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Success Brings Shifting Strategies to Private Label

August 30, 2010
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Private label food and beverage dollar sales in 2009 totaled $87 billion – i.e., 17 percent of total food and beverage retail sales in the United States, says the study “Private Label Food and Beverage in the U.S.,” from Packaged Facts, a division of MarketResearch.com. With success, say the study’s authors, come shifting strategies in such areas as space allocation, tiered product lines and store brand/retailer brand synergies, and pricing. 
 
Copycat product introductions are still common, the authors note, with private labels mimicking national brands and so benefiting from their research and marketing. But other private label approaches also are evident.
 
“Getting out of the also-ran rut by entering categories without a strong national brand leader is also emerging as a plausible strategy,” the report states. “For example, Walgreens entered the healthy snack category with Walgreens Daily Dose vitamin-enhanced cranberry trail mix packaged in a resealable pouch. It has been a strong product doing well in a category with no leadership brand.”
 

On-shelf power today is more readily wielded by retailers who typically optimize slotting-fee-free shelf space with their own brands at eye level, at an endcap or near the cashier, the report notes, For the national brands, shelf space is in shorter supply as retailers rationalize SKUs and expand private label.

A three-tiered private label program, including value, added-value and premium-branded products, is, the authors say, a minimum standard for most retailers. Pre-recession, retailers focused on premium-tiered products, introducing specialty private labels “such as Kroger’s Naturally Preferred label, devoted to natural and organic products, and its private-labeled product deal with Disney Consumer Products,” the report notes.
 
But the recession turned retailer attention once again to lower tier private labels.
 

While multiple tiers may be helpful for retailers in managing their product lines, the authors warn of consumer confusion. After potentially confusing on-shelf activity, the report identifies inappropriate pricing of private label as the next biggest issue. Retailers often decide that the lowest price is the best price, and that can be 20 percent to 50 percent less than branded equivalents. Too low a price can suggest poor quality and can do real harm t private label’s appeal, the report authors suggest.

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