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06.10.2009

“HartBeat” is The Hartman Group's FREE online newsletter, providing insight, analysis, information and strategy to give business leaders the knowledge and vision to build sustainable brands.

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Private Label 2010: Redefining the Meaning of Brand

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: Redefining the Meaning of Brand syndicated study.

Download a detailed overview for this study >>

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For more Hartman Group articles on Retail, click here...

05.20.2009 Make the Story Relevant: The Use of Narratives in Food Retailing

03.25.2009 Local Into Retail: Reinventing the Farmer

03.04.2009 Tesco’s Fresh & Easy Finally Comes Clean

02.04.2009 Shoppers Desperately Seeking Specialty

10.08.2008 Food Retailing’s New Battleground: Small Format Stores

02.20.2008 It May Be Fun, But What Problem Does It Solve?

02.06.2008 Understanding Consumer Culture

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The Quiet Before the Storm

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While the rest of the business community cannot seem to think or talk about anything other than the recession, we’ve been quietly tracing a much more provocative development.

In July of 2007, Procter and Gamble announced, to little fanfare, that they were entering the car wash business with its Mr. Clean Car Wash franchise concept. Since then, they’ve been steadily acquiring other franchises and chains, including their December 2008 franchise assets acquisition of Atlanta-based Carnett’s, a chain of 14 car wash outlets.

Not surprisingly, the response from the analyst community has been notably muted, if not beguiling. Why should a global leader in consumer packaged goods business suddenly decided to leap into retail? Compared to CPG, retail is a complicated, expensive, messy proposition—and the ROI is always dicey. As one analyst noted:

“Wish we could read the whole business plan. For starters, where do the profits lie?”

For a company widely recognized for its innovation capabilities in the CPG arena, this seemed a most strange bedfellow.

And once again this week we learn of another P&G foray into retail. In this case, P&G acquired the Art of Shaving, a 36-store chain of pricey men’s grooming products located in upscale shopping malls. Ad Age describes the story thusly (with the requisite reference to the recession¹):

“Undeterred by recession or getting into a retail business with which it has little experience, Procter and Gamble Co. is buying the Art of Shaving.”

Note that even such a well-heeled and esteemed publication as Ad Age can’t resist the knee-jerk temptation to criticize P&G for venturing into retail. And, as one might surmise, the response from the analyst community has been equally predictable:

“This would give them a small incremental boost at best. Why would anyone in their right mind adding more Op Ex (operational expenditures)?”

In fact, we are well-versed with the challenges associated with watching and listening as the CPG arena tries to get their heads wrapped around the idea of CPG doing retail precisely because we have been championing this position for most of the past decade.

As researchers and analysts of consumer behavior during the “high flying 1990s” it became intuitively obvious to us that the “power”—the ability to connect and resonate with the consumer— was on a permanent, one-way trajectory away from brands, products, and manufacturers and in the direction of retail. Sure there are always exceptions. And the trajectory we observed is still progressing—retail has yet to truly eclipse brands, products or manufacturers—but the writing is on the wall.

Only by controlling the retail experience does your brand have the power to engage directly with your consumer in an ongoing, consistent, meaningful way
Retail theater has the power to transform simple products into engaging experiences—thus commanding significant price premiums
Private label sales have been on an upward trajectory for the past decade—and the quality of many private label brands is now beginning to actually eclipse iconic, premium brands
What was once your strongest ally is quickly becoming your strongest competitor
The recent popularity of shopper insights/shopper marketing is based on the commonly understood belief that the retail environment is a critical—if not the most important—opportunity to influence consumers
Whereas retailers 20 years ago believed they were in the real estate business, most have their sights focused squarely on the customer and are growing weary of listening to brand sales teams
The entire market structure is undergoing a radical transformation, with a myriad of new and emerging distribution patterns

If any single brand best exemplifies the retail revolution it would surely be Apple. Everyone—ourselves included—has been yammering about the important role of retail experience with regard to brand building efforts for well nigh 20 years. But thus far, it’s been challenging to point to a clear example in which retail theater produced game changing results.

But Apple’s retail concept stores finally nailed it — almost to a fault.²

And yet…

We are consistently frustrated by the CPG arena’s refusal to accept the realities sketched above.

Case in point, we were recently speaking with a colleague regarding the state of private label in mainstream grocery here in the US. One of our analysts remarked that if what has transpired in Europe with regard to private label was any indication, the CPG world might be in for even tougher times in the near future. The response was eerily reminiscent of the same “head in the sand” mentality that destroyed—perhaps permanently—the US automobile industry.

“Listen, I don’t care about what’s happening in Europe, this is the US, and people are never going to abandon their favorite brands for private label.”

Here’s the deal.

We are very, very well aware of the enormity of inertia and resistance within CPG organizations to the prospect of getting into the retail business.

True, capital outlay is very high. Yes, retail is very complex, cumbersome and labor intensive. And, of course, you don’t want to jeopardize your existing business model by competing directly with your most valued retail partners.

But when a company like P&G, which is routinely referred to as the gold standard for innovation within the CPG arena, begins making very calculated plays into retail, is it possible that they may know something many of us don’t.

Or, more accurately, maybe it’s the case that P&G is willing to throw a stake in the ground and acknowledge that which for many others is simply unthinkable.

¹ Chapter 23, Article 19, Subsection 2030B of the most recently released AP style guide explicitly states: “Moving forward, every article published shall in some way reference the recession, economic uncertainty and/or recovery” until such time that the publishing industry has managed to alienate what remains of its plummeting readership”

² In addition to the notoriously long lines simply to gain access to the store, many of their most successful retail outlets require advance appointments for those interested in consultative advice before making a purchase.

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