Special Report: Private Label Update

Spanning more than 100 categories in food, beverages and household consumables, Walmart's Great Value brand is the largest retail food brand in both sales and volume. In fact, Walmart's total own brand sales (including other house brands) significantly exceeded total sales from Coca-Cola, McDonald's and Google combined last year, according to Giovanni DeMeo, director, global brand development for Daymon Worldwide Design, a private-label development firm in Stamford, Conn.A complete relaunch of the "couple thousand"-SKU Great Value brand began hitting store shelves at the end of March, featuring a consistent packaging design, the reformulation of 750 products (that weren't previously hitting national-brand standards), and the addition of 80 others.Not only does the revamp show Walmart's lasting commitment to private label, but it also comes at a time when an increasing number of retailers, large and small, are leveraging their store brands."Our customers are expecting more out of our private brands, and we're responding to their needs," said Andrea Thomas, senior vice president of private brands for the Bentonville, Ark.-based retailer during Reuters Food and Agriculture Summit in Chicago in March. "The brand reinforces Walmart's commitment to helping customers save money by offering national-brand quality for less."Down Economy Drives GrowthPrivate-label sales reached $83.3 billion by the end of 2008, up 10.2% from the previous year, while total brand sales rose just 2.6% but still accounted for $419 billion, according to the Private Label Manufacturers Association (PLMA) and The Nielsen Co."Consumers are making a choice to trade off to private label much more so than they did in the past," says John Learish, vice president of marketing for Rite Aid. "They've always been willing to in some categories, but now we're seeing a higher tolerance in those categories that have been much more brand loyal."It's clearly a function of what's going on with the economy, he says, as consumers are looking to get the best value. The Camp Hill, Pa.-based drug chain is capitalizing on the trend, rolling out its largest sign program ever to call out the price savings on national-brand equivalent items. "For every private-label item in our stores, we'll be signing very aggressively to call out the savings to the customer."Brian Sharoff, president of the New York-based PLMA, adds that the psychological downturn in consumer confidence last fall led some retailers to look to their own private-label programs in an attempt to build their business. "The national brands weren't offering the retailers anything they could take to their shelves and say to the consumer, 'Here, we're on your side,'" he says. "The only thing they were saying was, 'We must maintain our prices.'"Since then, CPGs have responded with creative ways to offer consumers value and tell them about it. Del Monte Foods, San Francisco, put together its largest campaign for its canned goods in a decade, prompted partly by "an increase in private-label sales as consumers react to the economy," said Bill Pearce, chief marketing officer in a recent New York Times article.However, Sharoff believes this year may be the "climax" of private-label growth in the U.S. "The recession is forcing retailers to accelerate what was already started many years before in terms of their plans to aggressively market their own brands."Jeff Weidauer, vice president of marketing for Vestcom International, Little Rock, Ark., agrees that private-label products should level off. "While I think you're going to continue to see PL grow, I doubt we will ever get to where Western Europe is -- 25% to 30% share is probably our upper limit," he says, with the main reason being that "there is too much focus on brands. Brands bring too many other things to the party." (See the company's white paper on private label on Page 11.)Creating True PL BrandsTo maintain its growth, private label cannot regress to its image of the poor cousin to national brands."The goal now is to do a better job than the national brands of being relevant, honest and communicating the benefits of the product over a mainstream brand," says Dennis Furniss, creative director for Kaleidoscope/Blue Tagg, a Chicago-based strategic design firm that focuses exclusively on private label.The days of traditional private label being just a copycat are gone, says Thom Blischok, president of consulting and innovation at Information Resources Inc., Chicago. "They're becoming brands, not just labels. Brands at Safeway, Kroger, H-E-B, these are very well-positioned brands in niche areas as well as the general purpose."Tim Ross, principal at Kendall Ross, a retail package design firm in Seattle, says, "We've found that the work going into private-label brands is just as significant as it is going into national brands. They're full-blown package-design projects with strategy, with rationale, and with top design firms doing the projects."He also says PL brands become a trading piece. "[Retailers] can say to the national brands, 'If you're not going to play ball with us, we're going to put our private label in there or we're going to shrink your shelf space because we can continue to sell our product.'"Todd Maute, senior vice president and partner at CBX, a New York-based branding and design firm, says the growth of shopper marketing has changed how they're looking at private label. "The use of frequent shopper data is changing the dynamic. The shift has gone away from the CPG companies to the retailer because the retailer has the data and the place where those shoppers are being engaged, which is the store." In-Store SupportAn estimated 40% of supermarket chains still aren't aggressively marketing their private-label offerings, says PLMA's Sharoff. "In some cases, the reason is very simple. The check from Coca-Cola for promotional allowance is bigger than the profits that retailer would make by trying to build up its private label."But this may change. CBX's Maute has seen significant growth in merchandising for private-label offerings. "They're blocking certain categories more now, making sure they're getting the prime real estate on shelf vs. the bottom shelf," he notes. "We're definitely seeing better merchandising practices."Learish says Rite Aid's strategy has been to increase both in-store displays as well as print advertising. "We're looking at what we did year over year, what the trends have been, and we're very consciously increasing the space and promotional support against our private label. We're also creating a lot more merchandising events, and we're working with our private-label manufacturers to provide exceptional value items."One marketer with a national beverage brand took the contrarian view, saying retailers need to continue to be a gatekeeper for the right products, the right store layout and communication of special offers."It can be time-consuming and dangerous because if you mess up, you're hurting your parent brand," she says. "What I've been doing is mobilizing my group to take advantage of the fact that they're not focusing on the shopper as much so that I can make inroads in-store. So if they're too busy focusing on private label, then guess what, I'll shift my focus to in-store execution and work on delivering a superior shopper experience."Walmart's Thomas said it's a category-by-category decision when it comes to merchandising the Great Value brand. "We're working very closely with the merchandising group and are optimizing the shelf set as consumers buy the item."We know what they buy, how much they buy, and the shelf space will be consistent with how the product is performing," she continued. "That's the way it always has been and will continue to be. Every one of our items has to earn its way just like every one of the national brands do."The Home Depot, Atlanta, has similar practices. "We treat [our private-label lines] pretty much like a vendor, just like other products in our store," says Brad Williams, director of in-store environment. "They don't get any sort of special treatment. We want our brands to compete on equal footing with the national brands."Competitor and Business PartnerPLMA's Sharoff says retailers fall into one of three tiers, with many of the top having higher than average private-label penetration, such as Walmart, Target, Whole Foods and Kroger. In the second tier sit regional players Wegmans, Safeway and others that have the ability to maintain their current strength with identifiable PL products. The third tier are retailers that aren't really in the game and are well below the U.S. supermarket unit average of 22% market share, as cited by a 2007 GMA study.The newly coined term coopetition aptly describes how brands and retailers are learning to coexist, at odds in certain areas but cooperating in others. "Private label is a strong competitor, but it's a competitor that's our business partner as well," says John Faulkner, director of brand communications for Camden, N.J.-based Campbell Soup Co. "We're constantly working with our retail customers to make the soup aisle as attractive an area to shop as we can to raise the activity level there, and we certainly believe that we will get our share of that business."By working together, the two sides can target affinities, helping the retailer grow the shopping basket. "There are a lot of products in the store that we don't make but our retailer partners do and that go with the products we sell, so why not leverage that and help them out," says the beverage marketer. "The retailer's branding and ours can be a pretty strong message. And since they give themselves a lot of the best store presence, we're getting some pretty good space, too."Maybe more of an example of working against the brands, Rite Aid is showcasing its products on displays and in ads using the national brands as a companion sell, giving consumers the private-label equivalent free with a national-brand purchase. "I was quite skeptical that it would work when it was initiated by our category management group," Learish admits, "but we've run it several times very successfully. It really speaks to the quality and tells consumers we're willing to put our reputation up against that of the national brand."Thomas echoed the sentiments of many retailers interviewed here when she said, "Walmart is committed to national brands and private brands. We will always be a house of brands, but our whole mission in this is to offer our consumer the choices she needs."Becoming a Retail DestinationSlurpee, Big Gulp and Big Bite have long been proprietary brands at 7-Eleven stores, but following a 1,500-store pilot last year, the Dallas-based retailer introduced 7-Select, its first store-wide brand. "We wanted to take charge of our own destiny in terms of creating products that offer better consumer value, a store brand that people can connect with 7-Eleven, and also a higher profitable transaction for our franchisees," says Tom Gerrity, senior product director.The company has created a very aggressive merchandising plan for its stores, including front endcaps with sidewings, product in each section of the store where appropriate, and some bundling offers with fresh food."Part of this is building loyal customers whom we can develop products for, and being a destination that's open 24/7," adds Gerrity. With 189 SKUs across the store that make up just under 5% of the retailer's sales, the target is to have 300 items in stores by year-end, ultimately accounting for 20% of sales. Batavia, Ill.-based Aldi, which houses 95% private-label product, carries 118 different brands under the Aldi Select line. Bringing value to consumers has always been its identity. Now the company is working "to consolidate and limit that in the coming years to build familiarity with consumers and reinforce those strong brands," says Martha Swaney, spokesperson.While merchandising is not as crucial in its stores (because there's generally only one product available in each category), the company will highlight special introductions, such as its new Lacura line of skincare items, with signage and literature communicating background on the products.Minneapolis-based Best Buy's private brands were created simply to extend its offerings to customers. "The dependency of private label as well as our other products with services is our point of differentiation in the marketplace," says James Damian, senior vice president, experience development group.The retailer recently created a website for its Insignia brand. According to Scott Burglechner, director of exclusive brands, this was done in an attempt "to evolve and grow the capability to talk to our customers and leverage our position with them in the marketplace." He says the brand continues to evolve with regards to its messaging and positioning and believes that the broader the retailer grows its private brands, the more Best Buy becomes a destination for consumers.CPGs Lean on Innovation"If 84% of America says they buy trusted brands, there's still time for the national brand manufacturers to shore up the strength, the power and the value of their brands, confirming to the shopper that they're an affordable part of daily living," says IRI's Blischok.This makes innovation crucial for national brands. Research is a big part of it, and understanding purchase behaviors from a shopper's perspective is also critical.The anonymous beverage brand just completed a study on private label and the role it plays. "What we found is that the equity of private label really disappears outside that store," says the marketing executive, while national brands have appeal throughout the channels. "Now it's just a matter of getting to the right solutions."Faulkner says Campbell Soup addresses shoppers by bringing in new messaging about value and variety, and reminding people that iconic brands like Campbell's are not easily replaced. "We've been a trusted provider of good value, high-quality foods for more than 100 years, and we intend to continue to remind consumers of that," Faulkner says. "And we'll continue to innovate with new products, new formats, healthier offerings and additional services."The brands really need to understand where to innovate, says Blischok. Not only in terms of product, but also in terms of presenting a fully integrated marketing story both inside and outside the store."Brand marketing is going to become very emotional this year," he says. "Your message should be focused on exactly how a product is going to play to the emotional needs that I have. Retailers are doing that with their brands, too. They're trying to create both an emotional and a financial relationship with the consumers."

Special Report: Private Label Update

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