PL outlook 2012: Our experts speak
PLBuyer’s editorial board expects to see more innovation, more niche lines and more marketing for private label in the coming year. Read those predictions and more here.
PLBuyer: What do you think will be the major trend and/or developments to watch in private label for 2012?
K.K. Davey: To support private label sales, I expect retailers will blend their branded and private label merchandising. There will be more branded merchandising (feature and displays) used to drive trade spend that will ultimately benefit the retail bottom line. Additionally, there will be an emphasis on simplifying multiple brand lines with private label lines. As a result, we’ll ultimately see the reduction overall of brand names.
Paul Osinski: The better marketers will make further gains in their PL programs by tying together specific consumer information they are gathering through panels, loyalty card data and trends to promote and develop products that meet specific needs of their various consumer segments. Targeting the exact consumer is no different than what branded companies attempt to do with Betty Crocker vs. Ghirardelli brownies, as an example. PL branders must be targeted and specific in their approach to meeting consumer needs.
Craig Espelien: More companies will focus on driving both extreme value products and consumer centric/premium brands and products. We will also see the impact of what some new branding initiatives (Delhaize and Supervalu specifically) has on consumer perception and acceptance.
Chris Durham: Continued private label portfolio consolidation and rationalization. The continued rush toward the new age of generic, i.e., white-based packaging
PLBuyer: What direction do you see the economy taking next year and how will that impact private label sales?
Davey: The economy will remain at 8-9 percent unemployment, with slightly higher inflation. This will continue to drive private label penetration in more categories and also drive greater willingness to try private label in new categories.
Osinski: I believe the economy will continue to struggle through the first half of 2012 and into the national election. I think that PL will show only moderate gains except at the BIC retailers optimizing consumer data for targeted gains.
Espelien: I am still of the same mind as last year – the economy will continue to improve but consumers will further embrace the culture of value shopping and seek deals in more and more outlets. PL sales will be flat to slightly down – some retailers will drive share higher but most will revert to taking funds from branded companies to shore up their bottom line. There will be some retailers who treat their PL brands as “brands” – and they will reap the benefits of this support.
PLBuyer: Some recent reports have said private label sales have peaked as national brands have stepped up marketing. Do you agree and will that pattern continue in 2012?
Espelien: Yes – but only in those retailers who are focused on creating buckets of profit rather than driving private brand support.
Durham: Of course manufacturer-owned brands have increased their promotional and marketing spends, it is the only way they can attempt to maintain market share. They will be forced to continue this trend into the coming year in an effort to stop the bleeding
Davey: I don’t agree. Private label has historically been gaining share in select categories and store sections. We are seeing categories where private label’s share has slowed due to increased branded innovation (i.e. yogurt). However, there are other categories where retailers are making an emphasis to develop their private label in new ways, new benefits, and positioning such as seen with HBC.
Retailers will continue to drive their private label offerings as a means of supporting their bottom line performance as well as differentiating from their competition. Many retailers have some very aggressive share goals and are restaging their private label business to grow their shares (i.e. Safeway, CVS, Delhaize).
PLBuyer: Will 2012 bring more PL packaging redesigns? Will white remain the dominant color?
Osinski: The color white as a primary design background is here for 2012 simply because there are major PL branders with this design already in place. Unlike national brands who change with incredibly small increments over time, we have a tendency to do major overhauls to PL designs and colors on a regular basis.
Davey: More premium-oriented private label products will enter the market due to retailers’ desire and ability to capture sales from different household segments. As a part of the premium push, expect more premium, rich colors on labels and packaging types like glass.
Espelien: I believe that white WILL NOT get additional support as the share of products designed all in white will begin to erode based on reduced marketing spend by the retailers with white background products. White connotes “cheap” in the consumer’s mind (unless the product is sold by an upscale retailer and is supported by brand marketing programs). People will continue to look for packaging to overcome their marketing shortcomings – redesigning to gain the “new” impact with consumers – but if this redesign is not accompanied by a long term, well thought brand marketing approach, then the sales gains will be short-lived and consumers will turn to products that are more relevant to them.
Durham: There still remain many retailers, large and small, whose private label strategy and design is not up to consumer expectations, much less current trends. Yes white will remain the dominant color of packaging for PL for the foreseeable future as retailers move their “me to” copycat target from national brands to other private labels.
PLBuyer: Will one retailer segment be the private label leader in 2012?
Davey: Dollar stores will continue to expand their private label business, as this is currently underdeveloped. Many of these retailers have stated goals for significant private label growth.
Private label now has the highest share of total store UPC’s. There are clear private label leaders in the grocery market such as Wegmans, Food Lion, Safeway and Kroger. These companies will continue to invest in their private label as it has been a key driver of their success. However, not all grocery retailers will do the same.
Osinski: I believe that traditional retailers, like supermarkets, will lead the way in new product development. Their local focus and strategy makes them more willing and able to develop very specific products for their customers, compared to having products that fit a national profile
Espelien: I do not think there will be a “single” leader. Dollar has made a lot of progress – but you will likely see more “new” from Family Dollar than Dollar General due to there respective pathways to development – DG is a bit further down the curve than FD. In mass, Walmart is playing a pat hand while Target is still focused on innovation – but tempered by creating more supply chain efficiencies which can limit their ability to truly innovate like they have in the past (at least in terms of private brands). Grocery is all over the map – some are doing great things, some think they are doing great things and some are staying the course. I believe this will be a retailer by retailer piece as they determine what role PL will play in their strategic positioning and go to market plans.
PLBuyer: We’ve seen more niche private label lines, what niches will be hot in 2012?
Espelien: The desire will be there – but few chains have the mass to efficiently go after this niche long term. There continues to be a lack of understanding about what the consumer really wants – they want food that is better for you and creates and “added value” for their diet (extra fiber, anti-oxidants, calcium, etc., lower salt, fat, trans-fat, chemicals, etc.).
Durham: The next frontier of Pl development and innovation is the creation of brands that speak to consumers’ lifestyle and needs and not simply to the way retailers buy or merchandise product. Retailers have the opportunity to provide solutions for Healthy Living, for On-the-Go Mom, Foodie Dad and many more.
Osinski: The more we know about our individual consumer, the more we can focus on marketing to her or his needs, whether those needs are for organic, natural, gluten free, diabetic, premium, etc. If retailers don’t focus on niche marketing they will fall behind in a fiercely competitive landscape. Today, the better PL retailers are trying to offer more than just meal ingredients.
PLBuyer: Do you see PL supplier consolidation continuing in 2012?
Durham: The economy will continue to force Private Brand manufacturers to consider consolidation and acquisition as a viable solution to grow and build their businesses.
Osinski: I do believe there will be ongoing consolidation in 2012. The battle for Ralcorp has taken center stage this year as a PL industry story and it certainly deserved the front page with its potential impact. But if companies are sitting on cash, and I think they are, they are going to grow in scale to focus on back office and procurement efficiencies. There is so much they can do with the data and information they have at hand to improve their efficiency and profitability.
Davey: Yes. The commodity costs will remain high and suppliers are fighting it out for contracts with retailers. They will consolidate more and retailers will continue to demand savings.
PLBuyer: Which retailers and/or private label executives will have the biggest impact on the private label world in 2012?
Osinski: I think that Rick Dreiling at Dollar General can have the greatest impact on the private label landscape in 2012. With hundreds of new stores and more planned for 2012, the expanded departments and new format and most important the company’s dedication to PL, the shear impact of this growth will certainly be a big factor in 2012.
Espelien: Delhaize, Supervalu and Family Dollar will be companies to watch – they are launching multiple new brands and re-positioning their products to be more consumer focused. I also believe it will be interesting to track Walmart – their PL program seems to have stagnated and is back to 10-15 years ago. Finally, I believe Safeway is also a group to watch – they have some great ideas and have been quietly executing them and all of this should continue to provide spacing for them with their competitors.
Durham: Sam’s Club, Kroger, Family Dollar and CVS.
Davey: Wal-Mart. Its slower private label growth will not continue. I expect Wal-Mart will use private label as a traffic driver. CVS. CVS’ expanded private lines will be the leader in drug. Dollar General. Dollar General is developing a name with its private label for a group of shoppers that are becoming increasingly loyal to its stores.
PLBuyer's editorial board members
Dr. Krishnakumar S. Davey
As, Dr. Davey, managing director for Symphony Consulting, has more than two decades of experience at leading consulting, media/advertising, syndicated research and custom market research companies, Davey is focused on generating even further growth for the CPG and retail consulting practices at SymphonyIRI Group.
His work experience spans the Americas, Europe, Africa and Asia. He has overseen several large-scale strategic marketing engagements for many of the world’s leading consumer goods and services companies during his 22-year consulting career.
Christopher Durham has more than 15 years of brand-building experience with major U.S. retailers, ad agencies and media outlets. His career has focused on private brand and retail brand development and strategy. My Private Brand (www.my
PLrand.com) is his daily private brand blog.
Craig Espelien, a 35-year industry veteran, recently became vice president of consumer products at MMI. He has worked in all facets of the value chain – supplier, retailer, broker, consumer expert. When he worked for a retailer, he worked in all areas – sourcing, product development, brand creation/management, marketing, supply chain, vendor management, domestic and international. He’s also led field execution teams for turning concepts into consumer facing programs.
Paul Osinski, senior vice president, commercial sales, with Salient Management Co., is a 30-year veteran of the retail industry, Osinski spent 23 years with Stamford, Conn.-based Daymon Worldwide, the world’s largest private brand sales and marketing company, most recently as a senior vice president. As a member of Daymon’s senior management team, he oversaw the company’s business at Kroger, Wegmans, Dollar General, Advance Auto, Pathmark, Sears/Kmart, 7-Eleven and Office Depot. Salient Management Company offers data mining services.