Outlook 2011

December 20, 2010
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Private Eye

What will the new year hold for private label?  PL Buyer has assembled its new editorial board to answer that question for you. What follows is an edited transcript from our virtual roundtable. 

PL Buyer: Will private label continue on its recent growth path in 2011? 

Sean Seitzinger: Overall, retailers will make bigger investments in private label, along with branding and marketing. Companies that are succeeding with private label are doing so because they are connecting private label with the overall market. This doesn’t always mean premium private label either. The winners will continue to win, and the losers will continue to lose. 

Christopher Durham: Private brand will continue to grow in the coming year as retailers improve both their products and their branding. Consumers have tasted the quality of private brand and will not soon return to paying the brand tax.

Craig Espelien: Yes – but it will be focused, not broad-based. After every recession I have been involved in, you see a spike in PL sales. Once the recession ends, only those retailers who recognize the strategic nature of branding, continue to drive PL performance. Many marginal retailers will be enticed by the third and fourth brands with incremental slotting and ad fees to re-emphasize duplicative brands – which leads to a de-emphasis on PL. Private label needs to be nurtured like a BRAND – product enhancements and label redesigns need to be built into the culture of the retailer and this takes time, energy and discipline – which retailers too often ignore.

Carl Munyon: Private label will continue to grow positively in 2011 as the economy recovers at a slow pace, but not at the same growth level as in the prior two years. I believe that there will be a lot of cost pressures on commodities which will lead to retail increases on products. The consumer that has already moved to private label will continue, with new consumers following suit to avoid some of the inflation that they will see in their monthly spend on consumables.

PL Buyer: Are consumers ready for premium private label? 

Munyon: Absolutely! When it comes to premium products some retailers stand out among them all. Target's Archer Farms brand has innovation, quality, differentiation, and price that will keep customers coming back. Trader Joe’s continues to grow and provide unique, quality products at affordable prices. H-E-B really listens to the customer and provides a combination of all of the above when it comes to premium private label. 

Seitzinger: Yes, consumers are ready, but how many retailers are more serious about the private label level? Retailers that are more pressed for pricing can utilize offerings in private label and premium private label as a great way to obtain even more dollar profits, but there are hurdles. Retailers should know what premium means, and they should carry products that are of high quality and meet premium standards. Are they committed to go out and source premium products, package them and position them as premium? It requires investment. 

Durham: Consumers are open to trying premium brands in all channels. If a retailer can provide a unique premium product that fills a consumer need they have the opportunity to truly differentiate themselves. If they can also create a brand customers know and trust, they will create loyal customers

PL Buyer: Everyone talks about private label innovation. What does that mean, what should it mean to the business? 

Espelien: Private label innovation has many meanings – flavors, product, blends, packaging, etc. Most retailers want to do this – but lack the discipline to get it done due to not really understanding the different marketing approach needed to drive performance. Chevy does not use the same marketing approach as Cadillac – but many retailers fall into the item/price trap for all of their private label products.

Seitzinger: I’d almost replace private label innovation and say it’s more about brand innovation. For more and more retailers, it’s about evolving their brand. Look at it from a non-CPG perspective: HBO had the Sopranos and AMC has Madmen - it established credibility for that brand (in this case a network) with one quality show. For a lot of retailers, innovation is an opportunity where one great brand offering to consumers can “get them.” Retailers are recognizing that private label is a way to have your brand be innovative with the latest and greatest. But once again, are retailers willing to bring that to life and take on the risks and rewards to evolve their shopper base?

Munyon: Innovation in private label has a twofold meaning to me. First, it means that you want to stay ahead of the other private label products competing out there. This can be in the product itself and it can be in the packaging. Secondly, it means that it is OK for private label to take the lead against the branded competitors. Making important ingredient changes (i.e. sea salt or less sodium) or developing new and unique packing to better deliver the product to the consumer.

Private label innovators need to take this same attitude of not being afraid to lead the pack with private label. There are some retailers out there today, like H-E-B, which become the standard for a product even as a private label. This puts them in a strong position against the discounters and the normal chains that aren’t forward thinking enough to take these risks.

Durham: Innovation for a discount retailer may be incremental and simply mean pack size, structure or flavor. However, innovation for a premium, organic retailer could mean new and unique products that are also good for the environment. Retailers must know their strategy, know their customer and build their innovation resources appropriately.

PL Buyer: Do you see retailers who have achieved private label success continue to lead the private label pack in 2011? 

Seitzinger: I see the winners win and losers lose. Successful private labels have common themes, such as commitment to constant iteration of strategy. Kroger resets its shelves and plays around with the private label section multiple times a year. Are the people at the tail end or middle going to make the investment and changes to have the long views? Are they going to get serious about their brand and the role of private label in that offering?

Espelien: Yes. Again, it will be the folks who are building for five years from now (rather than tomorrow’s numbers) who will achieve brand relevance and brand resonance with PL with the consumer. 

PL Buyer: How essential is good packaging design to private label success? Are there packaging innovations you expect in 2011? 

Durham: Good package design is the cost of entry in 2011, great package design is the way to move the needle. Structural innovation is a different question, although there have been standouts over the last few years (Target, Method, etc.) by and large structure is dictated by cost and large manufacturers’ capabilities. This is an untapped opportunity by both national brands and private brands. 

Seitzinger: Retailers should keep it on the radar screen, but recognize it’s a difficult area to score wins. I’d say that 95 percent of the time, packaging design does not get a consumer to pay for a brand, but the 5 percent it does; it’s huge. 

Espelien: Very important – but there is still a need to make packaging part of the brand equation and suppliers need to embrace changing machinery which will not happen until retailers choose to innovate or make innovation a strategic plank. Several innovations are possible: 

• Bottle color and shape: especially in personal care

• Alternative packaging for laundry and cleaning

• Re-Cart packaging: the capability is there – but the retailer does not want to change and the vegetable suppliers are reluctant to buy new machinery due to being heavily invested in cans. 

Munyon: I feel that 2011 will be a strong year for private label and for packaging innovations for private label as well. Value added/customer convenience will continue to be demanded by the private label consumer. They will be looking for easy opening and resealable packaging. Along with this, portion-sized packaging will move into private label more. More premium elements of the actual packaging will work their way into private label, like the use of foil printing. Also private label will feel the pressure to make packaging environmentally-friendly through reducing the amount of packaging and the carbon foot print. Finally sustainability will be on the minds of the consumer for private label products and packaging. Private label will need to tell this positive story through images and words.

PL Buyer: What are the top three things you think shoppers are looking for from private label? 

Munyon: To have a successful private label program a smart company must deliver on three basic elements:
• Quality – national brand equivalent or better.
• Consistency – the quality needs to be there every time.
• Price – there has to be enough of a price difference to change the buy decision.

Durham: Quality, selection and trust.

Espelien: Knowledge that the retailer “loves” their own brands. Consistency – both in terms of quality but also in terms of packaging. Solutions – consumers see private label products as components of their overall shopping solution and they want the retailer to abandon the “Us” (national brands) against “Them” (private label) mentality and integrate their solutions into a complete whole.

Seitzinger: Quality, quality, quality. It comes with what’s in the box, the form of the box, how the box is merchandised, and how it’s put on the shelf. 
If I were a retailer, I would put all the focus on my name, my brand and tell the consumer, “This is what’s good for you.” Stand by your products better than the manufacturers to make the consumer question why they are doing business with them.

PL Buyer: Will U.S. private label reach the sales penetration rates common in Europe? 

Seitzinger: Yes, I think there are markets and categories already there, and it just takes some time for the private label brands to develop. 

Munyon: There is a substantial difference in the consumers approach to buying products in Europe versus the United States. The European consumer is a technical-minded consumer. They are very interested in the details of the product. What are the ingredients, what components were used, as well as the environmental impact of the product. The American consumer is very much influenced by marketing. It is about the feel and the image that drives the U.S. consumer’s decisions. I believe that the U.S. consumer has evolved and will move over time to be more interested in the actual product itself.  

Durham: Each category and channel should evaluate their brand mix and provide their customers with the solution that is appropriate to their business model. There is no right or wrong penetration goal.

Espelien: Probably not – but the gap will continue to close. Brands and the brand culture are too much part of what the shopping experience is all about to get to the same level of share. That being said, some chains might get VERY close and if the economy stays chancy, then there will be brands that fall by the wayside, leaving PL with more room to grow 

PL Buyer: What can U.S. retailers learn about private label success from their Canadian counterparts?

Munyon: Canada is a unique hybrid of the States and Europe when it comes to the consumer and the business approach. The U.S. retailer can learn from some of the larger retailers in Canada, like Loblaws, that have had private label success. These retailers stay true to what the shopper is looking for in a private label product; quality, consistency and price. Private label, to the successful Canadian retailer, is not generics (bad word in any successful private label program) but it is about offering great quality, true uniqueness and consistency in creating your own brand. The bottom line is to win and maintain the customer’s loyalty to your brand; however you can’t do that by selling an “off brand” product to just hit a price point. 

Espelien: (Lessons from Canada are that) brand IS important for PL; romance IS important; innovation IS possible (but be ready to deal with product failure); pride in your PL is a cultural thing – embrace it, nurture it and watch sales, share and profits grow; own your own destiny; understand what the consumer really wants – and deliver it to them in PL.

Seitzinger: Canadians are great at assortment, format and appropriate offerings. These are important to consumers. Good retailers have found that it’s hard to keep competition out based on just price. If you build a good relationship, it’s harder for branded manufacturers to take them from you. If a consumer knows your private label brand and is familiar with you, it will be impossible for Walmart or others to hurt your business. The key to successful brand building is to know your shopper, reduce competition, and have solutions for which your consumers are looking. 

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