COVER STORY: Private Label: Thinking like a brand

You know that private label has come a long way when a retailer builds a new store concept around a corporate brand, which is just what Lakeland, Fla.-based Publix did when it opened its first GreenWise Market in September.

Before there was a GreenWise store, there was Publix's natural and organic store-within-a-store of the same name, and even more elementally, a store brand reserved for organic, natural, and earth-friendly products.

Given Publix' reputation both for making shrewd and conservative moves, this can be considered a strong indicator of how the power of private label is not only growing, but also evolving.

The grocers leading the pack on store-brand innovation in America are adapting -- and in many cases improving on -- the best strategies and practices of the top CPG branders. Add to this a uniquely intimate knowledge of their own shoppers, and they can craft a branding strategy to rival any national brand heavyweight.

In the United States private label is still on training wheels compared with retail involvement in some other parts of the world. But store branders over here are gaining ground.

According to a nationwide survey conducted in June by Ispos for the New York-based Private Label Manufacturers Association (PLMA), the popularity of private label grocery products is increasing among American shoppers. Forty-one percent of shoppers now call themselves "frequent" buyers, vs. 36 percent five years ago and a mere 12 percent 15 years ago.

PLMA president Brian Sharoff says there are three key drivers of private label success today. "One, the retailer owns the shelf and can keep products in stock longer," he explains. "Two, the retailer is closer to shoppers and understands their needs, and three, retailers can very quickly produce products in growth categories that tap into changing tastes and trends."

The movement has steady momentum. According to The Nielsen Company's U.S. Retailing and Consumer Trends study, published in May 2007, the total private label market is $69 billion, with 19 product categories exceeding the $1 billion mark in sales. Store brands are in evidence in the pantries of virtually every U.S. home, with the typical cupboard holding of more than 20 private label products, according to Nielsen, the parent company of Progressive Grocer.

Across traditional retailing, private label development is greatest in the grocery and supercenter channels, the report says. Private label products account for lower shares of sales at mass merchandisers, and least of all in the convenience/gas channel, though this may change as some larger players strengthen their commitment to private label. Earlier this year, for example, Dallas-based 7-Eleven announced plans to grow its North American private label business to 10 percent of sales by 2010, from 4 percent now.

Jumping the fence

Consolidation in both the retail and CPG industries has been an unintentional catalyst of innovation in private label, as it has been spurring brand-marketing talent to jump the fence into retail.

"And when a CPG person comes into a retailer, they're really bringing in a brand-building mindset that didn't exist there before," says John Krohn, director of category management and insight for Stamford, Conn.-based private label consultancy Daymon Worldwide. "Now you're bringing in people who are marketing- and consumer-focused, and are bringing in new intellect and insight strategies and techniques to really understand the segmentation aspects of their customers, and how to build products that are relevant to their needs."

A prime example is what's happened at Safeway, Inc. since 2004, when the Pleasanton, Calif.-based chain appointed Brian Cornell e.v.p. and c.m.o. to head up the company's marketing, merchandising, manufacturing, and distribution efforts. Cornell had been president of Pepsi-Cola North America's (PCNA) Food Services Division, and s.v.p. of sales for PCNA.

Safeway leveraged Cornell's brand-building expertise to launch its $100 million "Ingredients for Life" marketing campaign, and also enhance its private label offerings.

A year later Cornell brought in former Gillette s.v.p. James D. White to head up Safeway's corporate brands as s.v.p. (Cornell left Safeway this summer when arts-and-crafts retail chain Michaels stores recruited him as c.e.o.)

One just has to look at the success of Safeway's O Organics line of products to see the value of bringing in brand veterans to spearhead private label strategy: If O were a national brand, it would be the largest organics player in the market.

Snapping up brand marketing execs from CPG companies, while helpful, isn't necessary for private label success, however. More important is a commitment to treat private label lines as if they were brands, and an understanding of what that entails.

During the past year alone, many grocers have moved in this direction. Jacksonville, Fla.-based Winn-Dixie Stores, Inc., in a bid both to help "rebuild trust in the Winn-Dixie brand" and improve profitability, is completely redesigning and relaunching its corporate brands program, with the goal of having at least 1,000 redesigned SKUs on shelves by the end of fiscal 2008.

"Today 150 of our corporate brand products in the store feature newly redesigned packaging," said chairman, c.e.o., and president Peter Lynch during a recent conference call. "In fiscal 2007 our corporate brand penetration rate for the categories we measure was 19.1 percent, compared to 18.1 percent in the prior year. Our target for 2008 is to increase that penetration rate by an additional 140 basis points."

To support the relaunch, Winn-Dixie is teaching associates about the existing and new private label products so they can, in turn, recommend items to customers.

Such consumer messaging is crucial to growing private label, according to Daymon's Krohn.

"The packaging has improved dramatically," he says. "[Retailers] are going outside the box and not just copying the brands, they're doing their own thing. They're also realizing the power of their store as a means of communication. The store is the final frontier, and as long as they continue to control that, they'll have success."

Winn-Dixie, for example, is upgrading in-store signage, using FSIs, and increasing the presence of its corporate brands in weekly circulars, another key driver for private label growth.

"In the past, if you picked up an ad flier, it was all brands," notes Daymon spokesman Tim Davis. "Today, if retailers don't have a dedicated page of PL, they at least have them incorporated into the various departments."

Three tiers for private label

Offering a tiered assortment of private label products also plays well with consumers, according to Daymon's Krohn. "The more tiers that are offered, the better the proposition is for the retailer," he says. "They're thinking strategically not just about the launch of the product, but how to keep it going."

Regional grocer Food Lion, LLC, based in Salisbury, N.C., is advancing its private label strategy by offering new tiers and product categories that it began rolling out this summer.

The new strategy consists of a three-tiered approach that includes value, national brand equivalents, and premium brands.

"The three-tiered approach fits with the company's overall strategy," says David Yandow, Food Lion's private brand manager. "We really want to use our brands to drive loyalty."

Smart Option, Food Lion's value brand, is designed to provide customers with an aggressively priced alternative on key highly consumable items. It will be sold at Food Lion, Bloom, and Bottom Dollar stores, as will the other new brands. The grocer will continue to carry national brand equivalent items under its various banner names, and will target the leading brands in categories with quality that's equal or better.

The premium brand, meanwhile, called Taste of Inspirations, will consist of "premium products with quality that exceeds that of any other premium item that Food Lion currently carries," the grocer says.

The retailer also has created category brands that will target specific segments throughout the store, including Nature's Place, the natural and organic brand; Healthy Accents, the health and beauty care brand; and Home 360, the general merchandise brand.

Examples of products that will be sold under the Healthy Accents brands include OTC medicines such as ibuprofen, as well as beauty products such as shampoo. General merchandise products such as stationery will be sold under the Home 360 brand.

In addition to the portfolio of new brands, Food Lion is undergoing a label design change for its Food Lion, Bloom, and Harveys brands.

Each new brand will have a unique look, and the retailer is working with the CurtisAlan marketing firm on Healthy Accents, and Marketing Management, Inc. on the Smart Options and Home 360 brands. Nature's Place, Taste of Inspirations, and the banner brands were designed in-house at the Delhaize Group U.S. operating companies.

Ethnic expansion

Store branding is finding its way into other key retail marketing initiatives. Some grocers are wielding store-branding strategy as they delve deeper into ethnic markets. Breaking into these markets is a bit tricky, though, due to some cultural barriers that are hard to overcome.

Negotiating the language barrier can be a plus in gaining private label acceptance among Hispanic consumers, according to the latest Customer Focus Opiniones survey by Baltimore-based marketing services provider Vertis Communications.

The survey found that while 78 percent of all Hispanics in the United States have a positive perception of private label store brands, just 61 percent of those speaking only Spanish at home had a similar outlook. Conversely, 88 percent of Hispanics who speak English at home have a positive outlook on private label brands.

"Customer Focus Opiniones indicates that 27 percent of Spanish-speaking Hispanics believe they don't know enough about private label store brands to want to try them," says Jim Litwin, v.p. of market insights at Vertis. "This data indicates that retailers with private label brands have an opportunity to market to Spanish-speaking Hispanic audiences by communicating to them in their native language."

This is key for any retailer looking to establish a private label foothold in a Hispanic market, agrees Krohn at Daymon.

"One area where we still have a way to go is with the Hispanic market," he admits. "Hispanics are very brand-loyal. They're also not easily won over -- you have to prove yourself -- so things like getting your brand involved with the community and creating a positive impact fulfill that loyalty within this group. Whether it's by donations or sponsorships of events, what you'll see is an intrinsic value to the retailer in terms of starting to build that loyalty."

Community branding

Developing ties to the community isn't just beneficial for efforts to reach Hispanics, however. Retailers would be hard-pressed to find any marketing activity that strengthens ties to the markets it serves more than community involvement -- and when a private label is attached to this involvement, everybody wins.

Schenectady, N.Y.-based Price Chopper is connecting its store brand to the community even as it celebrates its 75th anniversary. The chain is running a promotion of 15 of its most popular private label SKUs -- representing 5 million packages -- that in addition to touting its milestone anniversary will feature a pink ribbon as part of a charitable "Nickelback" program to help fight breast cancer.

For each store brand item sold bearing a pink ribbon, Price Chopper will donate five cents to charities supporting breast cancer research.

"A lot of what we do is centered around local initiatives," says Mona Golub, v.p. of public relations and consumer services. "This program helps us to tie our brand to the community, and deliver a charitable message to them."

And while Price Chopper has done a lot of traditional advertising of the program, nothing is better than having that message right on the products themselves, according to Golub.

"That's what's great about private label products," she says. "The fact that we control the packaging gives us tremendous freedom in the message we deliver to our shoppers."


PLMA honors retailers for store-brand products

Almost two dozen retailers large and small -- Wal-Mart, Kroger, Target, CVS, Costco, Trader Joe's, Harris Teeter, ShopRite, Lund Food Holdings among them -- received Salute to Excellence Awards at the 2007 Private Label Manufacturers Association Trade Show held Nov. 11 to Nov. 13 in Chicago. The awards are presented each year for outstanding new products offered by retailers under their own store brands.

"The Salute to Excellence Awards demonstrate that store brands are on the forefront of new product development,: says PLMA president Brian Sharoff. "The retailer is close to customers and understands their needs. It's not surprising that retailers are constantly developing better products that tap into changing tastes and trends."

The edible items honored include such global fare as curry chicken naan pizza (Sobeys' Compliments brand), Italian-style wedding soup (Western Family Foods' Shurfine brand), peach pineapple salsa (Price Chopper), white chocolate truffle cake (Smart & Final's Chef's Review brand), and balsamic Modena vinegar (Ahold USA's Simply Enjoy brand).

The awards also recognize outstanding products in the home and HBC categories, including such products this year as dining chair covers (Target's Classic Home brand), barbecue baskets (Save-A-Lot's PatiO! brand) and a digital temple thermometer for babies (Topco Associates' Top Care brand).

All the Salute to Excellence Award-winning products were chosen by a blue-ribbon panel of judges organized by the PLMA and including product development specialists, industry representatives, trade journalists, and consumers.
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