Private Label Buyer

Live from FMI's 2010 Private Brands Summit!

June 6, 2010
Read all about it! PL Buyer reported live from the floor of the Food Marketing Institute's Private Brands summit, which took place June 14-16 at the Palmer House Hilton in Chicago.




Tuesday, June 15

Sobeys Discusses PL Strategy

Delivering Tuesday's opening keynote address was Paul Flinton, vice president of marketing at Sobeys, filling in for Bill McEwan, CEO of the Stellarton, Nova Scotia-based retailer. Flinton gave a brief overview of Sobeys' history and explained the philosophy and development behind Compliments, the retailer's food focused private brand.

Flinton explained that a major reason Sobeys has been successful with its private label strategy is because of a strong focus on fresh products, a strong customer-service culture, and a somewhat decentralized business model in the way it goes to market. This model allows the retailer to operate five different formats (full-service, urban, discount, community-focused and convenience) that meet different needs. However, the retailer only operates one private label program. How does this work?

“The interesting thing to point out is how it does not work,” Flinton said, noting that instead of doing “private label at all costs,” Sobeys' develops private label prodcts that meet needs.

Flinton explained that the retailer examines everything category by category, store by store and market by market to determine what products to introduce. It looks at local markets and the national brands in them, then figures out the best products to bring to each market.

These products fall in various places across a clear three-tier structure (consolidated from what once was 22 brands): Signal (basic), Compliments (better) and Sensations by Compliments (best). Other differentiating lines are offered under the Compliments name, such as Balance (better-for-you), Greencare (eco-friendly) and a line of organic products. According to Flinton, Sobeys developed the lines after listening to consumers' needs through scorecards and consumer discussion groups.

“Today's consumer is conflicted,” Flinton said, noting that the modern American is looking for polar opposites on his or her grocery shopping trip. He wants a low price point, but demands quality. She's looking to cook from scratch, but still wants convenience. He wants to feed his family better, but still has an urge to indulge a little.

To determine whether a product lives up to customer standards, Flinton said Sobeys uses a panel of 100 well-trained, experienced consumers (an idea transplanted from British retailer Tesco). Sobeys trained panelists not to just give a “yea” or “nay” as to whether a product makes the cut or not, but also to judge a product's taste, texture, aroma and appearance.

Sobeys also uses its shopper loyalty card/program to gather information on what customers need. This information not only helps the retailer determine what products to bring out, but also what products to keep on the shelf and not discard altogether. According to Flinton, at one time, Sobeys was planning to delist two specific private label SKUs it felt were unnecessary on the shelf. However, data revealed that a large number of loyal customers regularly picked up at least one of those two SKUs on shopping trips. Delisting the SKUs potentially could have swayed customer loyalty.

Nearing the end of his presentation, Flinton presented the private brand strategy behind its latest discount format, FreshCo.

“When thinking of private label, it's tempting to think of a “one size fits all” [program],” he said.

But Sobeys does something a little different with its FreshCo stores. Understanding that often times shoppers feel they're compromising on the quality of products or the shopping experience when visiting a discount store, the retailer decided to use FreshCo not only to merchandise fresh products, but also to create a specific brand for the store. Displaying an on-screen presentation picture of fresh ground beef in packages with the FreshCo logo on them, Flinton explained that customers would feel the products and shopping experience are of good quality when offered fresh, exclusive products that could only be found in FreshCo stores.

Finally, Flinton discussed social media and how retailers should not use utilities such as Facebook haphazardly.

“Build a playbook and show them that you respect the space, the protocols, the authenticity of the medium,” he said, adding that the community following the retailer online should be allowed to shape the discussion. The retailer isn't necessarily the believable party, Flinton said - the people in the community are.


Wegmans Works with PL Supplier to Improve Supply Chain Efficiency

Retailers can work with their private brand suppliers to cut inefficiencies out of their supply chains and enhance their bottom lines in the process. That's the lesson learned from a program Rochester, N.Y.-based Wegmans has been involved with in recent years, said speakers at a panel discussion Tuesday at FMI's Private Brands Summit.

The Wegman's effort, known as “The New Ways of Working Together” involves interaction between suppliers and the retailer at multiple levels such as logistics, information technology, distribution, accounting, marketing and sales and merchandising, explained Pam Fisher, Wegmans' project manager for New Ways of Working Together. The effort works to align resources and strategies and involves joint business planning, she said.

Results to date have been impressive, said George Tetegan, vice president, supply chain, at Irving Consumer Products which has been working with Wegmans' in the new program. Working together on the supply chain front, Irving and Wegmans have been able to reduce days of supply in stock by more than 30 percent and increased the ability to anticipate distributions in the supply chain, Tetegan said. Reductions in transportation costs also have resulted from the effort.


Planet Retail's Berg: Look to Europe for the New Normal!

North American retail might differ strongly from the European marketplace, but that doesn't mean North American retailers can't learn new tricks from across the pond. In her presentation, “The New Normal: The Role of Private Brands Post-Recession,” Natalie Berg, research director at London-based retail consultancy Planet Retail, explained that North American retailers will want to pay attention in the coming years to find what will eventually be “the new normal” in North American retail.

Yes, North America already have been inspired by the low-cost, no-frills operations of ALDI, which traces its beginnings to Germany (but headquarters its U.S. operations in Batavia, Ill.) decades ago. And given the discount retailer's success in Europe (and the threat it poses to other European retail formats), North American retailers will want to keep an eye on ALDI's operations here in America. Yes, the North American discount segment is “clearly very small,” Berg says, but it's growing rapidly. General merchandise discounters make up a $30.4 billion segment in North American retail, and limited assortment grocery stores are a $15.9 billion dollar segment.

But discounters are just one of Berg's three drivers behind recent private brand growth in North America. The other two she gave are the presence of international retailers, and market concentration. (On a list featuring markets with the highest and lowest private brands penetration, the United States fell smack dab in the middle with an average penetration of more than 20 percent, while the UK and Switzerland were at the top with more than 40 percent, and Russia, China and Mexico sat at the bottom with less than 5 percent.)

Of course, as private brand focus has grown, so has an increasing emphasis on SKU rationalization. Using Walmart as an example, Berg noted that in the typical Walmart Supercenter, consumers spend an average of 21 minutes shopping. Considering that a Walmart Supercenter carries around 100,000 SKUs, to evaluate the overall product selection, shoppers would have to evaluate about 75 SKUs per second on a trip.

The main benefit of a good SKU rationalization program is that it creates more space on shelves for store brands, “carving out more space for private labels,” Berg said. Retailers added more SKUs to their shelves during better times, but since the recession hit, development has gone down, and those retailers need to start cutting back and only keep the products consumers want.

But in their cutting back, retailers seem to be focusing quite a bit on carrying value products and specialty/unique items. This led Berg to ask the question: “What role does the standard line have in the future?” Perhaps industry experts should look at Walmart's Marketside and Tesco's Fresh & Easy Neighborhood Market - formats which Berg earlier said are to breed private label growth in the future - to find the answer.

To conclude her presentation, Berg presented the following five key European private label trends in 2010 that have the potential to “make it” in the United States:

1. Increasing selection of niche sub-brands (homeopathic drugs, products in response to food allergies, kosher/halal foods, etc.). Some U.S. retailers are creating sub-brands to serve specific niches, but we have yet to see a “wide roll out” across North American retailers. Retailers will want to analyze sales and find out who's buying what items to figure out what items could be brought out to serve specific niches. In the UK, Berg said Tesco does an excellent job delivering niche products.

2. Licensing. Licensing benefits are a two-way street: Retailers benefit by offering unique products that cannot be found at competitors' stores, and licensees benefit from the United States' strong and growing private label market.

3. Transparency. Recently, Wegmans introduced a line of private label Swiss crepes. The retailer actually communicated the name of the line's Swiss manufacturer. Some retailers already do this in European retail - Berg cited ALDI in Europe as an example, as it names the processor of its store brand meats on the packaging.

4. Technology. In Europe, many retailers increase the visibility of their private brands through online shopping. In fact, Berg said Tesco will offer its private brands as “cheap alternatives” on its Web site. For example, if a consumer keys in the word “ketchup” on Tesco's Web site, a product under the Heinz brand might show up, along with a “cheaper alternative”: a ketchup under the Tesco label.

5. Brand building. Nothing new here, Berg noted. However, some UK retailers are finding strong benefits by putting their own brand products on other retailers' shelves (with their agreement, of course). Berg added that this process allows retailers to diversify into new sectors. Safeway has done something of this sort in the United States by offering its O Organic brand on other retailers' shelves.


FDA To Recommend Front-of-Package Labeling Guidelines by Year's End

Retailers have until July 28 to let the Food and Drug Administration know what they think about its efforts to come up with new voluntary guidelines for front-of-package nutritional labeling, Sharon Natanblut, senior advisor for strategic communications with the FDA Foods Program, told attendees Tuesday at FMI's Private Brands Summit. According to her, the federal agency hopes to have a front-of-package labeling recommendation ready by the end of this year.

FDA currently is researching and testing various alternatives for front-of-package labeling, ranging from a system that uses “high,” “medium” and “low” ratings for various nutritional ingredients such as salt and fat, to a system that gives a product an overall rating, to a label that simply lists key nutrients. Natanblut said FDA is looking to the food industry for input on the effectiveness of various labeling approaches, and for information on how consumers use labeling information.

Noting that several earlier summit speakers touched on issues of consumer confidence and trust, Natanblut said “we think that together, we can add credibility and gain the consumer's confidence” with new front-of-package labeling.

FDA wants to create information that is easy to understand, especially for shoppers in lower socioeconomic groups who might not understand or use current labeling information, she added. The agency's goal is simplicity in labeling.

“You're the ones who can tell us best what that actually means,” Natanblut said.

According to Natanblut, FDA recommendations will reflect its consideration of four key criteria, namely: 

1. The new labeling should be based on standardized, scientific criteria to promote health and reduce chronic disease

2. New labeling should be widely adapted but on a voluntary basis
3. The new labeling should be in a standard format that consumers can easily see and use
4. The new labeling should be designed with a wide range of education levels and should allow them to compare products within and across food categories in the context of a routine food shopping.


Big Brands Following Consumers Online, Into Mobile World

Major CPG brands will follow today's consumers digitally, selling to them in the mobile world and online while also trying “to get the voice of the brand in-store where ever they can,” Tim O'Connor, vice president of consultancy RetailNet told attendees at FMI's Private Brands Summit Tuesday.

Procter & Gamble and other CPG giants have been cutting poorly performing brands and will continue to do so while emphasizing innovation in their remaining brands, O'Connor said.

On the retailer front, expect Target and Walmart to convert their top-tier stores to supercenter formats that include food products, O'Connor said. He also noted that big-box retailers also will expand into urban areas with smaller formats, while discounters will continue to attract new business.

“The growing permanently distressed population will drive business to discounters and to private label,” O'Connor predicted.

In addition, “Chain retailing is going through a major inflection point,” he said. From the 1970s through the 1990s, people went to supermarkets to buy brands, so major branded goods companies held the power at retail. But from the 1990s through the start of the new millennium, retailers have held the power.

Today, the retail scene has moved into the age of the consumer, O'Connor said. “The consumer is getting more and more power through technology,” and other means. Consumers are changing how, where and when they shop by using the Web, their mobile phones and other non-traditional means, and brands want to be where today's consumers are shopping.


Social Media holds Different Roles for Retailers, Manufacturers

Private label retailers should be talking to their customers via social media channels, while private label manufacturers should be listening in on such conversations, suggested Donna MacDonald, senior vice president, director of account services, with advertising/promotion agency Schupp Co., during a presentation at FMI’s Private Brands Summit Tuesday.

“Manufacturers will never be consumer-facing in the traditional sense,” she said. “Still, they have a place at the table. We feel strongly that private brand manufacturers can actively listen. By listening, manufacturers can hear about consumer unmet needs and opportunities.”

Social media is widely defined to include a number of two-way conversational tools such as Web site Facebook and digital messaging service Twitter, among others. Roughly 96 million Americans are involved with social media today and 98 percent of those regularly purchase private label products, MacDonald said.

“Social media is out there and being widely used by the same people who are purchasing your brands,” she noted.

Before formulating a social media strategy for your company, it’s important to do some research to determine where your customers congregate in the social media world, what they talk about and what’s important to them, said Brian McLaughlin, associate media director at Schupp, who spoke on the same panel as MacDonald.

“What are consumers saying about you in social media? Finding out is imperative” to crafting an effective social media strategy, he said.

Establishing success measurements is also essential for a social media program. Possible metrics include the number of people visiting your site, how much content users post to your Facebook page, how many mentions your company gets in the blogosphere or how many positive reviews a product garners.

“What is success?” asked Chris Douglas, interactive creative director at Schupp. “It’s imperative to figure out what you want success to be before getting started.”




Wednesday, June 16

Private Label Growth To Slow for Now, Analyst Predicts

Private label products soon could see a “cyclical pullback” that typically occurs after a recession ends, Andrew Sawyer, a Goldman Sachs analyst who follows large-capitalization consumer staples companies, told attendees at FMI’s Private Brand Summit Wednesday.

“We’re taking a view that there is some potential for cyclical pullback from the strong run that we’ve had,” Sawyer said of private label. But longer term, “bottom line, I think that private label has potential to grow.”

Demand for consumer staples such as food products will likely pick up in the later part of this year, Sawyer said. Retail goods such as clothing have seen a V-shaped recovery, with demand falling dramatically as the recession hit and then recovering just as dramatically earlier this year. But consumer staples haven’t followed that V-shaped recovery pattern so far.

Such behavior is “100 percent normal for this portion of the business cycle,” Sawyer explained. “Retail is an early indicator of recovery. Staples don’t show the same correlation.”

Major brands have increased in-store spending to stimulate demand, he noted, but “spending failed to stimulate growth thus far, and it’s taken profit dollars out of the industry,” Sawyer said. Procter & Gamble for example, has been very aggressive in promotional activity and new product spending and has managed to stabilize its overall share. “They have been able to get high-end products growing again with a lot of spending,” he said, citing Tide and Gillette as two brands in that category.


Executives Discuss Future of Private Brands

Following a presentation from Goldman Sachs, FMI held a discussion panel where five CEOs - two from retailers and three from manufacturers - discussed their thoughts on where the private label industry is headed in the coming years. Titled “CEO Perspectives on the Future of Private Brands,” the panel consisted of the following executives:
  • Curt Hollman, director, corporate brands, Giant Eagle
  • Jack Kelley, president and CEO, American Italian Pasta Co.
  • Edward Salzano, executive vice president and chief operations officer, LiDestri Foods
  • Rick Alvarez, president, Frozen Specialties Inc.
  • Dave Bennett, senior vice president procurement and private brands, IGA
Kicking off the discussion was the question, “What will grow private brands?” Salzano said innovation - more and more retailers are offering products that differentiate themselves from the competition (as opposed to “me too” items), and as time goes on, retailers will want to continue showing the market that they can offer better products than those made available by the national brands. Bennett agreed, specifically noting that innovation in the health and wellness arena is especially important today.

Using a phrase from a presentation given the day before by Thom Blischok of SymphonyIRI Group, Kelley noted that “national brand purchase decisions are made in the home,” while “private label purchase decisions are made in the store.” Therefore, retailers need to work harder with supplier partners to develop packaging that is pleasing both aesthetically and in terms of performance.

Collaboration also was discussed when the moderator asked the second question: As a business, what keeps you up at night? For Alvarez, the answer was growth. Growth doesn't occur overnight, so how can manufacturers better collaborate with retailers for the long term?

Salzano said that as the national brands continue to spend more money to market themselves and gain share, he's seeing a rise in strong retailer/supplier partnerships. And these partnerships aren't haphazardly increasing SKU count; they're creating a goal for each category. Salzano added that retailers should not look at private label as their “cash cow,” but as their “brand-builder.”

Addressing the issue of partnerships, Hollman said that instead of demanding innovation without guidance, Giant Eagle offers information about the different consumers they serve, and then relies on suppliers to offer their expertise,

“We're not experts in any category,” he said. “We're pretty good in many categories.”

Salzano offered up his opinion that doing business and collaborating for the long-term helps develop a better business model.

“How do you share your talent?” he asked.

Partnership also was a major topic of the panel's discussion when everyone was asked whether a double-dip recession would be good or bad for private brands. According to Kelley, the answer is both. National brands will continue to vamp up marketing and spending, he said. But on the plus side, the increased effort on the national brands' part will encourage and drive supplier/retailer partnership on the private brand side.

Bennett said his concern is whether the consumer will show any interest in more-premium private label offerings-he or she could end up “trading down” to the value brand, which would equal fewer dollars per register ring. Therefore, retailers need to better position and promote their non-value-tier products.

Hollman added to Bennett's thought by noting that retailers can't simply set a single price gap between national brand products and private label. A 30 percent price gap might work for national-brand-equivalent products, but that doesn't mean it's good for better-quality lines.

Speaking of quality, Salazano said the last thing retailers will want to do if faced with a double-dip recession is change the quality of their private label products. Let the national brands keep changing product formulas to create lower-priced options. As consumers turn more to private label, money made can be invested back into R&D to increase product and packaging quality even more.

Retailers also will want to invest their efforts into social media, Kelley noted. He used Wegmans as an example of a retailer with a good handle on social media. The retailer uses its Web site to host videos and recipes that not only encourage the customer to cook, but also build a shopping list around suggested private label items.

“You can create a lot of opportunities around instructional selling,” Kelley noted.

Retailers also can find plenty of opportunity to work with the product selection they have-several companies have learned to do “more with less,” obviously a prominent theme across all recession-hit industries. Most panelists agreed that they don't see many new SKUs being introduced, and that's fine. Hollman noted that he admires Target and Wegmans for performing well with the product selection they already have. He added that Giant Eagle, which already has a very large number of SKUs, is not planning to increase its count, and needs to learn how to do more with the SKUs already on shelf. Just because a national brand comes out with a line extension doesn't mean a retailer needs to do the same with its private label.

Where retailers will want to focus attention is price points, Alvarez said, reminding the audience that although consumers are concerned with innovative products and excellent quality, they're still very concerned with affordability.