Time for a U-Turn on Private Label
By Jim Holbrook
You reach a point in your career when you have seen so much craziness that you begin to think that there is not much left that can truly give you a shock. That’s where I thought I was, until I read a recent report from Deloitte Consulting about private label sourcing that just about stopped me in my tracks.
This fascinating report contains a nugget of data that I still can’t get my mind around: when asked to identify the primary objective of their private label program, a whopping 59 percent of grocery retailers said, “create a lower priced alternative at equivalent quality.” By contrast, only 12 percent of retailers said, “establish exclusivity and differentiation.”
Do I read that correctly? As we close out 2015, five times as many food retailers just want a cheaper copy of a national brand instead of creating a unique product that is exclusive to their banner? As my kids might text to me: UG2BK! (You’ve got to be kidding!)
Full disclosure: As CEO of Daymon Worldwide, the global leader in private brand development for retailers, you would expect me to be a champion of private brand, and I am. But I spent most of my pre-Daymon career working for national brands, so I know how the other side of the house works, too.
The truth is that I worry for the future of those 59 percent of retailers that use private brands just to differentiate on price. I know their hearts are in the right place, and they sincerely believe they are doing the right thing to attract and retain customers. But they are playing a dangerous game if they would only consider what’s really going on with consumers these days.
The sun is setting on national brands. If retailers are not persuaded of this by round after round of dismal earnings reports from CPG companies, or by frenzied food manufacturer M&A in a desperate search for lower costs, these findings might make the point more clearly:
• Ninety of the top 100 national brands tracked by Catalina Marketing lost market share in their categories in the year ending June 30, 2015.
• In key categories like bread, frozen food and breakfast cereal, Catalina Marketing also found that national brand sales declined even though overall category sales increased.
• A separate Deloitte Consulting study revealed that three out of four national brands showed lower “must have” status across 34 different store categories.
There is no delicate way to phrase this: retailers that are investing in cheaper ‘me-too’ versions of irrelevant products are risking irrelevance themselves. It’s like investing in the development of a less expensive version of a rotary phone or a postage meter. Sure, they can sell it for less at retail, but it doesn’t change the fundamental declining relevance of those products.
A better future lies in differentiation, and the surest path to differentiation is to build a retail strategy that begins with a private brand strategy (as 12 percent of retailers already seem to understand).
The beauty of private brands is that the retailer owns the strategy, and can build a suite of products that bring that strategy to life in ways that are unique to the retailer. If the retailer has done its homework and truly understands what motivates its customers, private brands can play a critical role in fulfilling specific customer needs and keeping those customers from defecting to competitors or to fast-growing online options.
What I’m proposing is a 180-degree U-turn in the thinking of most retailers when it comes to private brands. The majority today see private brands as a price play to offer a less expensive alternative to national brands. I encourage retailers instead to build their retail strategy around their private brand strategy. They will end up in a very different place, with a different assortment of goods on the shelf, and a whole lot more relevance to their local consumers in every place they do business.
And while retailers are at it, they should remember to make the in-store experience special, even theatrical. That’s what’s behind the increasing presence of food courts, cooking schools, product demonstrations and expert advisors like dietitians at the local grocery store. By appealing to all five senses while the shopper is in the store, retailers build stronger relationships and greater relevance with their consumers.
Consumer apathy toward national brands is no fad; it’s the “new normal.” Retailers need to act now to carve out their unique niche before it’s too late.
Jim Holbrook is the chief executive officer of Daymon Worldwide.