Private Label Advice for Retailers from a CPG Leader

Tuesday

Dec152009

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Tuesday, December 15, 2009 at 3:32PM

Private Label products are one of the few beneficiaries of today’s tough economic conditions. Recent Nielsen data indicates private label is up on average +7.4% versus year ago, with an average share of 16.9%. Retailers- from Wal Mart, to Safeway, to Kroger, to Super Valu- are wisely turning to private label to drive growth and profitability at this time.

However, many retailers are not yet taking a long term, holistic approach to the role that private label products should play in their business. Here are eight suggestions for retailers to consider as they seek to profitably grow their private label businesses:

Remember to keep things simple for the shopper. Don’t proliferate sku’s just to fill shelf space. Safeway is guilty of this in the pasta sauce category. Besides carrying all of the national brands, Safeway has no less than three complete private label lines of spaghetti sauce- Safeway Select line, the Eating Right line, and O Organics line. (insert safeway spaghetti sauce pictures here). Why would consumers need so many lines of pasta sauce, with little or no differentiation?
Don’t launch private label into categories which aren’t big enough to merit it. Wal Mart, for example, has tested a private label diabetic shake product to compete with Glucerna. This is a relatively small category in absolute, and launching private label into it pulls down the velocity of all the sku’s in it- both branded and private label.
Play fair with the national brands. Let’s face it, in times like these it is tempting to focus all growth on private label by unfairly disadvantaging the national brands in shelving, merchandising, etc. But its important to take the long view here, and recognize that national brands have driven traffic to the category for years behind investing in building a relationship with consumers, product innovation, etc. Its important to balance growth opportunities between both private label and national brands for the long haul.
Don’t leave money on the table. It can be tempting to get VERY aggressive with private label pricing. After all private label products frequently have less expensive ingredients, cheaper packaging materials, no marketing costs, and limited R&D expenses. But its important to consider whether you are leaving money on the table by pricing the product lower than the consumer expects. In this situation, you are hurting category $$ sales, and category profitability. To effectively price private label products, its important to consider national brand prices, consumer expectations, and what other retailers you are truly competing with.
Take the time to develop attractive packaging. Most retailers don’t spend enough time ensuring their private label products are attractively packaged, which often sells what’s inside the package short. If it’s a food product, the graphics better produce appetite appeal. Using bland packaging with lots of white space and a purely descriptive name like “Frozen Toaster Waffles” or “Dry Dog Food” conjures up images of the horrible generic products of the 80’s. You may laugh, but many retailers still have packaging that’s not far away from that.
Choose a reputable supplier. Its more important to select a supplier who will provide high quality product, on time, in the quantity and variety ordered, than it is to choose the cheapest supplier. Remember you get what you pay for. Squeezing too hard on price will result in substandard product or inconsistent supply.
Understand your target and what he/she is looking for. Wal Mart’s Great Value line, works for the Wal Mart shopper, who will typically sacrifice bells and whistles to spend less. But that wouldn’t fly at Safeway or Harris Teater. On the other hand, a few years ago, Wal Mart tried to lead the market by launching private label organic baby formula before any branded organic formulas were out. Predictably, it flopped. Talk about not being in touch with your shopper.
Understand that over 60% of households have only one or two people in them. It can be tempting to offer private label in large sizes to drive transaction size. That’s an acceptable strategy, but it is also important to keep in mind the growing number of smaller households, and be sure you are offering products which meet their needs.

Private label is an important part of most retailer’s product portfolios and following these tips can help to optimize its performance. As always, I welcome your thoughts and comments.

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