New Formats Change the Way Grocers Sell Private Label

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New Formats Change the Way Grocers Sell Private Label

By Kelly Thompson-Kell - 05/22/2018
Smaller urban formats are changing the way that grocers offer private label products

Millennials have been accused of changing everything from the typical 9-to-5 workday to the average age at which people get married. Now you can add grocery shopping to that list.

Since 2012, spending on fresh food has grown more than twice as fast as within the center store. As a result, nontraditional food retailers such as Walgreens and Rite-Aid have added fresh food for quick trips. Even Dollar General has added fresh produce and fresh meat.

Millennials aren’t the only reason for the change, however. Consumers in general are making more frequent, smaller trips to the grocery store to buy “just in time” food that’s prepared, convenient and closer to consumption. Retailers are responding to the new trend in innovative ways to promote their private label products.

Small Urban Formats

More and more retailers are debuting small-format stores to cater to a shopping demographic looking for convenient, quick fill-in trips. Meijer, for example, recently revealed plans to open six small-format stores in urban settings by 2021. Retailers are also planning small-format stores in the urban markets and college towns where most Millennials dwell. For instance, Target started to accelerate its growth of small-format stores in 2017, when it opened nearly 30 of them, and has plans to do the same this year.

Due to the smaller footprint, small-format stores are limited as to the number of SKUs they can put on the shelves, and therefore, they have to be much more targeted. Shelf space is reserved for key categories of merchandise, reducing clutter and unnecessary stock to provide a simple, straightforward and relevant shopping experience. Much of that real estate is being dedicated to retailers’ private label products.

The smaller format also allows retailers to practice localization. By researching the demographics of the areas where the small-format stores are located, retailers can target the local demographic by offering select food that the local consumers want, establishing a much more personalized, meaningful shopping experience for customers. They can also continually adapt inventory to meet the local demand.

Small-format stores are limited as to the number of SKUs they can put on the shelves, and therefore, they have to be much more targeted.

A smaller store means there’s no back-room storage area. When getting product from the manufacturer, retailers in small-store formats want smaller case packs.

This is why many retailers are filling their shelves with private label products. Most national brands produce large case packs, whereas private label manufacturers are more willing to offer smaller sizes to match target demographics. A lot of small-format stores are also giving merchandising space to fresh food, meal kits, bakery, deli and produce, all areas that tend to be 80 percent or higher of private label penetration.

Enhancing the Experience

Grocers are also improving their older format locations by carving out a spot in their stores for a café to add a differentiating factor and enhance the shopping experience. For example, Whole Foods Market is known for its self-help sushi and salad bars and sandwich counters in its supermarkets. It has also added about 30 full-service restaurants with wait staff and 250 quick-service concepts in spaces inside or adjacent to its markets.

Any item sold in a café is essentially an unpackaged private label product, meaning that retailers can market their own products while enhancing the grocery shopping experience. For example, Wegmans’ Market Cafés feature an array of prepared food items and an oversized bakery featuring European specialties.

Online Ordering

According to research from Food Marketing Institute (FMI) and Nielsen, nearly half of Americans now buy groceries online, so it’s no surprise that more grocers are adding this capability. Recently, Sam’s Club signed a deal with Instacart through which the delivery service will make same-day grocery deliveries from Sam’s Club stores. Further, Target acquired the delivery service Shipt in December and plans to roll out same-day delivery service to most Target stores in 2018.

In addition to online shopping, consumers are also voice ordering their groceries. According to global firm OC&C Strategy Consultants, voice shopping is expected reach $40 billion in 2022, and at the moment, groceries make up the most commonly shopped category.

Online shopping provides much needed visibility to private label brands. Retailers are taking advantage of the trend by putting their private label products before national brands. A test conducted last October by Bain & Co. found that in categories in which Amazon has a private brand, 17 percent of the time Alexa recommends the private label product, even though such products make up just 2 percent of volume sold. With voice ordering, retailers are able to build winning, recognizable private label offerings.

Any item sold in a café is essentially an unpackaged private label product, meaning that retailers can market their own products while enhancing the grocery shopping experience.

New Formats Mean New Pressures for Retailers

Although these new formats and the shift toward private label products present new opportunities for grocery retailers, they also come with added pressure. Retailers must effectively and efficiently manage the logistics and the relationship with private label suppliers. They must be much more precise and need to monitor their stock much more closely.

Additionally, unlike with national brands, retailers are involved in the development process when it comes to private label products, and they must be in constant communication with suppliers to monitor ingredients and freshness. Also, because fresh products are more susceptible to food safety issues, retailers must be extremely diligent about vetting suppliers and keeping documentation updated. It can all be overwhelming, which is why having a system in place to manage all of it is key.

A research report published by the Capre Group notes that “in this new shopper paradigm, suppliers and retailers must stand side by side and work together to unlock new levels of growth.” The adoption of advanced communication tools is one of the most important priorities for successful collaboration. Using such tools can help private label partners not only acquire a deeper understanding of each other, but also gain wisdom and insights. The result: more innovative, more competitive products.

Developing and evolving a trusted partner network can save retail professionals time and effort by helping them gather relevant market knowledge, build relationships and share company and product data. From product brief to product launch, including product specification and packaging, an established business network can enable retailers to seamlessly communicate with manufacturers throughout the entire product lifecycle.

Profit With a Private Label Management Solution

In-house brands bring in an estimated $120 billion per year, according to the Private Label Manufacturers Association. The greatest successes in private label come when colleagues and partners work closely together to address external trends and deliver what customers want.

Private label management solutions can help unify and coordinate these efforts, and boost private label performance. Leveraging a single source of integrated private label information can help users save time and effort. Decision-makers can gain superior visibility into private label processes through high-level dashboards, meaningful analysis and benchmarks. Sourcing teams can negotiate better by measuring supplier performance and component costs, and quality teams can mitigate risk by quickly pinpointing and correcting supply chain bottlenecks.

Communication Key to Success in New Formats

It’s no secret that grocery chains across the country have finally come to understand the value that private label products add to their bottom line and their shoppers’ satisfaction, and they’re using innovative formats to promote their private label products. If retailers have a strong strategy in place for managing partners and tools for sourcing new vendors, they can work collaboratively with those partners to continue to capitalize on the changing formats.

About the Author

Kelly Thompson-Kell

Kelly Thompson-Kell

Kelly Thompson-Kell is the North American market strategy director for global private label management software provider Trace One. Read More