A new Times & Trends report from Chicago-based Information Resources Inc. (IRI) indicates that, after falling for several years in the wake of clean-store policies, merchandising activity is once again on the rise, and declines in grocery displays are slowing as retailers seek new ways to communicate value to increasingly price-conscious consumers. In fact, IRI reports, 54 percent of consumer packaged goods (CPG) categories captured 30 percent to 49 percent of their sales over the 52 weeks ending March 29 with the help of merchandising support - a four-point increase over the previous year.
However, the report continues, merchandising activity around private label products remains lower, on average, than that in support of national brands. According to IRI, store brand merchandising trails national brand merchandising in 58 percent of categories the company tracks across food, drug and mass merchandise outlets.
Why the discrepancy? Part of the problem lies in retailers’ reluctance to give up trade monies offered by national brands in exchange for prime shelf and display space. But according to John Wilkins, vice president of client and retail strategy for the Atlanta-based strategic design firm Miller Zell, many chains also lack the merchandising know-how of large national brand manufacturers. These manufacturers often use sophisticated shopper insights to design relevant, pointed merchandising programs.
“I also think private label manufacturers and retailers have really been more focused on improving product quality and packaging than on merchandising,” he adds. “But they’ve done such a great job ... that that’s become the cost of entry. So now, for retailers to really push private label forward, they’re going to have to pull other levers. And the one immediately adjacent to quality and packaging is merchandising.”
Fortunately, says Jon Hauptman, a partner at the Barrington, Ill.-based Willard Bishop retail consultancy, many retailers already have started to recognize the importance of private label merchandising, creating a noticeable uptick in activity in recent months.
Yes, he explains, store brands deliver higher margins than national brands, and yes, they help stores differentiate themselves from the competition - two good reasons for retailers to boost merchandising support for private label. But the real driver behind increased merchandising activity around store brands is recession-weary shoppers’ renewed focus on value.
“Shoppers are looking to stretch their grocery budgets further and are choosing stores that allow them to do that,” Hauptman explains. “That’s why Walmart, limited-assortment stores like ALDI and dollar stores are doing so well.
“Supermarket chains see private label as a way to compete against the low prices and good value offered by these formats,” he adds. “So they’re doing whatever they can to highlight the availability of these private label alternatives.”
Hauptman says retailers are beginning to see a lot of reasons beyond just sales and turns to keep private label on the shelf. Store brands help to strengthen the store’s price image, “which is a key reason shoppers choose one store over another,” he says.
Overcoming Merchandising Challenges
Hauptman and others agree that most retailers understand the value of private label merchandising. Putting that realization into practice, however, has been a bit of a challenge.
“I often see misalignment between strategy and execution,” explains Craig Espelien, vice president and managing director for retail brands at Plano, Texas-based Crossmark. “For example, the president of the company wants to build private label sales, but the category manager is still being rewarded for bringing in trade dollars rather than growing store brand sales, so there’s no reason to change their behavior.”
And then there’s the question of money.
“There’s a belief that ‘We can’t merchandise private label because there’s no budget for it,’” says Mike Snell, a former retail exec who is now vice president of sales at Dover, N.J.-based Blanc Industries. “But there is. ... Smart retailers expect and understand that they need to invest in private label merchandising and build it into the price.”
That shouldn’t be too difficult, Hauptman adds, because many retailers price their store brands too low, offering savings of 30 percent or more over comparable national brands when a 20 to 24 percent price gap is perfectly acceptable in most categories.
Although retailers still are figuring out some of the specifics, the good news is that, in many ways, they’re in a better position than national brand manufacturers to carry out private label merchandising efforts. Sure, they don’t have the deep pockets or the depth of merchandising experience, but they control the shelves, the store, the weekly ad circular and the customer data - all of the tools needed to create a top-notch private label merchandising program.
“They have a unique opportunity to get their product message across and keep it in sync with the broader message - the store image - in a way national brand manufacturers have never been able to,” Wilkins says. “They can tell not just a product story, but an entire brand story.”
Traditionally, adds Lynn Gonsior, executive vice president/chief merchandising officer at the Dayton, Ohio-based retail brand consultancy Interbrand Design Forum, retailers have used an emulation strategy that reflects a “similar color, character and tactile quality to play up private label consistency with the national brand leader.”
A better, more sophisticated approach would “align the private label program with the retailer ‘brand’ and highlight the proposition as a whole,” she adds, “rather than specific product attributes - in order to distinguish the uniqueness of the store.”
Citing Trader Joe's as a model, Wilkins says retailers can reflect the look of their private label in the store’s appearance - its colors, its decor, signage, etc.
“CPG manufacturers have the budget to use traditional media, but retailers can use the store itself as a medium to build the brand,” he adds. “Private label ‘personality’ often stops at the shelf with packaging, but that tone or attitude can be broadcast throughout the store because, even though they don’t always make good use of it, retailers control the shopping environment.”
Put On a Display
One of the most important merchandising tools at retailers’ disposal is the display. Whether primary, secondary or another format, it puts a product where consumers are sure to see it. Proper placement on the shelf - eye-level, to the right of the national brand equivalent if there is one, and in significant enough numbers to make an impact - is a good start. But because they determine the allocation of space in their stores, retailers can do much more.
While it may be difficult for some chains to give up monies paid by national brands for end cap display space, Hauptman says smart retailers - especially those seeking to project a value image - are reserving more of that prime real estate for their own brands.
"Many retailers recognize the power of end caps to send a price message,” he explains. “But if end caps are all contracted out, retailers aren’t in control of pricing.”
By using more end caps for store brands, retailers are able to introduce or re-introduce private label products to shoppers and/or highlight aggressive price points “that are difficult for national brands to hit,” and strengthen the store’s price image.
Secondary displays that allow easy cross merchandising also are very simple for retailers to put into place, provided the retailers can overcome territorial issues that sometimes threaten to derail inter-departmental efforts.
“Cross-merchandising is definitely a growing strategy,” reports Jerry Price, sales manager at Mount Vernon, Wash.-based Mobile Merchandisers. “Putting private label bread near the pasta or wine, for example, not only leads to incremental sales, but it’s also a value to customers because it helps them locate all the products they need in one location.”
It also helps spur store brand trial since most consumers will go with whatever’s in the basket beside the pasta or wine rather than trudge back to the bakery at the other end of the store for a different brand.
According to Price, Mobile Merchandisers’ number-one seller is a line of basket racks that, unlike the aisle-hogging 4-by-4 pallets of yesteryear, blends in nicely with other items on display.
"It’s more subtle, not so obtrusive,” he explains, adding that a display doesn’t have to hit consumers over the head to be effective. To avoid a return to the cluttered aisles of a few years ago, retailers should allow products to stand out without “irritating” shoppers, he remarks, citing the philosophy behind Walmart’s recently implemented “Project Impact.”
Price’s company also offers a number of “knee kicker-type” merchandisers, including a new magnetic unit that attaches to the side of a cooler without screws, so retailers can combine both shelf-stable and refrigerated or frozen products easily in a single display - a great way to add, say, store brand buns to a cooler full of national brand hot dogs or hamburger patties.
“Retailers shouldn’t be ashamed to put their private label out there as part of a national brand display,” Espelien adds, pointing to Kroger’s frequent and successful use of the piggyback approach.
Value-Oriented Signage Key
Another important weapon in retailers’ arsenal is the shelf tag. Although companies such as the Great Atlantic & Pacific Tea Co. (A&P) use shelf tags that promise “I-can’t-believe-my-eyes low prices” and “I-want-to-hug-the-manager low prices” on their store brands, others have gotten more specific about the savings, using “perpendiculars” to highlight the cost of both the private label product and its national brand equivalent, as well as the savings associated with choosing the store brand option (69 cents vs. 99 cents, so you save 30 cents).
“The reason most retailers shy away from [compare-and-save shelf tags] is because they think thousands of additional shelf talkers will be overwhelming and disrupt the shopping experience,” Hauptman says. “But they don’t need to put them on every single item. Best practitioners scatter them throughout the store to send a message to consumers to look at the private label alternative because it can save you money. Without highlighting private label savings,” he adds, “retailers can’t effectively send that message.”
Hauptman says some chains have gone a step further by using perpendiculars to point out not only the savings realized by choosing the national-brand-equivalent private label, but also the even-greater savings offered by the value or economy-tier store brand.
“H-E-B does a really good job with this strategy,” he remarks. “It shows consumers that there are two ways to save, and it teaches them to look for the economy private label in certain categories.”
A similar tactic that’s just starting to take hold offers a new twist on front-of-store basket comparisons where the price for a cartful of groceries from chain A is compared to the price for the same cartful of groceries from chain B. Instead of store vs. store, however, some chains are displaying a cartful of national brand products from their store and a cartful of private label products, also from their store, along with difference in total price.
“It sends the message that if you’re a smart shopper, you can save even more inside our store,” Hauptman says.
Another simple strategy that helps reduce some of the risk associated with purchasing a private label for the first time is highlighting store brands that are best sellers in their category - a tactic Hy-Vee often uses to good effect.
But private label signage shouldn’t be limited to only the shelf, Snell says. He cites branding opportunities throughout the store. The meat and deli cases, in particular, often are crowded with national brand merchandising paraphernalia but lack a strong private label presence, he continues, adding that he’s really bugged by retailers that use, say, Perdue case dividers for the entire meat section just because they’re free. “If you’re proud of your private label,” he admonishes, “get a case divider that says it!”
Although displays and signage are probably the two easiest, most effective private label merchandising strategies, they’re certainly not the only options out there.
“Licensing remains a very viable place to play because it lends instant legitimacy to private label,” Espelien says, pointing to successful programs at Kroger and Costco, among others. “Retailers have to ask themselves, ‘Who can we partner with that has some clout?’”
Although still very underutilized, cause marketing also offers the potential to enhance store brand image - provided the cause matches up well with the brand’s personality, Espelien says.
A growing number of retailers also are borrowing merchandising strategies traditionally reserved for only national brands. For example, Gonsior reports, Target recently distributed a slick direct-mail piece filled with coupons for its new up & up private label, and Meijer created a memorable radio ad that promises kids will find its store brand spinach ”just as yucky” as the leading national brand.
“Private label brands need to be managed just as their national brand counterparts are, but in a way that aligns with the store [image],” she concludes. PLB