Collaborative Business Planning: A Growth Solution for the Private Brands Plateau
As a way to improve margins while catering to consumers' quest for value, retailers have made significant investments into private brand programs over the past decade, according to FMI's The Food Retailing Industry Speaks annual analysis. The growth of private-brand sales has traditionally been tied to consumer's seeking to stretch their grocery dollars, but it is important to note that this economically driven growth is beginning to level off. It is time for private brands to find new consumer incentives to promote growth.
With consumer trends focused on healthy customization, snacking, convenience or speed to name few, private brand owners and manufacturing partners have an opportunity to collectively capitalize on these growing customer preferences.
Collaboration is critical
As a result, private brand owners are moving away from a "fast-follower" model – copycats are viewed as inauthentic, and thus unappealing to the shopper. We have significant opportunities and renewed strategies to ensure all supply chain partners are working more collaboratively to meet shopper demand, and one route is through joint business planning. Although both retailer and supplier parties have cited collaborative planning as a significant opportunity to drive category and product innovation, a recent research project with The Partnering Group (TPG) found few tangible examples.
What we heard from research participants is that collaborative relationships with manufacturing partners are critical to innovation. What has proven to be more difficult is defining or realizing a truly collaborative relationship due to the number of competitive sourcing options.
Certain categories do lend themselves to be subject to more of a bid-and-award style of sourcing. But many of the opportunities to differentiate today require long term commitments from both the private brand owner and manufacturing partner to make the investment successful. A significant challenge outlined in our interviews with survey participants is that real innovation has been limited to line extensions, in many instances, from big iconic brands.
The results are in
With FMI's strategic knowledge partner, TPG, three conclusions emerged that substantiated the need for further exploration among FMI's Private Brands Council members:
- The biggest single barrier to collaboration is not a desire to do so. Instead, it's having an agreed and easy-to-follow approach all constituents could pilot and implement. FMI's Private Brand Council has identified this as a key strategic goal and has already started the process of identifying retailers and manufacturers for the purpose of building these best practices.
- To better engage private band manufacturers, retailers should provide a clear corporate strategy for private brands to their manufacturing community. When possible, a longer term approach to business commitments should be employed. A research project facilitated by the Council's Research and Education sub-committee, found that private brand manufacturers invest resources based on the level of collaboration and commitment by the private brand owner.
- Suppliers who invest in insights and innovation can best position themselves as the "go-to" manufacturing partner. There's potential to be the expert of the category and bring that expertise to the customer.
In the past and in some instances today, private brands are commoditized, but the future holds promise for true differentiation if we can sustain growth, work collaboratively and avoid a comfortable plateau.
Doug Baker is vice president, Private Brands, at FMI. Contact him at [email protected].