Private Label Advice for Retailers from a CPG Leader

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:

1. 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?
2. 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.
3. 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.
4. 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.
5. 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.
6. 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.
7. 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.
8. 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.

Marketers—Ignore the Boomers at Your Own Peril

In this age of social media, many marketers are focusing on young, tech savvy consumers, on early adopters, and on emerging families.  And rightly so, as it is critical to continually be bringing new consumers into your brand, and understanding and connecting with emerging consumers is a good way to do so.

However, another basic tenet of marketing is never take your eye off your heavy users.  For many brands, their heavy user group is made up primarily of baby boomers.  We’ve all heard some of the basic facts about boomers-  that they are the 76 million Americans born between 1946-1964 following World War II.  Most of us have heard that every seven seconds a baby boomer turns 50.

Digging A Little Deeper Into the Baby Boomer Generation

Did you know that while Boomers represent 28% of the U.S. population, they control 70% of the financial assets, and the vast majority of the disposable income in this country?

Did you know that boomers are three times more likely than their parents to get divorced, and together make up over 60% of all divorces in this country?

Did you know that as boomers become empty nesters, and/or divorcees, that the average household size in the U.S. is shrinking and will continue to shrink?  In fact nearly 30 percent of all households are now single person households, and over 60 percent of households have only one or two people in them.

Did you know that boomers have very different attitudes than their parents did about aging?  While the previous generation looked forward to retirement as a stage of rest and relaxation, boomers are extremely focused on staying young, healthy and active.  Psychographically, they are “Forever 37”.

Implications for Marketers:

1. Boomers control the wealth- ignore them at your own peril.
2. With over 60% of households having only 1-2 people, it is important that brands offer product forms and sizes that meet the needs of smaller households.
3. The residential real estate market will see a significant shift over the next decade, as boomers become empty nesters and downsize from 3000+ square foot homes into 2-3 bedroom condos.
4. Don’t even think about showing 50-65 year old talent in your advertising targeted at boomers, they will see it as their parents.  Instead, show 35-45 year old talent, which boomers believe represents them.
5. There is a significant opportunity for new product innovation that meets the desires and needs of boomers, for example:

Desired Benefit:	Sample Product:
Looking Young	Skin cream
Staying Healthy	Vitamins, probiotics, omega 3
Staying Active	Motorcycles, health clubs
Staying Energetic	Yoga, CoQ10

Thanks for stopping by and, as always, I welcome your thoughts.

Refocusing On Marketing & Leadership Principles

Marketing and Leadership are topics that I have tremendous passion for.  I have been extremely fortunate in my career to work for some fabulous leaders and teachers, for some great companies, and on some iconic brands. Here are a few examples of businesses I’ve had the good fortune to help shape:

The inspiration behind this blog is to give back—to share what I have learned over the years, to throw out observations and ideas, and to challenge convention. It is my hope that this will lead to debate, and to growth. Philosophically, I believe each day we are either getting better—growing and learning—or we are getting worse, falling behind—its simply not possible to stay the same.

The business world is at an incredibly interesting time. First the economic reality we have all had to face:

• Entire industries like banking and auto manufacturing have been turned upside down
• Unemployment is at a peak
• The stock market has become extremely volatile with several hundred point swings becoming commonplace and retirement nest eggs have been diminished
• Discretionary income has declined as taxes and health care costs continue to rise and wage freezes/pay cuts become common- meaning consumers have less dollars to spend at retail

In addition, the consumers who drive companies’ economic engines have also evolved:

• Consumer segments are becoming much more diverse in terms of ethnicity, age, interests, attitudes, and behavior.
• How we interact has changed dramatically—social media and texting have replaced many face to face conversations
• Technology has enabled extraordinary availability of information (both accurate and not so accurate), which has changed the way consumers make decisions.

While these unprecedented times call for some changes in how companies behave, the core leadership and marketing principles of successful companies should not change. Here are some of the most important marketing principles (we’ll save leadership principles for a later post):

• Understanding your consumer and what motivates them
• Building brand equity by creating an authentic relationship with your consumers
• Always act ethically, and transparently with your consumers (and all your stakeholders)
• Providing true value
• Continue to innovate to meet consumers wants and needs
• Resist the urge to cut marketing spending dramatically; instead focus on maximizing return on your marketing investment

In the coming weeks, I’ll delve deeper into these principles, as well as sharing thoughts on effective leadership. Thanks very much for stopping by, and please let me know what you think.