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Private Label
How should CPG manufacturers approach this new
cycle of accelerated private label growth?
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T HE R E -E MERGENCE OF P RIVATE L ABEL
How should CPG manufacturers approach this new cycle of accelerated private label growth?
P
rivate label products represent a dilemma for many
consumer product companies. They are a competitive
threat, but they also represent the brand position of major
customers. You can compete aggressively, but will you
also compromise your trade relationships? As more
retailers put financial and managerial commitment behind their
private label offerings, it will require a complex balancing act for
consumer product companies to manage their brands and their retail
relationships effectively.
2008
19%
innovate and introduce new Store brands are not suitable for
products where quality matters 16%
items that add value to our Store brands have cheap-looking 17%
package
customers.” 16%
Part of the magic behind these more sophisticated private label brands
is an intense effort at understanding consumers and shopping behavior.
Retailers are grounding their private label strategies on in-depth
shopper insight and powerful data mining and loyalty card analysis.
Dunnhumby, a U.K. based research and marketing firm, has helped
retailers such as Tesco and Kroger unlock the hidden insights into their
shoppers’ behavior. Through loyalty card and POS scan data, the
analysis has helped these retailers refine their assortments, pricing and
consumer targeting efforts to significant success. Today, both Kroger
and Tesco offer multi-tiered private label products managed as part of a
comprehensive portfolio that meet specific consumer needs.
Multi layered approaches to brand positioning and assortment
management have emerged as a vehicle to attract different consumer
segments to the store. After a period of copycat private label products
Many brand manufacturers on the shelves, many retailers now understand the value of branding
and segmentation to develop unique store brands and categories for
are finding that their
their shoppers. For example, Tesco has aligned its private label portfolio
“brand” leverage has to suit each of the various customer segments and have used their own
eroded and their product stores as a testing ground for creating unique and innovative products.
strategies must change. Retailers are also offering a full spectrum of private label products,
moving beyond the value segments into the territory of luxury and
specialty sectors.
The unfortunate result of this multi-layered private label approach is
that national brands are often caught in the middle in terms of price
and assortment. Higher valued ‘signature’ private label brands are
positioned as greater quality and value than competing national
brands. Private label ‘budget’ brands are positioned to appeal to lower
cost/ lower quality consumer tastes. Often national ‘name’ brands are
caught in the middle with little differentiation and must rely on
promotions and advertising to prompt sales.
More established private label programs are also venturing into
previously unimaginable areas beyond traditional grocery categories.
Loblaws, for example, has introduced a collection of ‘fast fashion’
clothes under its Joe Fresh brand. The effectiveness of these far-
reaching initiatives is still unknown, but it demonstrates that no
category is out of reach for the incursion of private label. At the end of
the day, it may be only a question of time and intensity.
WHAT’S NEXT?
Given the convergence of forces, it is expected that private label will
increase in share and become a more pervasive aspect of most grocery
categories. As a brand manufacturer, you can no longer ignore or try to
compete head-to-head with many private label offerings. Brand
manufacturers must position their own brands based on category,
consumer and retail positioning – something that will differ by each
retail customer. The balance between product portfolio strategy and
customer portfolio strategy will be a key part of the successful path
forward for brand manufacturers.