Private Label: Grocers Latch Onto Key Emerging Trends to 'Outstrip' Rivals

As private label rises in popularity with U.S. shoppers and becomes an ever more ubiquitous part of the American grocery experience, food retailers must up the ante by embracing what’s new across the board, including products, merchandising and promotions. “One of the biggest trends we are seeing in private brand is the shift from imitation to bold innovation,” asserts Nicole Peranick, senior director, retail transformation at Stamford, Conn.-based Daymon, a provider of global retail strategies and services. “Retailers are increasingly acknowledging that private brand is more relevant than ever to their strategy for success.” The reason for this is that a superior private label offering enables a grocer to stand out from the pack. “Daymon’s research shows that on average, 98 percent of a retailer’s national-brand assortment is the same as its competition, leaving nearly all differentiation up to private brand,” notes Peranick. “Add to that the fact that consumers continue to reject the notion that national brand is best — with 85 percent saying they trust private brand just as much and 81 percent saying they buy private brand on every shopping trip. As a result, we are seeing the balance of power shift to private brand.” Doug Baker, VP, private brands and technology at the Arlington, Va.-based Food Marketing Institute (FMI), agrees that store brands are a key way for grocers to outstrip their rivals. “A retailer’s private brand is its point of differentiation.” He goes on to note that among the trade organization’s members who participated in “The Food Retailing Industry Speaks 2018" report, “retailers plan to make growing investments in this business segment, with many forecasting bigger space and SKU allocations for private brands in the next two years. Furthermore, private brands influence 46 percent of consumers in their choice of where to shop, according to IRI data in FMI’s ‘The Power of Private Brands.’” Along with bigger investments, however, grocers must develop a comprehensive game plan for their own brands. “‘Set it and forget it’ isn’t a strategy that works in retail these days,” observes Peranick. “Shoppers want more, and they’re challenging retailers to pioneer. Today, 53 percent of consumers on average say they shop at a store specifically for its private brand. And the more unique the private-brand assortment is, the more loyal shoppers are, as proven by Daymon’s research. Faced with an ongoing battle to drive traffic and store affinity, retailers must continue to push the envelope.” Her advice for how to do that is clear: “Pivoting from category-led updates to consumer-centric platform innovation across the store will help raise the profile of your private-brand program and better set you apart from the competition.” Among the grocers that have formulated their own comprehensive private label strategies is Carlisle, Pa.-based Ahold Delhaize USA, No. 4 on Progressive Grocer's 2018 Super 50 list of the top grocers in the United States. “We’ve developed a set of best practices regarding the entire private-brand experience,” says Juan De Paoli, SVP, private brands at Retail Business Services, an Ahold Delhaize USA company. “The best practices make recommendations across key areas like quality, price and promotion, merchandising, marketing, packaging, sustainability, innovation and renovation (or reformulation). By leveraging best practices across these areas, we create a cycle of continuous improvement and excellence in private-brand product delivery.” A Fresh Take on Products When it comes to developing new offerings, private label items must tick all of the emerging-trend boxes that their national-brand counterparts do. “Our industry is poised to propel the growth of private brands,” notes Baker. “Retailers are innovating with the consumer in mind, from clean ingredients to plant-based products to experiential flavors.” “There is a role for innovative items to bring consumers into their stores for this item that they can’t find anywhere else,” observes Abby Ayers, senior business development manager of retail at Oakland, Calif.-based Fair Trade USA, which collaborated with dozens of retailers to launch 176 Fair Trade Certified ethically sourced private label items in 2018. “Will those items keep the lights on alone? Probably not. But they will keep shoppers coming back,” said Ayers, who also is an honoree in Progressive Grocer's inaugural GenNext Awards. On the subject of items’ origins, “I expect locally sourced and regional products to become more important as retailers continue to innovate with their brands,” notes Steven Howell, solution sales consultant at Nottingham, England-based Solutions for Retail Brands Inc. (S4RB). “Demands from consumers are increasingly moving towards high-quality, locally grown products, as more people want to participate [in] and support their local community.” In terms of which categories are trending, Brian Sharoff, president of the New York-based Private Label Manufacturers Association (PLMA), points to the “continuing expansion of store brands in ready-to-serve, heat-and-serve and fresh foods, with more and more creativity and innovation in the food products offered to shoppers.” “Consumers are moving away from key commoditized items — such as canned goods, baking ingredients, canned coffee and the like — which are traditionally large private label categories,” affirms John Paul, VP of private brands at Grand Rapids, Mich.-based grocer and wholesaler-distributor SpartanNash, No. 35 on Progressive Grocer's top grocers list. “Instead, they are moving into more fresh categories and looking for healthier food options, including clean ingredients and free-from formats. They’re shopping the perimeter of the stores for value-added options in fresh departments. Because of this, the perimeter of the store continues to grow. There also seems to be a penchant for indulgent and premium items in certain categories, as consumers … want differentiated product for their lifestyles.” “We see several trends in private label, including continued growth of organics and clean-label offerings, and strong growth in the perimeter in fresh categories,” agrees Geoff White, president of own brands for Boise, Idaho-based Albertsons Cos., No. 3 among the top grocers on Progressive Grocer's list. “In meat, the trend is in organic, natural and antibiotic-free offerings. In deli, we are seeing growth in prepared foods and time-of-day offerings like breakfast. Perhaps the strongest emerging trend is with plant-based offerings in dairy and frozen. In fact, plant-based alternatives has grown to a $3.3 billion industry in the United States as shoppers seek differentiated offerings, ingredient transparency, and better-for-you and better-for-the-environment options.” In response to these emerging trends, grocers have begun reformulating their private label products. “Years ago, we recognized consumers’ interest in products that meet their desire to lead a healthier life,” notes De Paoli. “That’s why Ahold Delhaize committed to more than 50 percent of own-brand sales coming from healthy products by 2020. I’m pleased to report that we’re not only on track, but exceeding that goal in the U.S. Beyond that, in 2018, Retail Business Services committed to remove all synthetic colors, artificial flavors, artificial preservatives, artificial sweeteners, high-fructose corn syrup and MSG from all private-brand products by 2025. In 2019, providing clean, healthy private-brand products for consumers will continue to be an area of focus.” “Over the past several years, the Our Family brand has been working on a Clean Ingredient Initiative, focusing on providing cleaner products to our customers by removing synthetic colors, MSG and other key ingredients,” says Andrea Anson, SpartanNash’s director, quality assurance and food safety. “The Clean Ingredient Initiative’s purpose is to not only provide products that cater to an evolving consumer, but to educate the consumer in a market where information and product options are numerous and overwhelming.” The initiative currently encompasses more than 400 private-brand products. As far as actual items on shelves, Anson cites such 2018 rollouts as four SKUs of Our Family ice cream that contain only four or five ingredients, such as milk, sugar, cream and the appropriate flavoring; core soup offerings that now contain no added MSG; fruit and grain bars that have been reformulated to remove synthetic colors; and, under SpartanNash’s Open Acres fresh brand, a new hummus line providing a plant-based protein solution for consumers. Open Acres also features such items as specialty potatoes, fresh salsa, artisan bacon, ethically sourced seasoned seafood and, in partnership with craft brewery Founders, craft beer brats. SpartanNash additionally offers the Culinary Tours line, which addresses indulgent and premium segments of the business with on-trend flavors and unique products, and Good to Go, a brand providing ready-to-eat meal solutions, including entrées, sides and desserts. “A key area of focus for Retail Business Services is our Nature’s Promise brand,” observes De Paoli. “This brand is already free from more than 100 unwanted ingredients, and as part of our commitment to remove all artificial ingredients from all our private-brand offerings, the Nature’s Promise brand will be further strengthened.” In 2018, Albertsons introduced more than 1,000 new products, many under the O Organics and Open Nature brands, according to White, who adds: “We’ll continue to aggressively roll out new organic and natural products to meet that rising demand. We’re really excited about the opportunities in plant-based offerings. We plan to keep pace with that trend with new product releases throughout 2019.” The Quality Question Retailers must bear in mind, however, that product quality is an important consideration, both in developing items and promoting them to consumers, although it can be tricky to balance quality against cost. “Gone are the days of the plain white ‘me too’ package,” asserts Karen Strauss, principal at Wilton, Conn.-based Cadent Consulting Group. “Private label needs to have the right combination of quality, selection and price, and needs to deliver on shoppers’ key decision drivers of lower cost and good value/quality relative to national brands.” Ultimately, she adds: “Keeping costs low while delivering quality products is important for continued private label success. Turning a profit will come in the form of the grocer’s ability to attract consumers to their lower priced, good-tasting, high-quality private label products.” “There is a role for items that are the lowest price on the shelf to appeal to the shopper who wants as much variety as possible but doesn’t have a lot of disposable income,” notes Fair Trade USA’s Ayers. “These items should still be high-quality. They probably won’t drive the biggest margin, but they will drive a lot of volume.” For his part, PLMA’s Sharoff advises grocers to “emphasize quality, not low price, and build innovation and creativity into every product.” SpartanNash’s Paul agrees with this approach, contending, “Private label always has to be positioned as a quality-first program — and not just quality of the product, but quality of the packaging.” “Contrary to widespread belief, private brands are not all about price,” observes S4RB’s Howell. “Retailers are starting to … offer the quality, packaging and variety that shoppers are seeking. Consumers are looking for greater choice, and those retailers who are developing a strategy to meet those needs will see greater success.” In the Know Beyond the quality piece, private label must be promoted and merchandised for maximum appeal to shoppers. For Jeremiah McElwee, SVP of merchandising and product development at Los Angeles-based Thrive Market, an ecommerce membership-based retailer, that means “know your audience and know your brand. Then be yourself.” Howell puts it a little differently: “Successful private-brand retailers are truly connecting with their customers, and excelling at aligning with their needs and beliefs.” How does a grocer carry out those directives? Some key methods include performing extensive research; reaching consumers where they are, using both traditional and digital means; and providing pertinent information so that shoppers can make informed decisions about products. “Grocers have to really apply consumer segmentation studies to their positioning and promotion to understand the consumer,” suggests SpartanNash’s Paul. “They have to market private label by category, understand how new callout system on our packaging that helps draw the consumer’s attention to the removal of things such as certified colors,” explains Anson. “For the Our Family brand, we’re utilizing a leaf to specify key attributes of a given item. For Open Acres, we’re utilizing a circular swoosh. For patrons of U.S. military commissaries … Freedom’s Choice products have also been a part of the Clean Ingredient Initiative, with three stars used to signify key attributes.” She adds, “Our goal is to provide consumers with genuine informational bursts that help them support their family’s goals as effortlessly as possible.” The details may vary, but what’s clear is that grocers must have an overarching plan to boost their private label program’s visibility and sales, or they’ll miss out on a potentially huge source of future profits. According to FMI, private-brand performance within the grocery channel rose dramatically in the past year, although non-grocery retailers — including mass and club operators — have been performing much better in this space. There’s a real opportunity for food retail to seize share, however, as private brand accounts for 16.4 percent of dollar sales in the grocery channel, versus 14.8 percent of dollar sales across multiple retail outlets and convenience, the trade organization notes in its 2018 “Power of Private Brands: From the Register” report. Citing Nielsen’s prediction that within the next decade, overall U.S. private label market share will grow to 25 percent to 30 percent, mainly attributable to the higher availability of private brands on shelves, Ayers warns, “At some point, this will cap, and products will have to have something special in order to remain in the hearts of consumers and, in turn, on the shelves of retailers.” As Baker observes, “Without retailers, and by extension their manufacturing partners, continuing to invest in innovation, private brands will lose any advantage the segment has realized through consumer awareness and acceptance.”

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