FEATURE | PRIVATE LABEL 19
MARCH 2019 SHOPPER MARKETING
in a compelling enough way about why shoppers should be willing to choose them.” Experts including Campbell believe that marketers are not doing enough to leverage their strengths in consumer research to create more emotional connections with trusted name brands. Some argue that CPG companies have too long rested on their laurels, failing to leverage or extend their brand promise and allowing private brands to step into the void. Kirkland Signature Hazelnut spread, for example, “sells very well,” according to Campbell, and sits right next to Nutella on Costco shelves. “Nutella has a unique formulation and cult-like status, but in this environment, marketers cannot expect to be able to protect those advantages forever.” Price remains the primary driver of private label purchases, but shoppers no longer believe they have to sacrifice quality in making that choice. A recent Kantar survey showed that only 25% of shoppers in the private label food/grocery and health-and-beauty categories agreed with the statement: “I assume most private label products are lower quality than national brands, but I am willing to make that trade-off to pay a lower price.” Conversely, 66% of shoppers agreed with the statement: “If I like or trust a retailer, I generally assume their private label products will be good.” Brands don’t always have to fight the private label trend. Todd Hale, a CPG industry consultant who observed the growth of private label over three decades while at Nielsen, suggests that brands can piggyback on the appeal of store brands by offering retailers new ideas for category-driven promotions, as well as by identifying opportunities for programs outside their core categories. “If a brand has a distinct characteristic or unique appeal to shoppers, then the marketer should be able to build a program with private brands that won’t cannibalize one side or the other’s sales,” he says. Graf, an advocate for greater collaboration between brands and retailers, agrees. “Anything that makes a brand more valuable to the retailer is a good thing: consistency, predictability, ability to drive margin, transparency, ease of working relationships,” he says. “Roughly 86% of goods are still sold through stores. Brands should help retailers know why the relationship will drive traffic and prove it through data and analytics.” Some marketers, however, may find themselves stuck in a cycle of trying to combat private label by commanding more shelf or floor space. “You can’t just throw more trade funds at the problem,” says Wisner. “There’s nothing wrong with keeping up the frequency of activation, but it’s not a long-term strategy. Eventually, a company will run out of gas, and in the meantime it diverts valuable funds from shoring up the core brand promise.” MACRO STRATEGIES TO GROW, DIVERSIFY At a macro level, CPG companies are looking to develop new sources of organic growth as part of their response to many threats, including private label. In recent years, global food companies such as General Mills, Kellogg and Campbell Soup have invested in venture funds and incubator programs to develop a range of new capabilities in everything from supply chain and logistics to direct-to-consumer models and e-commerce. Companies are also using these vehicles to expand beyond their core businesses through alternative research and development. Tyson Foods, for example, is using its $150 million New Ventures investment fund to back companies like San Francisco-based Memphis Meats, a startup that has been experimenting with stem cells to produce livestock-free lab-based meat. Some small to mid-size CPG manufacturers have diversified into the private label business, creating a hybrid model like that of Massimo Zanetti, whose beverage portfolio also includes consumer brands such as Hills Bros. and Chock full o’ Nuts. This is far less common among larger companies (one noteworthy exception is Kimberly-Clark, which produces diapers for Costco’s Kirkland Signature line), experts say, in part because they’ll then no longer be able to claim manufacturing superiority over private brand producers. Plus, such a move
Publix’s GreenWise, Albertsons’ Signature Reserve and Kroger’s Simple Truth exemplify the new era of private label and are only three of the many retailer-owned brands that consumer product companies are having to contend with.
can create a cultural shock inside the organization. “Large multinational CPG firms are too hardwired with old ways of doing things to be able to do private label well,” says Wisner. “It’s a whole different set of relationships with the customer. There are different timelines, economics. Until you begin to internalize those things, you end up trying to run private brand like a national brand and you can’t respond to your customers effectively. Look at an organization like Treehouse. It’s got something like 80 plants, 24,000 SKUs – no one has to deal with that level of complexity in the branded world.” Still, the temptation may be too good to pass up. Kroger’s Simple Truth line became a $2 billion enterprise in just a five years. And there are many other untapped opportunities. Private brands have dominated fluid milk for years, a trend that Dockery expects to extend throughout dairy and eventually into the center store. Coffee too, he says, is underdeveloped. “About 21% of unit volume in center store is private brands, but coffee is only about 15%. We have a ways to go to get to the level we’re targeting, but we’re making methodical progress toward our goal.” Even categories and channels that traditionally have not had much private label presence, such as drug and beauty, are jumping on board. Says Dockery, “There are multiple SM ways to get to growth. It’s a terrific business.”
“ Large multinational CPG firms are too hardwired with old ways of doing things to be able to do private label well.” Jim Wisner Marketing consultant