- RESEARCH & AWARDS
- CATEGORY REVIEWS
Setting the Stage
As for trust, Wisner says what’s very critical in the relationship is “a measure of openness and access between both parties in looking at joint opportunities with a common consumer.” Of course, honesty, integrity and the right personal values/characteristics also are important.
Wisner stresses that private label manufacturers must be more flexible than their national brand counterparts.
“However, this needs to extend into an ability to tailor programs that are specifically targeted against the retailer’s operating philosophies, pricing strategies and distribution opportunities,” he adds.
Meanwhile, value-added support refers to much more than just getting the lowest price on a “commodity defined” product. According to Wisner, private label manufacturers that add marketing intelligence, marketing support, consumer insights and other support vehicles will achieve greater success as “retailers move more aggressively to more highly differentiated programs.”
Finally, retailers and manufacturers that work in tandem to identify common cost-savings opportunities will be more successful than those that don’t, Wisner says. However, he cautions, such opportunities must be based on real, legitimate changes -- “not simply some deluded perception that the buyer was successful in ‘beating up the vendor.’”
Paula Rosenblum, a managing partner at Miami-based Retail Systems Research (RSR Research), agrees that trusted suppliers -- “the most highly prized commodity” -- do much more than fill a retailer’s order.
“A trusted supplier collaborates with retailers on product design to improve speed to market or time to volume,” she says, “at the most reasonable cost. Today’s retailers want consistent compliance to specifications and quality, along with the traditional requirements of accurate quantities and on-time delivery.”
Frank Dell, president and CEO of Stamford, Conn.-based Dellmart & Co. Inc., refers to findings from his company’s recent Private Label Buyer Survey to pinpoint what constitutes an “ideal” private label supplier.“The service bar has been set,” he says. “This includes constant quality, constant order cycle time and no problem transactions. ... The new issues are understanding consumer trends, understanding the retailer’s target market and bringing new items to the retailer in a timely manner.”
“Retailers are not expecting private label suppliers to match the branded suppliers in market knowledge, but those that provide private label insight are valued,” he says.
The same goes for packaging innovation, Dell adds.
“Retailers believe the private label manufacturers are slow in bringing innovation to the market, and when they have it, they are slow in communicating [it] to the retailer,” he says.
Dell suggests that retailers communicate product and packaging innovations directly with the retailer instead of waiting to communicate them through the broker at the annual meeting.
Wisner explains that product and packaging significance currently is undergoing a major transformation.
“Leading-edge retailers are now aggressively looking for ways to not simply mimic national brands, but to actually provide points of difference from their competition on the shelf and from their retail competitors at other chains,” he says. “We are beginning to see this on the product side. A simple good example is Meijer, [which] promotes their store brand pancake syrup as still being the only one on the shelf containing real maple syrup. These kinds of simple changes can go a long way in changing the overall perception of store brands with the consumer.”
On the packaging side -- an area Wisner says has been “terribly overlooked for many years” -- suppliers (and, in this case, retailers) can do much to address functionality.
“In many cases, retailers, in an attempt to save a few cents, will provide an equal-quality product but may not go the extra few pennies to match packaging that may be a deal breaker for the customer,” Wisner says. “An example is pull-top lids on canned products. Our recent research project, ‘Center Store Renewal: Leveraging Private Label to Drive Growth,’ suggested that this would be a point of rejection for about 40 percent of the customers.”
He says retailers and suppliers face a long list of opportunities in functional packaging, including but not limited to reusable, microwavable, see-through, UV-resistant and shatter-proof options.
Packaging also is a big issue right now for retailers looking to create “green” initiatives, Rosenblum adds. In fact, in a recent RSR survey, 54 percent of respondents cited packaging and material costs as a reason to become more environmentally conscious.
“Anything innovative that can be done to improve packaging will translate into both great brand-building and cost savings,” she stresses.
No matter how innovative the product or package, consistency -- incorporating both safety and quality -- is critical, too, says Rosenblum.
“The safety and quality factors remain as high as always, and retailers simply will not and should not change this.”
Many manufacturers have heard retailers make offhand comments about getting cheaper products overseas, Wisner says -- without completely understanding whether appropriate food safety and other quality assurance processes are in place. In this case, the onus is on the retailer to ensure the quality and safety aspects of the equation.“If you are inspecting plants and have carefully defined manufacturing criteria and practices, and are monitoring adherence, then chasing around the world is just fine,” he says. “However, if you are simply buying the lowest price, it can undermine your entire brand if ultimately it proves there is a problem and proper oversight is not given.”
An Evolutionary Relationship
“Five years ago, the movement was all toward price-driven bid buying and commoditizing private label vendor relationships and products,” Wisner explains. “Everyone was looking for ways to be price-competitive with Wal-Mart.
“As interest in differentiation has taken hold,” he continues, “there are now some glimmers of retailers moving back toward looking at creating more effective partnerships with their vendors that focus on product differentiation, marketing support and joint agreements that are focused on genuinely reducing cost as opposed to simply negotiating price. This is really a positive mood and bodes well for private label.”
In comparison to the 1990s, which were “all about cost compression from bidding events and resulting adversarial win/lose relationships between retailers and suppliers,” retailers today realize they can’t compress costs any further without serious quality degradation, Rosenblum says.
Over the past few years, she says, “We have come full circle back to the notion of ‘trusted suppliers.’ However, the best retailers trust but verify -- they scorecard vendors frequently and perform factory audits to ensure that what they expect actually happens. It’s worth a passing mention that despite all the talk about price deflation and periodic allusions to ‘shrinking gross margins,’ our data tells us that virtually ALL retailers have experienced gross margin improvement over the past three years.”
The relationship scenario is not all rosy, however.
“The general buyer/seller relationship has improved somewhat,” Dell says, but we are not there. This is not all the private label suppliers’ fault. Retailers that use the category manager structure -- with each category manager responsible for their own private label -- present varying levels of interest and experience for the private label suppliers.
“This has fostered the ‘copy branded’ and low-price position by the retailers,” he continues. “Those retailers that have a single private label executive have stronger relationships. They are open to new products and a closer relationship.”
“Private label suppliers are going to need to move faster as the marketplace changes, he says. “Real new items must be presented faster. The new products process must be re-engineered so the time period from approval to store delivery approaches 30 days.”
Moreover, “in and out” private label -- be it seasonal or promotional -- will be added to keep store brands active, Dell says. Product variation will need to expand to match retailer formats and markets. The result? Smaller production runs but more items on the truck.
“The better private label suppliers will understand the retailer needs and adjust policies and procedures to exceed expectations,” he adds. “As the private label percentage increases for retailers, they will rely on the private label community for ideas, trends, etc.”
Rosenblum says several factors are at play -- fuel costs, the China backlash and more -- that may cause retailers to manufacturer their products closer to the point of demand again.
“Also, if China gets around to revaluing its currency, which many observers believe is long overdue, its products will become more expensive,” she says. “But on the flip side, the
However, as the low-cost sourcing countries develop their middle classes, Rosenblum says the partnerships will extend to supplying local demand on the other side of the world.“An opportunity for enhanced partnerships will exist in the emerging markets of
Meet the Circle of Excellence Winners
These companies, seven in all, have earned a Category Colonel Award every year since the competition’s inception in 2001! That’s right -- for eight straight years, retailers have given high marks to these companies for their commitment to product quality and strong relationships with their retailer partners.
Circle of Excellence Winner: American Italian Pasta Co.,
AIPC supplies private label and control brand pasta and noodles to the retail grocery, mass merchandiser and membership warehouse club channels. As a private label supplier, the company says it uses its extensive category expertise to help its retail customers develop and sell quality store brands at a value price.
Circle of Excellence Winner: Ralston Foods,
Ralston Foods is the leading manufacturer of store brand breakfast cereals. Its private label cereal and other products are tested on an on-going basis, using internal and independent external sensory testing to ensure branded attributes. High consistent quality, breadth of product line and competitive pricing are what makes Ralston a leader in the store brand arena, the company says.
Circle of Excellence Winner: Presto Products Co.,
Presto is a market-leading supplier of products ranging from private label food and disposer bags to packaging closures. The company says it has the strength and agility to provide leading-edge products and services to help its retail customers compete.
Circle of Excellence Winner: The Carriage House Companies Inc.,
Carriage House is a leading manufacturer of quality private label foods, including jellies and preserves, peanut butter, barbeque sauce, Mexican sauces and a variety of syrups. The company says it prides itself on its strong commitment to innovation, product quality and customer service.
Circle of Excellence Winner: Perrigo Co.,
Circle of Excellence Winner: Huish Detergents Inc.,
Huish is the largest manufacturer of store brand laundry detergents and fabric softeners in
Circle of Excellence Winner: Mirab