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Private Eye

June 23, 2011
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Where’s the In-store PL Marketing?
That’s a question PLBuyer’s editorial board addresses, along with a host of others about private label sales, in this quarter’s virtual roundtable. Read what they think about consumers’ attitudes and private label sales.

PL Buyer: We’ve been sending secret shoppers into supermarkets and they’ve found very little in-store marketing for private label. Does that surprise you?
Carl Munyon: The supermarkets lack of in-store marketing for private label is not surprising.  Supermarkets are walking a fine line these days between driving sales in their own brands and promoting movement in national brands.  The national brand promotional funding is in many cases too attractive for the supermarket to give up.  Therefore the private label does not get the in-store marketing that they would like to give it.  Supermarkets should be doing in-store promotions of their own brands as part of a customer loyalty strategy…using a private brands marketing manager that focuses on key metrics for circular and in-store promotions of private brands could help drive improvement.
Craig Espelien:  Not really, the typical retailer focuses merchandising efforts on PL in the depths of a recession but succumbs to the increased brand funds (usually from tertiary or fringe brands trying to stay alive) as the recession moves towards it’s end.  This causes a loss of focus on the retailer’s PL, and a lost opportunity to establish their brand with a meaning that embraces price but goes beyond price.
James Rushing: In-store marketing is a huge opportunity, but retailers find it tough because there’s so much bottom-line pressure to spend a minimal amount on marketing. Furthermore, it’s difficult for retailers to spend the resources on strategizing about marketing products at the same level as a CPG manufacturer. I wouldn’t say it’s surprising, since it’s a bit of a foreign concept in the U.S. market. Retailers appear to struggle with measuring ROI, and, as a result, there’s less investment made. There are definitely opportunities to market, both in-store and out-of-store. 
Paul Osinski: Yes, that does surprise me, I believe the better retailers across the country support their brands in store on a regular basis…remember, that most decisions are still made at the point of purchase.  If you have established your quality over time with your consumer, then your competitive pricing at the shelf is one of the strongest marketing messages you can make.  \
PL Buyer: Recent surveys say consumers are tip-toeing away from their recession-induced frugality to spend more. Will this mean a drop in private label sales later this year and into 2012?
Munyon: Consumers, like companies, have been very conservative over the last few years and are looking for positive signs to allow them to feel good about moving away from their spending frugality.  I feel that 2011 will be a positive year for the economy overall but at the same time we will see inflation in food prices through the whole year. With the retail increases that will result from commodity price increases, consumers will continue to look for ways to watch their spend on food.  The rising cost of gasoline will also reduce the typical consumer’s buying power.  Private brands will still be an attractive option with the potential to save 40 percent compared to national brands.  These market conditions will continue to drive positive gains in private label sales.
Rushing: There are two different factors here:. Consumers, right or wrong, feel like the economy is getting better, and they feel like they’re going to be spending more in the upcoming year because they think prices are going up, and because they feel like their personal financial situations are better – regardless if they really are or not. However, I don’t believe that this will necessarily have a huge impact on private label per se… One likely scenario that I predict to play out is people will begin to spend more money on discretionary and indulgence items…I think you’ll see an uptick in private label. As manufacturers become less promotional, and the price gap widens as a result, you’ll see an increase in private label penetration.
Espelien: I believe that consumers are cautiously re-entering consumption mode but mainly for purchases they have put off since 2008.  This should not equate to a drop in PL sales, but often will as other brands develop and execute consumer focused plans to create the need state necessary to trigger a purchase.  Retailers who have moved beyond item/price with the private brands will actually benefit from this move as the cost conscious consumer now can have the trifecta: save money on food, get better quality food and free up dollars for the consumer to spend elsewhere.
Osinski: I think that consumers are being bombarded with messaging that says to be cautious with their money, the largest amongst those the price of gas that … effects almost every consumer in the country.  They are concerned about the debt of the country and what that may mean to them at federal, state and local levels and they are concerned about the rising costs of food... I think in the long run these will be positive signs for increasing sales for private label for retailers that maintain high quality standards and equitable price spreads. 
PL Buyer: Retailers are introducing new tiers of private label.  Does this make sense for all retailers and, if everyone starts doing it, will premium PL become saturated?
Espelien: Consumers see only four levels of value when they shop – value, mid-price, premium and luxury.  Savvy retailers are positioning private brands and private brand products in categories and segments that appeal to these levels and that reduce the need for certain national brands.  Consumers buy things that they trust will serve their needs…Retailers need to segment their consumers to understand what value segments they need to compete in with both branded product and private brands – and then determine how to differentiate their private brands within each segment
Munyon: Upscale and organic private label does make sense for any retailer that wants to compete with the likes of Whole Foods and Trader Joes, to name a few.  This space is not dominated by strong national brands and leaves a lot of room for private label to be successful…The market has a long way to go before it would be saturated with premium private label products.  
Osinski: Retailer needs to very carefully analyze their bases of existing and desired consumers.  They need to look at the geographic and demographic data of consumers not just in their general marketing area but in the marketing area around each individual store and they need to talk with these consumers everyday to determine what they want and need.  Simply taking the  stance of expanding private label in all areas and all stores to expand brand presence and profitability does not make sense.
Rushing: Absolutely, a private label tier makes a lot of sense…Having a premium offering and value-based offering is great, but it only makes sense if you do it in the right way. The way to offer a premium offering is to do so under different brands. I think the problem lies in retailers trying to have one brand of private label with a variety of tiers, which confuses consumers … The premium offering still needs to be at a value to the national brand, but how you merchandise it, package it and brand it, are all factors.
PL Buyer: Discussions about what is an optimal private label penetration rate usually revolve around what percent of store sales PL makes up. But one researcher has suggested looking instead to what portion of the typical shopper’s basket PL makes up. People buying more than 30 percent private label have less retailer brand loyalty, she says. Do you agree or is this not a useful metric?
Rushing: I think neither metric is perfect.  The problem with looking at total penetration is that different retailers have different strategies and the mixture of their assortments is different based primarily on what each stores’ customers are buying and what the store sells. Therefore, you need be careful. The basket issue is a bit of the same: You typically have people who never buy private label, those that buy private label, but are unaware that it’s private label, and people who are very loyal to private-label, center-store categories. The largest group of them all is those who sample a variety private label products. The reason why I don’t buy the trend that “people who buy more private label are less loyal” is because it tends to be the opposite. If you look at it by channel, the people who tend to buy a lot of private label are pretty loyal. If you look at it in total, it’s skewed.
Munyon: Some [retailers] look at total sales, others suggest to pull out certain categories (i.e. fresh or perishables).  I would suggest that any product that promotes your store brand should be counted as part of the private label penetration.  The percent of total item count versus the percent of sales is a very interesting argument.  While most things in the grocery business are measured as a percent of sales, private brands are a lower ring compared to the national brands and therefore don’t get the unit sales credit when looking at the sales percentage only.  I would agree that this is a useful metric but like all other metrics there must be a consistent base line to compare across the industry. 
Espelien: The studies I have done and the studies I have read all point towards increased consumer loyalty to the retailer if they have a strong retail brand program.  As a matter of fact, retailers that have a private brand program that connects to consumers on a level other than price tend to have a higher overall loyalty from their customers…I believe percent of basket is a useful metric, but by itself it only measures what, not why.  Digging deeper into why consumers either do or do not buy private brands will point retailers in new strategic directions for their brands. 
Osinski: Quality is the key driver across every product to drive long-term loyalty and if we look at global penetration levels I think that there is still room to grow based on delivering that type of success, but you need to carefully work WITH your customer to make sure you are careful as to how they perceive your efforts relative to PL. Let them make the choice and you will continue to win.
PL Buyer: So-called food deserts are attracting a wide array of retailers using smaller-format stores. Who will succeed in these markets and what role will private label play?

Espelien: My gut tells me many of these efforts will fail miserably as they are one offs with little or no connection to the retailer’s core go-to-market strategy.  Food deserts exist because there is insufficient traffic in the “desert” to sustain a store.…True food desert needs can be met by selling the top 50 SKU’s needed to build meals for a family, probably not prepared food that is too expensive for the clientele.  This is a tough area and my guess is several solutions will be attempted before a viable solution is found.
Munyon: Food deserts are attractive as a means to increase sales and store count.  Many of these food deserts are currently without retail support … It will be very interesting to see who decides to commit to these markets and who will thrive in these markets. There are some obvious players that are already built to succeed in these markets like Save-A-Lot and Aldi.  Another small store format that is moving into food deserts is Walgreens.  It has added more food and fresh foods to compete.  Other players like Walmart and Target could be successful but will need to commit to a whole new format.  Along with the new format a different operating philosophy will need to be adopted…Private label will be a major part of any successful format that competes in the food deserts.  These customers will demand competitive prices to not make the trip to the larger retail markets that offer all the variety.  Convenience is important but price and quality will be the determination of long-term success for these retailers.
Rushing: I think small format in general is becoming more important as consumers are making more quick-trips and traditional food retailers want to compete more with additional formidable drug competitors directly.  In addition, retailers are looking to inner cities and rural areas as a potential area of growth in a country where we are oversaturated with food retailers.  Small box is likely the winning formula for these markets. Within a small box format, more value oriented concepts by traditional grocers, whether they are dollar banners or discount/value banners, will likely win.  I can’t determine whether or not this is a private label opportunity per se.
Osinski: If the market being entered is truly a desert then anyone that brings “water,” in this instance, a new store, has a chance of success.  In the short run, they will have a competitive advantage as the first to market.  The role, and brand level of PL will vary but still be critical whether those stores are placed in value-driven communities or upscale neighborhoods.  Each retailer will need to make sure the breadth of their PL line that meets the needs of that local consumer is appropriate whether that means expanding offerings in value, premium or ethnic driven brands.  Those that are both willing and quick to adjust will win.
PL Buyer: What’s been the biggest private label surprise you’ve seen in the first part of this year?
Osinski: If what you say about a lack of in-store marketing is true then I would say that is surprising. Retailers have really worked hard to communicate and leverage the quality and value of their own brands so I don’t see why they would not continue. Retailers cannot just stand pat on the inroads they made with the help of the recession because, to be sure, the national brands will not be standing pat.

Munyon: How some retailers are ignoring all the lessons learned in private label over the years and moving in an opposite direction.  Over time, private label has gone from a white and black package (generics) with little concern for quality to a national brand quality or better in an attractive package that projects the quality inside.  In just the first few months of this year we see that one retailer is rolling out a new private label line focused on the basics.  I don’t know what the quality standards for this line will be but the name does not speak of national brand equivalent quality.  Another retailer who has built its business on private brands will now add an entry-level-price-point private label to its line.  The right way to approach private label is having the right quality at the right price.  It is very dangerous to have price drive this equation and this example sounds very close to what generics were all about.
Espelien: That too many retailers have allowed marginal brands back into prominence. Category management once again has given way to “Cashegory” management as suppliers have bought their way back onto the shelves.  I think retailers have once again failed to fully leverage the amount of trial private brands have gotten over the past three years to build more brands of their own rather than going back to the way things used to be.  We are now back to where things were three years ago, over SKU’d stores with little or no differentiation, the lesson failed to be learned again.
Rushing: Seeing a continual decline in private label sales within certain categories and having manufacturers fight back in that same category is the biggest surprise. One great example of this is the beverage category. The private label penetration has been declining slightly in beverage, while other things have grown recently and that’s surprising. We’re seeing stores with very strong private label offerings institute a new private label beverage alternative, like vitamin water, and still the branded products are winning. Some brands are so strong that the “me too” offering just doesn’t cut it or the innovation isn’t there. PLB

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