we’re creating a packaging convergence,” says Johnson & Lou’s Ludeke. “We’ve elected to utilize technology from the snack food aisle.”

By using packaging the customer already associates with freshness, a clean touch and individual portions, the company delivers a familiar-looking product consumers appreciate.

“The perception of charcoal is that it ends up in the garage,” Ludeke says. “We’d like to end up in the pantry.”

The company is working with high-end grocery groups that want special flavors of the charcoal bricks such as onion and garlic or cilantro and lime to create a gourmet grilling experience for their consumers.

Innovation doesn’t have to reinvent the wheel to be effective, however. Simply offering different flavors than the national brand - such as pomegranate-blueberry and pomegranate-cranberry - worked for Nash Finch in the shelf-stable juice segment. The same goes for the company’s fresh-pressed not-from-concentrate apple cider, something no national brand was offering when it was launched.

Ultimately, some manufacturers believe that if the innovations happening today continue - and serve as true innovations to the markets they serve - some national brands will drop off over the next several years.

“You used to have two national brands and one private label in each category,” Shields says. “You’ll always want one national brand to compare, but do you need two? The shelf space can be used for additional SKUs to offer the consumer more variety and increase top line revenue.” PLB

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