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Category Insight: Nonfood Options

Nonfood Options Expanding In Private Label

December 1, 2012
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As retailers look to expand their categories and tiers in nonfood private label products, they will seek their customers’ help to figure out which way to move forward, Planet Retail Senior Retail Analyst Isabel Cavill told a webinar audience.

Cavill said that nonfood private label options provided differentiation for hypermarkets – grocers who were expanding their stores beyond the realm of food items – but that there are rules for developing nonfood programs that can be different than private label food ranges.

“Not all tiering categories can be applied to all ranges,” Cavill said, adding that some areas such as health and beauty would have difficulty selling value or economy tiers, while others such as apparel might not lend themselves to premium or superpremium tiers. “Retailers are testing new products to get new shoppers to their stores. But retailers increasingly will follow the consumer. You will see more consumer involvement in the development process.”

One of the reasons for the move for many grocers, particularly in Europe, to move to hypermarkets is because of technology, she said. As items are more readily available through online platforms, accessible by in-store kiosks, big-box retailers find themselves with more space in store and less product to fill it with.

“Large format stores are being forced to find solutions for extra space,” Cavill said in the presentation. “Private label has the opportunity to play a more central role in nonfood.”

Rather than seeing big-box stores looking to close and reopen in smaller formats, as is being tested in some urban U.S. areas by companies such as Target and Walmart, Cavill said stores might get more creative with the new space available.

“I think it’s a little of both. Retailers do still have big stores, and they are a great opportunity to buy products and expand merchandising opportunities,” Cavill said.
“At the same time, if I’m buying groceries I’m not going to get to the kiosk for an impulse purchase. But certainly there’s a lot of nonfood products that can be part of this.”

Trace One Senior Vice President Nick Martin said that margin was the key driver in nonfood private label expansion, and that the business benefits of nonfood could not be ignored. He cited recent statistics showing the continuing growth of private label penetration in the market to say the balance had shifted to private label over national brands for the first time in history.

“(Now you) have to be sure the right people and processes are in place,” he said. “Technology is there to drive innovation, but if you don’t have the right people … it’s really about innovation across the entire chain.”

Nonfood private label could be separated into four major categories, Cavill said: Home, health and beauty, clothing, and home electronics.
Of the four, health and beauty has the most easy reachable upside, she said.

“There are limits on creating a value line for health and beauty, because customers can ask, ‘What’s that going to do?’ if the price point is so low,” she said. “But there’s an awful lot of opportunities for premium products. It’s a great way to compete with specialists.”

Retailers can get creative with merchandising and branding their private label health and beauty products to give customers the allure of specialty items at discount prices, she said.

“Carrefour launched ranges that really look like a brand, with the ingredients clearly displayed and merchandising displaying the products,” Cavill said. “There are opportunities for value-added products as well.”

On the other side, home electronics can be a difficult field to get into for retailers, Cavill said, especially with heavy investments in major appliances such as TVs, washers and dryers, and ovens needing to be made before savings are realized.

“First, consumers are very bauble-focused in big-ticket purchases, they want that name, and many of the products require significant investments to design,” she said. “So many markets and retailers haven’t been foolish about investing so much.”

But getting a foothold with smaller appliances first can help gain customer loyalty in the home electronics brand, Cavill said.

“At the same time, there’s lots of innovation in home appliances like toasters and kettles,” she said. “Retailers do need to build trust by merchandising like a specialist.”

That theme of create brands that resemble specialty items continues in clothing, an area where companies such as Walmart, Carrefour, and Target have made an impact with their private label lines.

“Target is another retailer at the forefront of added mass-tige collections, with major designer names,” she said. “With clothing, it’s important to stay away from the retailer name. They tend to use different names for their ranges because customers are not willing to buy a fancy dress from a retailer with a grocery name.”
And finally, the diversity in the home category provides its own opportunities for success.

“It’s diverse because of the product, and the price range involved,” she said. “You can have products from $5 to $1,000, candles to sofas.”

Because of the ability to shift larger items to online sales and out of the stores, Cavill said markets have a chance to expand into smaller home areas such as kitchenware.

“Where I do think is the most potential for growth is in textiles and kitchenware,” she said. “Kitchenware has a great opportunity. As consumers are still in recession-hit markets, you see a lot of innovation in cooking that retailers can follow and develop.”

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