Private Brands are gathering the troops...CPG style
November 2011
Private Brands are Assembling the Troops — CGP Style by Adara Ralston, Account Strategy & Planning
My life in brand building had always concentrated on big, iconic consumer packaged goods (CPG) brands. Brands that I naively believed could never really be seriously threatened by private brands, but I've peeked behind enemy lines. And I'm here to tell you, they've assembled the troops and they are gearing up for battle. Private brands are thinking and acting like CPG brands, and they've got a few interesting tactics up their sleeves. In addition to rethinking the structure of marketing and support teams and driving toward more streamlined operations, they are building brands in a similar fashion to their CPG counterparts.
Setting strategic growth targets
The mission of private brands is no longer centered on finding ways to make a few extra cents by giving consumers less expensive, look-alike alternatives to national brands. Private brands have stepped up, and a projected market share of 35% by 20151 is proof that retailers' confidence and momentum is growing. They are aiming to deliver consistent quality that consumers trust. In March of this year, Texas retailer H-E-B pitted trial of its private brand products against national brands as part of the "Texas Showdown Challenge," giving away private brand products for free to customers purchasing the national brand.2
And consumer confidence is growing, too, as more and more are turning towards private brands. Could it be that the recession has given them reason to pay closer attention to their wallets? Possibly. Consumer Reports noted in a September 2010 study that a family spending $100 a week on groceries could save up to $1,500 a year.3 And they like what they are buying. In the same study, taste test results versus 21 big-name brands, showed store brands beating the national brand three times and tying 11.
Retailers are in a prime position to set goals for growth and increased market share — consumer needs, consumer confidence, and the retailer's ability to deliver are converging.
Investing in consumer intimacy
During the recent Store Brands Decisions Innovation & Marketing Summit, John Seal from Burke, Inc stated that, "[American] private label brands that are not doing research now will be doing it in five years." Many US retailers are getting pointers from the successful private brands in Europe, which invest heavily in consumer research. Carrefour, for example, is seeking to grow from 25% to 40% share via new products and consumer marketing programs — two approaches that stem directly form an intimate knowledge of its shoppers.4 And consumers appreciate that retailers are listening - Asda's "Chosen By You" is the fastest growing private label in the UK.5
An intimate knowledge of the consumer can steer an organization's product development and marketing efforts towards offerings that get results. The better retailers know consumers, the more opportunities they have to uncover an unmet need. Why do they shop? Do they keep grocery lists? At what point in their shopping experience are they most likely to make an impulse purchase? What anxieties do they face when prepping for a shopping experience? Some retailers may use monthly satisfaction studies that compile quantitative data, while others work with marketing companies like Catalina to analyze shopper data and habits.
Developing Consumer-Relevant Portfolio Strategies
Successful private brands are positioning against strategic portfolios to drive product, brand, and packaging choices with an end goal of simplifying purchase decisions for consumers. In simple terms, they are getting rid of the brands and products that are redundant or do not deliver consistent quality, so that consumers can focus on clear-cut, relevant options. And in some cases, they are identifying opportunities for new brands and product offerings.
A recent trip to Kroger-owned banner, Food 4 Less, shows that Kroger has done its portfolio homework. The retailer strategically uses three brands to fulfill most of its center of store offerings: Value (endorsed by Kroger), for entry price point products; Kroger, a national brand equivalent; and Private Selection, a premium alternative to national brands. However, not every brand lives within every food offering. Staple items like flour or canned goods are only offered in the Value and the Kroger line, while Private Selection is used to market items where consumers may be more likely to indulge like tea and baked goods.
Kroger seems to have landed on a strategically sound portfolio of private brands. The portfolio reflects a true understanding of consumers' needs and uses as few brands as possible to market products and services that meet those needs. And because they've dissected the target deep enough, they've been able to extract additional revenues through the use of a premium brand where consumers see value — its premium ice cream, for example, retails for $4.98 at Food 4 Less, $.80 more than the same size Breyers shelved next to it.
Looking Past the "Me Too" products
Higher marks on quality, stronger consumer intimacy, and clear-cut portfolios almost make the need for "me too" products irrelevant. Don't worry, I said, "almost." I'm sure some look-alikes will stick around for the consumers that need reassurance that they are truly buying an equivalent to the national brand, but for those that don't, retailers have the tools and the path to innovate and create brands that can stand on their own. Target's Up and Up, Market Pantry, and Archer Farms brands are just three of the brands that round out Target's portfolio - each with a clear promise that differentiates them from each other and goes beyond being just an alternative to a national brand.
In the over five years that O Organics has been on the market, it has reached over 300 SKUs and exceeds $400 million in annual sales — the Safeway-owned brand capitalized on a need for accessible organic products, not an opportunity to copy a national brand. But it doesn't stop there. The private brand continues to innovate to drive growth, expanding into foodservice outlets; developing a presence in Latin America, Asia, and Africa; and even partnering with CBS to launch EcoAd - the CBS Corporation's new form of advertising that directly funds green projects in local communities.6
Identifying and Utilizing Equity and Assets
If you've got it, flaunt it. For years, consumer-packaged goods brands have worked to identify the attributes they own (equities) in the minds of consumers, so that they can leverage them to reinforce an emotional connection. Within this equation, there is one thing private brand owners have that national CPG brands would just die for — day-to-day, in-person contact with consumers. The retail store is just as much a part of the brand experience as the actual products that consumers take home with them. Unlike CPG companies that are forced to heavily rely on expensive advertising and displays or a few square inches of a package to reinforce an emotional connection with consumers, retailers like Trader Joe's are training associates to live the brand, reinforcing the connection through human contact. Plus they have thousands of square feet, not inches, in which to engage with consumers.
Retailers are also coming to the realization that relationships with manufacturing partners can be an asset. Kroger believes that strong vendor alliances are key to the ability to grow categories.7 They are also investing in technology to speed innovation and streamline the product development process across all functions.8 And they are recognizing the suppliers that help Kroger further its goal of continually improving the customer experience.
Leveraging Competitive Advantages
Product development through product launch can be an arduous process for national brands. In addition to the cost of making the product, marketers feel an overwhelming need to analyze risk and gather reams of consumer research. And before they can concentrate on marketing to consumers, they must secure retailer adoption. In comparison, retailers have a test market at their fingertips and a revolving door of respondents, and the decision to delist a product or trial a new launch is made within the walls of a singular company, giving store brands the flexibility to act and respond quickly.
Brand management isn't a task that can ever be checked off of a to-do list. It requires continual maintenance. Marketers must always be armed and at the ready to defend against or evolve with the competitive atmosphere, trends, economic ups and downs, and shifting consumer needs.
I've discovered that the attention required by private brands is no exception and even comes with its own set of nuances, especially the love-hate relationship that surrounds national and private brands. It's a strangely symbiotic relationship that I've only recently come to understand. Retailers are the platform in which national brands deliver products to consumers, yet the retailer or private brands are continually becoming stronger competitors. But who can imagine a world without national brands, and retailers must rely on them to round out the offerings on their store shelves.
For now, both camps will continue to arm themselves for battle — only the consumer can decide who wins.
1 IRI
2 https://www.heb.com/forms/texas-showdown.jsp?sectionId=sd30340021
3 Consumer Reports, September 2010
4 "Carrefour seeks dramatic PL expansion," Store Brands Decisions, July 7, 2011
5 "Asda's PL is the fastest growing in the UK." Store Brands Decisions, July 7, 2011
6 Sustainable Food News, "Safeway's O Organics help launch CBS network's new 'sustainable media.'" January 10, 2011.
7 Store Brands Decisions, "CPG Practices Driver Kroger's Approach to Store Brands." March 15, 2011.
8 Store Brands Decisions, "Kroger Selects Oracle's PLM to Speed Store Brands Innovation." August 2, 2011.