Merchandising Features / Trend Features

A Standout Strategy

December 1, 2011
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KEY POINTS


Private label perishables are becoming increasingly prominent.


More store brands are being positioned as higher-quality offerings.


Retailers face the challenge of operating outside their expertise in marketing private-label items.

With many shoppers treating fresh selections as commodity offerings, retailers seeking to standout from competitors must offer products that are not available elsewhere, or have an unbeatable cost-benefit ratio.Differentiation is a vital element for perishables merchandising success.

To achieve those objectives, an increasing amount of operators are rolling out or enhancing store-branded offerings.

The ultimate goal, analysts say, is to market brands that have a top-quality halo.
Perhaps the ultimate standard-bearer for effective private label merchandising is Issaquah, Wash.-based Costco Wholesale Corp., the U.S.’ leading club store operator.

Costco markets its lone private-label brand, Kirkland Signature, throughout its locations, including in the refrigerated, frozen, dairy, deli, meat, seafood and bakery sections, as well as non-food areas.

Most supermarket operators, however, are more select in their store-branded initiatives.

“There is quite a bit of variation in the areas in which retailers are being aggressive with private label,” says Bruce Axtman, president and chief executive officer of the Perishables Group, a Chicago-based fresh food consulting firm. “Some categories have more consistent supplies of products [being received from manufacturers] than others.”

Among the most active bastions are meat departments—some of which carry a range of tiered store brands.

Meat is a particularly attractive private label option as many retailers already position the department—which is a strong store magnet for shoppers—as a way to standout in a crowded marketplace.

Indeed, Pleasanton, Calif.-based Safeway Inc., which operates more than 1,700 stores across the U.S. and Canada, merchandises—and heavily promotes—an array of private-label meat brands.

They include Open Nature, which consists of all-natural offerings; O Organics, a line of certified organic products; and Rancher’s Reserve tender beef.

Other store brands include Eating Right, which features better-for-you foods; Lucerne dairy offerings, including milk and cheese; Primo Taglio, featuring aged cheese and hand-trimmed meats; and Signature Café, which is prominent in delis and includes prepared foods.

A Safeway-operated Dominick’s banner store in the Chicago area leverages a variety of marketing vehicles to spotlight its private label proteins.

PRIVATE LABEL PERKS UP


Perishables shoppers are becoming increasingly attracted to private-label perishables.

Data from SymphonyIRI Group, a Chicago-based market research firm, reveals that the percentage increase in sales of store-branded items in supermarket bakery, deli and frozen departments over the last year is higher than that for the total store sales of private-label products.

Dairy’s share of private label activity, however, dropped below that of the total store.

“Favorable perceptions are helping to sustain and strengthen private label performance across most edibles departments,” the SymphonyIRI Group notes in its recently published report, Private Label: Brand Positioning in the New World Order.

Across the vast majority of departments, the report states, “private label traction has actually been stronger versus national brands.”

An exception is dairy, in which private label lost share more quickly versus the industry as a whole in nine of the 13 four-week periods analyzed.

“While private label maintained traction in some categories during the past year, such as creams/creamers and butter, other categories saw private label gains stop or reverse,” the report notes. “Private label share of milk sales, for instance, is flat versus a year ago despite a gradual easing of major price cuts enacted earlier in the downturn. And, in the egg category, national brands have successfully captured nearly two share points from private label during the past year.”

Among categories with both above average and increasing private label share are refrigerated salad/cole slaw, vegetables, natural cheese, frozen meat, shelf-stable meat and refrigerated ham.

Sectors with below average and increasing private label share include frozen pizza and breakfast meats.

Categories with below average and declining private label share include yogurt, refrigerated dough/biscuit dough, and margarine/spreads/butter blends.

Frozen seafood, meanwhile, is among the products with above average and declining private label share.

STEPS FOR RETAILERS SEEKING PRIVATE LABEL SUCCESS


Continually identify and assess private label opportunities and threats:

 • Carefully monitor price gaps between your private label offerings and national brand alternatives to ensure that optimal price gap is maintained.
 • Tailor private label offerings at the market level.
 • Support private label lines with consumer-centric and highly integrated marketing campaigns, including in-store display and feature ad support.

 

Continually refine private label development strategies:

 • Maintain a solid understanding of price/value perceptions across key consumer segments, and use this knowledge to inform everyday and promotional pricing strategies.
 • Invest in innovation that will bring differentiation to the marketplace.
 • Evaluate feasibility of multi-tier offerings across key categories/product lines, either alone, or in partnership with brand manufacturer partners.

 

Measure and monitor actual versus planned impact of private label-related initiatives:

 • Test market product, pricing and promotion changes prior to and immediately following roll out.
 • Track and benchmark store-level private brand share shifts relative to national brands.

 

A free-standing aisle sign beside the Open Nature section of the meat case, for instance, contains data cards listing Open Nature’s attributes—such as being developed from animals that were raised without antibiotics and were vegetarian fed.

Proteins in the Open Nature section include beef franks, bacon, chicken sausage, smoked sliced turkey breast in tubs, lamb legs and pork loin.

A large Rancher's Reserve sign, meanwhile, dominates the wall above the meat case and notes, “100% Tender Beef. Guaranteed.” 

O Organics offerings are found in the meat, bakery, dairy, frozen, fruit and vegetable areas.Open Nature selections also are marketed in the dairy, deli, frozen and bakery sections.

Signature Café foods include fried chicken, sandwiches, soups, pizza, St. Louis-style ribs, salads, whole roasted chicken and deli trays.

Another Safeway brand, Waterfront Bistro, features frozen seafood.

Safeway describes the selections in promotions as premium products caught from the best fishing areas and flash frozen to seal in freshness.

The Dominick’s full-service seafood counter has three holders containing Waterfront Bistro-branded recipe cards. Recipes include Open Face Salmon Sandwich on Toasted French Bread and BBQ Shrimp Sautè.

Other retailers, meanwhile, also are positioning their store brands as higher-quality alternatives.

“Private label was historically associated with lower-quality and lower-value products in plainer packaging, Axtman says. “Now it is evolving into a broader spectrum of store brands. Some have a premium connotation, though we also will continue to see value products along with unique offerings.”

Before starting a program, however, retailers need to decide if there is an opportunity to strengthen the overall performance of the category, he notes.

“Merchandisers have to assess how strong and weak the current brands are and how well the value proposition is being addressed,” Axtman states. “They then must examine the supply side and see if there are manufacturers who can fill the opportunity.”

Premium store brands, he notes, can be positioned as unique products, points of differentiation and signature items.

“Premium private label product should not be used to strengthen margins, but to create an image and strengthen your position in the marketplace,” Axtman states.

Store brands, meanwhile, also can enable traditional supermarket operators to better compete with other mainstream outlets, as well as with alternative format merchandisers, including club, dollar and discount stores, he states.

Among the major private-label operating challenges is the need to develop a merchandising strategy involving a broad range of products throughout the store.

“Retailers need to figure out which consumer segments are most important to them; how to target them; and then exercise a brand strategy,” Axtman states. “It’s a big job that retailers haven’t historically been set up to do.”

Nevertheless, Axtman predicts that the array of private label perishables will steadily grow over the next few years.

“There will be more emphasis as it relates to fresh, but it will play out differently among different retailers, departments and categories,” he states.

Jim Wisner, president of Wisner Marketing Group, a Libertyville, Ill.-based consulting, market research and education firm that focuses on private label, agrees that more perishables offerings will carry store brands.

“Retailers have gotten better at not sacrificing quality with store-branded selections,” he states. “We are seeing more premium products and shoppers are finding that acceptable. And higher-quality items lead to greater consumer expectations.”

He adds that consolidations among retail operators are resulting in entities with greater resources and the marketing muscle to better develop and support store-branded products.

To be successful, Wisner notes, “store brands must be discernibly better, discernibly different or discernibly more convenient, or they must go in the value direction. But retailers must be careful in marketing value-oriented items as there is a trade-off between price and quality.”

Like Axtman, Wisner states that a big obstacle for supermarket retailers that sell private label perishables is having to operate outside their expertise.

“Most retail organizations are very good at operations and merchandising and clueless when it comes to marketing and branding,” he states. “They don’t have the proper financial structure or a history of developing and marketing brands and communicating the benefits and value. National brands have huge staffs and budgets for such endeavors.”

Still, he notes that some retailers, including Safeway, already are successfully creating and defining brands, and that such operators must insure that they never sacrifice quality unless the product is positioned purely as a value offering.

“Consumers are in love with Kirkland Signature at Costco because the company won’t put an item out if they can’t do it right,” Wisner states. “There is ultimate trust in anything they put their name on.”

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Recent Articles by Rich Mitchell - Perishables Buyer

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