Aug 18 2011
By Jason Stemm @NYCubsFan
Private labels have prospered in the down economy. Store brands are popping up everywhere from drugstores to specialty stores. Most people are surprised to learn that the largest grocery brand in the country is Great Value, Walmart’s store brand. Incidentally, Walmart sells more food than the three largest grocery chains (Kroger, Safeway and Supervalu) combined. Most consumers select store brands for the lower price, however, some retailers like Trader Joe’s have managed to instill loyalty for their brand. For my 22 month old daughter, I can swap Stonyfield’s Banilla for Trader Joe’s Vanana without a blink of the eyes. If I tried to swap her Cheerios for Toasted Oats, we may have problems. Often times, stores don’t want you to know the company making their private label products, as it dilutes the strategy of customer loyalty. They want them to think these are products you can’t find anywhere else.
Big brands are battling for shelf space as room is made for the growing line of private label products. For major retailers like Walmart, it has become an opportunity to leverage improved pricing, expanded advertising support and in some cases, a new manufacturer for its own brand. Expect this to continue as Walmart sales have declined for the past nine quarters. Food, and especially fresh produce, has helped minimize these declines through strong growth. Other retailers have taken notice and turned to private labels to improve diminishing margins.
Most often, when you look beyond price, store brands have little to offer. Walmart has made a conscious effort to distinguish its store brand rather than trying to mimic name brands. When they can instill a belief in quality among consumers, they show shoppers they have nothing to lose and everything to save. What are supermarkets doing to instill this confidence? Here are four successful tactics I have seen:
Exclusive Items—Trader Joe’s has built its business on this, even if they are not the only place they can be found. The Fresh Market has also done a good job of this, by identifying up and coming specialty brands without national awareness or distribution that can help build a sense of premium exclusivity. Other chains like Meijer have established a subset of their private label brand that offers unique quality. Meijer Gold looks to deliver local, family-owned food products that are one-of-a-kind.
Price Specials—Store brands already have an advantage on price, but a modest discount tied into a multi-unit purchase can trigger a trial purchase and help customers get over their attachment to the name brand. This tactic should be used sparingly, so that consumers don’t become trained to only purchase when discounted. On a weekly basis, the store brand will win out on price.
Sampling—If you can’t pull customers from their brands on price alone, sampling product can lower the purchasing hurdle of quality concerns. In a Deloitte report, 80% of consumers believed that private label products were made by the same company as the brand name items. This is generally the case, with some exceptions. The benefit will extend beyond the product being sampled to other store brand products as customers gain confidence in it.
Recipes—Package recipes have been a strategy for the largest brands for decades. It not only provides usage solutions for consumers, but a list of additional purchases. For store brands, this is an even greater advantage, directing them to other items you carry for incremental sales. This can even be utilized outside of store brands. When discounting chicken legs, provide a simple recipe with store brand seasoning, sauces and dressings to add to their list.
Brand loyalty is waning in the recession according to recent reports. Some categories see steeper declines than others. Some brands will do anything to be noticed, like Abercrombie & Fitch’s plea to the Jersey Shore cast to stop wearing its clothes. A successful store brand will offer unique products as well as those that mimic popular brands and offer value to their customers. The Deloitte study also showed that less than 1 in 3 brands are considered “must-haves” in most categories. This helps explain why most product and retail execs are so bullish on private labels even when the recession ends.
For retailers to enjoy this continued growth, store brands need to move out of the value category and be recognized as quality, reliable products. If they don’t work now to build their own brand loyalty, their brand-loving customers may begin to look elsewhere as the economy improves. Moves like the one by Meijer to develop its Gold line can go a long way in building that loyalty and casting a positive glow on its other private label items and the Meijer brand in general. It is a new era for store brands beyond the low cost mimics of crackers and soup, and one that I think is here to stay.