Private Label and National Brands - Today's Changing Retail Dynamics
Selected highlights from a recent PLBuyer panel discussion at FMI Connect as part of the Private Brands Summit
The playing field for nationally branded and private label retail grocery products has seen a considerable shift in recent years as retailers put more effort into their private label lines, diversifying the types of products offered, getting more involved in the manufacturing process, and sometimes investing in marketing and advertising of private label to varying degrees. Consequently, national brands and private label have grown more competitive, and retail channels continue to shift in terms of categories covered and shopper demographics served. How are these changing dynamics impacting today’s overall retail landscape, and how do they point to the future face of grocery retailing?
This was the weighty question we sought to address during a panel discussion in June at FMI Connect. Our panel discussion, as part of the Private Brands Summit, featured Larry Levin, executive vice president at IRI; Richard Gunn, executive vice president of merchandising and marketing at K-VA-T Food Stores Inc./Food City; and Howard Brandeisky, senior vice president of global marketing and customer solutions and John B. Sanfilippo & Son. Here are some selected highlights.
Douglas J. Peckenpaugh: How have strategies toward management of private label and national brands have changed in recent months and years?
Howard Brandeisky: You can really see the different approaches to private brands in the marketplace and the different levels of success. On one hand, private brands are really taking a page out of the playbook of the national brands—in some cases, they’re taking the whole book—and what they’re doing is building programs around shopper loyalty by focusing on product innovation and quality. On the other hand, you have private brands that aren’t doing as well. They’re still based on an old model focused on cost and trying to manage margins. At the same time, some national brands aren’t playing the role that they once did. They’re not doing as much innovation. The way a lot of national brands are responding is by narrowing that price gap.
Larry Levin: That’s interesting in terms of narrowing the price gap. I was kind of looking at it from the other side of the house. Private brands are proud of the presence they have. Private brands have grown to be trusted brands. We’re seeing a 6 percent increase in the price point for private brands, and only a 2 percent increase in the price point for national brands. Private brands are proud of the relationship they’re building. We recently did some work around candy and snacks. We saw that premium candy—such as premium chocolate—has grown significantly on the private label side. There are elements of private brands that really can command a higher price. And national brands are a little more conservative.
DJP: How important is the difference between national and private brands to the consumer?
LL: We sit here and talk about national brands and private brands, but to the consumer, they’re just brands. In the consumer mind, “That’s a product I want.” They don’t care who makes it. It’s all about communication. Some consumers walk into a store with an established trust relationship. When they buy a brand that has the same name as the store, it means a lot. 17 percent of units and 14 percent of dollars are coming from private brands. It’s a $108 billion business that’s growing by $1 billion year-on-year.
Richard Gunn: A big opportunity for us is to start at the shelf, to meet consumer needs that are not fulfilled by the national brands.
HB: Fundamentally, in the end, consumers buy benefits—products that bring benefits. And when you build brands around benefit needs, that’s when you’re going to be most successful. Smart brands are starting with the consumer, doing the proper consumer segmentation, understanding the segments—and the insights within each of those segments. Then they’re identifying the needs that those segments have and developing the products that meet those needs. This results in category growth.
DJP: How can private label and national brands work together to help retailers?
HB: That’s the big opportunity that’s out there. National brands and private brands have the mutual goal of growing the category. There’s an opportunity to work together to grow the category. And companies who work in both national brands and private brands are in the best position to help. Category management requires resources—people, information systems, analytical capability. It’s a win-win for the retailer and the manufacturer when you create the optimal assortment in the category. Another opportunity is in cross-category merchandising, pairing a national brand with a private brand in non-competing categories.
DJP: How does private label and national brand sales performance vary across retail channels?
LL: Grocery continues to drive about 58 percent of private label sales. Mass merchandisers are about 31 percent. Grocery continues to grow. About 20 percent of the dollars are coming from private label.
DJP: What can private label learn from national brands to help increase overall sales for a retailer?
RG: The lesson that the national brands have taught us for years comes from the basic “block and tackle.” Here’s the item, here’s the size, here’s the price, here’s the position we think it best performs in, and here’s the marketing campaign that’s going to support it. If we’re going to truly innovate with private brands, we have to include the total package.
HB: All too often private label falls into a trap, forgetting that there are four “Ps” in the marketing mix, focusing only on price without making sure that you have the right product, promotional plan, and placement in the store.
LL: Too often we see new innovation not able to sustain success in year two. Whether it’s a national brand or a private brand, we have to support our innovations in the second year with more advertising, more merchandising, more SKU development. If we’re not paying attention in the second year, we’re going to see a lot of our innovations drop, we’re going to become de-listed, and we’re going to lose that relevancy in the consumer’s mind. The retailers who are really successful with private label are the ones who are doing a really great job leveraging their own brands and leveraging the national brands. Where the everyday market is eking out minimal growth, these collective retailer brands are growing at about 2.5 percent year-on-year. That’s significantly higher than the market average. They’re paying attention to the needs of their national brand partners, and their own needs. They’re working on joint merchandising practices that really help them win the shopper. It’s not necessarily about their brand or the national brand, it about what the shoppers wants when they come down the aisle.
DJP: How can retailers build better relationships with both national brand and private label manufacturers and suppliers?
RG: No. 1 is understanding. Top-to-top meetings. Understanding what a manufacturer—whether private label or national brand—needs our help on. If there is something that’s really important to them in their portfolio, some innovation that they want us to highlight, we need to understand what we need to do to grow the category. We can’t follow the old model of cannibalization. We really need to put collaboration to work—not just saying it, but really getting in there to see what the needs are. When we reintroduced our Chuck Wagon brand, we brought in all of our pet suppliers and told them what we were planning to do—here’s our plan, here’s our target, here’s our focus. Exposing them to the mission. We’re planning on growing the category. We don’t want to cannibalize our portfolio—or yours. We wanted to get some new pet food customers in our store. And then asking them to step up and play a role. The relaunch of that program was very good for the whole category.