Beyond National Brand Equivalent
By Denise Leathers
“Me-too” is so last year. Today, savvy retailers are using not-so-NBE private labels to differentiate themselves from the competition and make a statement about quality.
For years, retailers have touted their private label products as “national brand equivalent or better.” But until recently, they’ve been a lot more “national brand equivalent” than “better.” Oh sure, the Wegmans and Trader Joe’s of the world have been beating the national brands at their own game for as long as anyone can remember. But the rest of the retailing community has been slow to jump on the bandwagon. Why such reluctance to stray from the national brand standard?
“Retailers were afraid shoppers wouldn’t understand the [private label] product proposition if it didn’t mirror the national brands,” answers Michael Kelter, director of marketing in the consumer division at Orangeburg, N.Y.-based Nice-Pak. In the past, he explains, retailers didn’t have the advertising budgets — or the marketing savvy — of large CPG companies to educate consumers about individual private label products. Nor did they have the category-specific expertise necessary to create store brand products with unique features that might appeal to consumers. So, they took the easy way out, offering only products they could describe as national brand equivalent, a term every shopper understands. To offer something different, they thought, would have only served to confuse the issue. But that was then.
“‘Compare to’ doesn’t mean anything to consumers anymore,” claims Lori Katz, vice president of Epsom Salt Plus, East Rutherford, N.J. “It’s just expected from store brands.” If retailers want shoppers to choose their store over the one next door, “Your private label products have got to be better than or different from the national brand because anyone can do me-too.”
Loyalty Through Differentiation, Not Discounts
In the eyes of consumers, explains Craig Smith, president of Mizkan Americas Inc., Mount Prospect, Ill., “Most retailers are interchangeable.” They all offer the same national brands and the same national brand equivalents, “So one looks pretty much like the other.” Stores that offer unique private label products, on the other hand, stand out from the crowd.
“Private label is no longer about price,” agrees Brad Denis, director of private label at Brooklyn, N.Y.-based Victoria Packaging. Today, it’s about creating brand loyalty through differentiation.
And that whole low-price thing never really made much sense in the first place, says Larry Wilhelm, owner/president of Custom HBC, Waconia, Minn. First of all, the price advantage disappeared as soon as the national brand went on sale. And in categories like hair care where there’s already a strong collection of value-priced national brands, there’s simply no room in the marketing mix for less expensive national brand equivalents. “When consumers can buy White Rain and Suave for less than a buck, there’s really no place for private label to go,” he explains.
Putting your name only on lower-priced alternatives to the national brands also sends a message that often contradicts what higher-end stores in particular want to say about themselves. “At best,” says Steve Fay, executive vice president and sales team leader at Roscoe, Ill.-based Berner Foods, “you miss a substantial opportunity to communicate your marketing strategy to the customer. At worst, you confuse customers about what your store is all about… Store brands have gone from being used purely for their economic merit to helping market the total store image.”
That’s one reason Fay suggests retailers eliminate the premium private label tier currently used to house “unique” or “upscale” store brand products in favor of a single program that offers high quality at reasonable prices. Such an approach “maximizes shelf space, makes the set easier to shop and sends a clear message to consumers that their retailer stands for quality.”
Manufacturers Step it Up
Although differentiation is perhaps the most compelling reason for retailers to abandon their strict national-brand-equivalent policies, manufacturers point out that, in certain categories, they really don’t have a choice. In the diaper and training pant segment, for example, the national brands have patented many key product features, preventing private label manufacturers from producing copy-cat versions for retailer clients, reports executive vice president Steve Pankow of Duluth, Ga.-based Associated Hygienic Products. Fortunately, he adds, “Meeting or exceeding [national brand] function is far more important to consumers than matching their form,” offering retailers with a different but equally good — or better — store brand product is another way to get that business.
Are private label manufacturers up to the challenge of creating such products? “We have to be,” answers Katz, whose company developed a store brand version of SudaCare Shower Soothers that uses a different mechanism to release fragrance than the patented one used by Pfizer. “That’s the kind of innovation retailers expect from us nowadays. If we want to survive, we need to be a lot more than just packers. We have to be able to take a category to the next level,” she says.
Wait a minute! Isn’t that the national brands’ job? Not anymore, says Smith. “The way we see it, we don’t compete with other private label manufacturers; we compete against national brand consumer product companies.” But stepping off the porch to run with the big dogs requires an investment in research and development that many small, family-owned companies simply aren’t able to make, resulting in an industry-wide shakeout over the past couple of years. Although fewer in numbers, those private label manufacturers still standing are much bigger than their predecessors, with much broader capabilities.
Of course, retailers also have had to make some changes. Since they can no longer just piggyback national brand advertising campaigns, they’ve had to assume more responsibility for product marketing — never their forte. But they’re getting there.
“The ones doing it right are putting money behind their efforts, utilizing advertising, demos, POS talkers, etc.,” Denis says. Retailers also have had to place more emphasis on package design since that’s now the primary vehicle for communicating product differences to consumers. The old “compare to” insignia just doesn’t cut it anymore, say manufacturers, adding that chains must very clearly elucidate product features on product package.
In addition, says Kelter, retailers have had to build knowledge of individual product categories. “It’s only recently that retailers have come to realize the importance of their store brands and actually built out entire departments to become category experts. This is a major shift,” he adds, “and one that has played out in their favor.”
More, Less or Better-For-You
Although the trend toward not-exactly-national-brand-equivalent private labels has trickled down even to commodity-type categories — for example, The Kroger Co. recently announced that its own brand milk would only come from cows not fed growth hormones — retailers are most likely to deviate from the national brands in more indulgent product categories where price isn’t particularly important. One classic example is putting more chocolate chips in store brand chocolate chip cookies, but putting more of any desirable ingredient in such a product usually is a pretty safe bet: More chocolate in the brownies, more milk in the latte, more shrimp in the scampi, etc. But less — fat, calories, sugar, etc. — also can be a strong selling point and an easy way for retailers to differentiate their private label from the national brand without straying too far.
However, says Fay, perhaps the best way for retailers to go “better than” is to offer an all-natural or organic version of a national brand product. With a certain set of consumers, he remarks, “the perceived value of the organic certification may trump everything else.”
Among those testing that theory is St. Louis-based Ralston Foods, which offers an organic alternative to Kashi’s Go Lean. “Our Protein Crunch & More is not only ‘natural’ like the national brand but also meets the strict USDA standard for organic,” reports Peter Infanger, product marketing manager. The company also offers healthier versions of both Quaker Instant Oatmeal (Ralston’s regular and cranberry flavors have added flaxseed) and Kellogg’s Organic Rice Krispies (Ralston’s is made from whole-grain brown rice). “The more different the private label is from the national brand, the higher the risk,” Infanger notes. But when different means better-for-you, that risk is significantly reduced.
While more indulgent, specialty-type foods are most likely to deviate from the national brand standard, on the non-foods side, says Kelter, retailers are focusing their efforts on products that require “higher consumer involvement.” In categories such as over-the-counter drugs, bath and body care, adult incontinence products and “anything related to baby care,” he explains, consumers are more likely to read labels and compare product features, giving retailers with a private label that outperforms the national brand a real opportunity to gain some traction. In these kinds of categories in particular, he continues, “Consumers don’t necessarily want just a cheap alternative; they want a product they can trust.”
But opportunities to raise the bar set by the national brand can sometimes be found even in the most benign, commodity-type categories. Remember when Clorox introduced the non-surge bottle, giving consumers a reason to choose it over the less expensive store brand? “Private label could’ve easily done that before Clorox,” says Smith, “but they didn’t,” and it’s been costing both retailers and manufacturers ever since. Never a fan of the “follow, don’t lead” approach, Smith and company made a pair of packaging upgrades to Mizkan’s white distilled vinegar years ago that the national brand has yet to emulate: A hinged cap (the brand stuck with screw-on) and PET packaging (the brand stopped at plastic).
“Retailers are under so much margin pressure,” Smith adds, “that they need to take every opportunity they can to attract customers and improve the bottom line.” That means nothing is off the table when it comes to innovation.
A Point of Difference
Offering a private label product that’s better than the national brand target is always nice, but it’s not the only way to stand out. Sometimes simply being different — even a little bit – is enough. In the sauces segment, for example, “We can use different cooking processes, different cooking times (which effects density), different ingredients — or we can create a new flavor,” Denis says. However, he suggests retailers limit the risk by sticking mostly with the top-selling national brand varieties and then adding one or two that are unique to their store.
A similar approach is often equally successful in the health and body care segment, where a custom fragrance or color — even for just one SKU in a collection — often does the trick. That’s the approach Epsom Salt Plus took with its vaporizing shower tablets, reports Katz. “We did the same two scents as the national brand on the first two SKUs but went with a unique scent, spearmint rosemary, on the third.” Private labelers walk a fine line, she concludes. “You want to be different, but you don’t want to be too different. You don’t want to reinvent the wheel.”