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06.24.2009
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Executive HartBeat
In Executive HartBeat, Harvey Hartman, The Hartman Group’s Founder, Chairman & CEO, shares his thoughts and observations on how the changing consumer and consumer culture is changing the world of food manufacturing and retailing.
Read the following Executive HartBeats individually or download the entire group as a PDF >>
06.10.2009 Can CPG do Retail? The Quiet Before the Storm
02.25.2009 Natural R.I.P.
10.08.2008 Food Retailing’s New Battleground: Small Format Stores
07.30.2008 The Big Problem with Obesity
02.06.2008 Understanding Consumer Culture
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StumbleUponTalking Private Label Blues: Chaos, Confusion and Disorder
By Harvey Hartman
As analysts who’ve been closely monitoring private label’s ascendency in the CPG category for many years, we delight in the media’s obsession with private label and the recession. It is as if a cabal of editors met beneath the Freemason Temple and issued an edict declaring that “henceforth no writer shall pen a story wherein never the two shall be divorced.” And thus we read daily of the various reports of increasing—and occasionally decreasing—private label sales in a given category with the requisite “R” word proffered up as an explanatory device.
The reality is that the private label landscape is far, far too complicated to be adequately explained by aggregate sales volumes alone. Sales figures are an important tool if you are interested in the dollar volume or number of units sold. But much beyond that, they don’t prove nearly as useful when trying to explain the what and the why behind the behavior. Moreover, private label will still be here after the recession recedes, as it was for many years prior.
To be sure, the recession has likely had an effect on private label sales at some level, but teasing out that effect proves a most challenging task given the level of complexities involved. To wit, many analysts suggest that private label’s recent gains have less to do with trading down and much more to do with the consumer’s reaction to “sticker shock” of skyrocketing food prices which predated the recession. Still others believe private label sales are slowing, perhaps because recession-weary consumers are cocooning with their favorite branded pickles.
Most frustrating of all, we find that most private label discussions tend to omit half of the story, treating private label as if it were a homogeneous, generalizable organism thriving amid a standardized ecosystem1. Of course, the “other half” of the story here are the myriad approaches to private label on behalf of retailers. Given that no two retailers have ever approached private label in exactly the same style or manner, it would seem patently absurd to make aggregate level pronouncements on the consumer’s interest—or lack thereof—in private label without considering the retail side of the equation.
To give you an idea of the complexities at play here, we will turn to a brief summary of top line challenges.
Private label 2.0—The Rise of Premium
As is often the case with life, the most basic distinction proves the most challenging. Namely, what happens when private label is perceived as a “premium brand” or, at minimum, something superior to traditional “name brand” products. This is surely the case for the likes of Trader Joe’s and Whole Food’s 365, where consumers have consistently told us their products are superior to conventional name brands. Target achieved similar success with its Michael Graves line of well-designed household products, but has fared less well with Archer Farms.
Are these to be considered in the same category as traditional private label products which were primarily conceived of as a low-price play? Moreover, how does the same consumer react to 365 and Sam’s Choice? And where would Publix Premium fit into this continuum?
Yet, even here things quickly become very entangled when we start to consider the manner in which specific retailers choose to approach premium private label. Retailers such as the aforementioned Trader Joe’s and Whole Foods Market and take a “one size fits all” approach, deploying the same private label brand across a wide variety of categories—and in the case of Trader Joe’s well nigh the entire store.
On the other hand, retailers such as Safeway and Publix appear to be opting for a different strategy, utilizing an increasing variety of different banners to be deployed across a much, much narrower range of categories. In the case of Safeway we find O Organics for the organic/natural segment, Eating Right for the wellness play, Mom to Mom for baby products and so forth. Ditto for Publix with their recently launched Publix Premium brand designed to compete with premium branded products only in very specific categories. Costco utilizes a similar strategy with Kirkland Signature, choosing to deploy the banner only in limited categories with a strong potential consumer interest in premium.
Each strategy has its merits and challenges. In the case of “one size fits all,” it’s certainly much more cost effective and efficient from an execution perspective to stick with one brand.
On the other hand, what happens when you extend that brand into certain commodity categories where the association with commodities runs the risk of cheapening the brand’s premium image? What does it say about 365 when the same brand used to promote a high quality olive oil gets applied to things rice or canned beans?
Conversely, while the multiple private label approach allows for more targeted categories—allowing the brand to appear more specialized and, hence, more justifiably premium—this strategy is much more costly and challenging to implement, execute and, most importantly, market.
And then there’s the whole issue of what to do with Private Label 1.0
Historically, most retailers initiated private label programs largely as a price play focused on low cost alternatives in commodity and staple categories (canned good, pantry staples, etc.). Since then, they have extended their initial reach into every category imaginable with little thought as to the consequences. This strategy is not without peril. For example, when low-cost private label limits SKU coverage in indulgent categories such as chocolate, ice cream, beer or wine, retailers may actually be alienating consumers by limiting selection where price is less of an issue.
And, as more and more retailers take the plunge into premium private label, the obvious question emerges: how do we reconcile our premium private label with our traditional private label based simply on low prices? Will the consumer, for example, come to believe that Supervalu is capable of producing a premium private label when the bulk of their offerings have traditionally been low-cost plays? Are consumers even willing to entertain the idea that two tiers of offerings are acceptable?
The conventional marketer’s response to the latter may be “of course, assuming you get the branding and messaging right.” We’re not quite so sure. Imagine the consumer response if Trader Joe’s began offering a brand such as Trade Joe’s EX – ultra premium products at reasonable prices for consumers who demand a little extra out of life? What would that imply about the current Trader Joe’s proposition?
Coda
Let us be clear. We remain bullish on private label’s outlook. As we have stated repeatedly, the power is clearly swaying back into the hands of retailers—a situation that is not likely to change within our lifetime. Yet there remain many, many unanswered questions with regard to private label, questions often ignored in the rush to shout about sales figures, units sold and market share. But is it not time to give pause and reflect. What good are today’s sales figures if we cannot answer basic questions about how to strategize and execute for the future?
1 The parallels between private label research and neoclassical economic theory are more than mere coincidence. For just as economists found that the only way they could obtain anything resembling a defendable explanation was via assumptions that allowed them to ignore the “messiness” of everyday life, so, too, follow the typically shallow discussions of private label behavior.
RESERVE YOUR COPY TODAY!
Why are consumers flocking to private label products in record numbers? Is the current economic crisis the stimulus behind the surge in apparent popularity? Can private label thrive without name brands?
The answers to these and many more strategic questions will be addressed in The Hartman Group’s Private Label 2010: The “Why” Behind Store Brand Success syndicated study.
© 2010 The Hartman Group, Inc. All rights reserved.
