FMI Presentation Touts Private Label Benefits

June 1, 2004
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FMI Presentation Touts Private Label Benefits

A joint presentation at the Food Marketing Institute’s recent conference by Willard Bishop Consulting and Topco Associates titled “Private Label: Capitalizing on Growth Opportunities and Innovative New Products” outlined the importance of private label programs in today’s competitive retail environment.
Jim Hertel, senior vice president at Bishop Consulting, traced the evolution of private label from the early days when private label products were “knock-off” brands with a low-cost/low-quality image to the current situation with innovative product development and sophisticated multi-tier programs designed to enhance the retailer’s image in the marketplace. The magnitude of the change is reflected in the fact that many within the industry prefer the term “private brand,” rather than private label. “A well thought-out private brand program can build traffic, ring and shopper loyalty,” Hertel says.
Retailer differentiation is critical to the vitality of mainline supermarkets and private label plays an important role in helping retailers stand out in their marketplace. Hertel cites consumer research that consistently shows the top five reasons that shoppers chose which store they shop at are: location, pricing, store environment, center-store and customer service. Private label initiatives address two of these factors — pricing and center-store offerings.
While few shoppers are motivated by price alone, a store’s “price image” can be crucial, and that image can be enhanced and managed, without affecting gross margins, with private brands. Moreover, Hertel notes that a retailer doesn’t have to beat or match a competitors pricing to have a solid price image since it often takes a price differential of greater than 5 percent for a shopper to perceive a difference. A retailer that carries only national brands is often perceived as being a more expensive store to shop than a competitive retailer who promotes his store brands, even if an actual price comparison shows little or no difference.
Hertel says that a supermarket operator who hopes to compete with a price-focused supercenter needs to take price off the table and a solid private brand program can do that.
Maryruth Wilson, vice president at Topco, explained how private brands can help retailers win the center-store battleground. She spoke of a three-tiered branding strategy based on the view that private label is a solution, not simply a product. Each of the tiers addresses a different retailer need.
The first tier is an economy line, which provides the retailer with an answer to the “dollar store” threat. Typically, these brands contain words such as “price” or “value.” The second tier is essentially a mainstream line, which helps position the retailer in his marketplace; often these products use the store name as part of the brand name. The third tier is a premium line, which allows the retailer to build an upscale image and the brand name will contain words such as “classic,” “select” or “premium.”
Wilson says that national brands are positioned as solutions to consumer needs and differentiate themselves in three ways:
• Product innovation.
• Distinctive packaging.
• Perception of quality.
To compete with national brands, retailers who want to build a successful private brand program need to follow the national brands’ model, and develop and market high quality, innovative products that offer shoppers real value. The retailer needs to recognize that a profitable private label initiative requires a commitment to marketing the store brands; it is no longer enough to simply merchandise them.

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