Comments on: Store Brands Give National Brands a Run for the Money

By: wk

wk — Tue, 21 Aug 2007 05:01:34 +0000

The concern I have with PL brands is that the retailer has the power to inhibit competition by refusing to stock competitive brands or doing so in a restrictive manner. This is especially concerning in a market like Australia where we have two dominant retailers with 75-80% market share in the supermarket segment. Are there precedents in other countries?

By: Hugh Munro

Hugh Munro — Mon, 07 May 2007 08:20:17 +0000

Hi all,
In Australia, the supermarkets have lagged behind Europe and North America on this issue. It has only been until the last year or so that store brands have shed their stigma, and the big retailers have recently launched new home brands. They have been accepted quickly by shoppers and the private label product offering has widened rapidly.
It seems the onus is now squarely back on the national brands. How have they managed to maintain a price premium in markets that are a few years ahead of Australia on this issue? If anyone can suggest any examples, particularly in the packaged goods sector, I’d be very interested to hear.

By: Ted Mininni

Ted Mininni — Tue, 17 Apr 2007 14:26:58 +0000

Sachin,
Thanks for your comments on this issue. You raise some provocative questions. Retailers must all determine what the balance will be between their own PL brands and national brands, and that largely depends on their own overall brands and positioning, and who their customer is. That mix between PL and national brands must be determined by each retailer, and it varies from one to the next.
Retailers see PL as a means to leverage the strength of their own brands, if done correctly of course. They also see additional profit dollars in PL goods. There’s an opportunity to get additional markup for positioning a premium PL brand or for having a unique brand that can’t be comparison-shopped on price at other retail outlets. Those are two big advantages for retailers. Again: retailers can hit or miss with these strategies if they don’t put the resources, time and effort behind making their PL brands a success.

By: Sachin Tatiwala

Sachin Tatiwala — Tue, 17 Apr 2007 07:31:16 +0000

Hi Ted,
Going forward on the discussion on private labels and the trends in India more specifically to Apparels.
Most of the national chains here have their PL in place. We have stores like Westside which has 100% private labels with the exception in the denim category. Others like ShoppersStop, Lifestlye, etc. have around 10 – 15% of their sales / space allocated to private labels.
The one question that comes to mind is -
At what point does one strike a balance between private labels and national brands?
Also what benefits does a retailer see in moving from a 100% private label strategy to introducing national brands? (especially in the case of a hypermarket format store for Apparels)

By: Ted Mininni

Ted Mininni — Wed, 11 Apr 2007 13:22:56 +0000

Sunil,
Thanks for your input on retailing trends in India. It would be interesting to know whether retailers in other countries in Asia, Europe, South America and Africa are launching private label lines of their own.
If Daily Fix readers from other countries would like to comment, we’d love to hear from you, as well.

By: Sunil S Chiplunkar

Sunil S Chiplunkar — Wed, 11 Apr 2007 05:00:08 +0000

The face of retailing in India is undergoing change. While Reliance Fresh, Big Bazaar, Spencers, Fab Mall are national brands and propah retailers – Vishal Megamart is an apparel manufacturer who is forward integrating in to private label retailing. National retail chains are a new phenomenon here. India is popular as a nation of shopkeepers – there are many many neighbourhood stores – franchisees and chains are relatively new concepts in retailing in India.

By: Ted Mininni

Ted Mininni — Tue, 10 Apr 2007 13:30:39 +0000

Jaded,
According to private label industry studies and recent polls, you are in the majority with your statements. Many people feel exactly as you do about PL brands. As the stigma of inferior quality has gone, as well as the image of low priced merchandise where PL products are concerned, these labels have become more and more accepted by consumers. As Tom Peters famously said, “Perception is reality”, and consumer perception of private labels has become more and more positive as time goes on.

By: jaded

jaded — Tue, 10 Apr 2007 00:43:05 +0000

Well I love store brands. When I visit my local “Whole Paycheck” I buy the house brand virtually exclusively: the whole wheat pasta is the best around! Amazingly enough a few of my local independent grocery stores also offer Private label items including olive oil, grapeseed oil, tortilla chips, pasta and pasta sauce and a few other packaged items. Since I want to support my local businesses I try to purchase their house label for these staples. These products are also very good, and rarely the “cheapest option.” When a store or retail experience really resonates with their customers PL brands can really succeed: like Trader Joes, Whole Foods and Target’s Choxie. I also think that retailers are getting much more creative at PL merchandise with the designer lines at H&M, Target and Payless…these are really house brands with cool images. I wouldn’t be surprised if some innovative market pairs with a famous chef for a new land of house label products! If clothing and furniture can do it, food is not too far behind for designer labels.

By: Claire Ratushny

Claire Ratushny — Thu, 05 Apr 2007 14:04:11 +0000

Hi John,
Right you are and Whole Foods should keep an eye on Trader Joe’s. Their pricing on a more limited, but key assortment of top selling natural and organic foods and nonfoods has earned the chain a very loyal following. I’m sure they’re very successful; the company is headed by a small group of veteran grocerymen. I believe TJ also chooses its locations very well. It’s hard to know much about them since the company is privately held, though. I personally enjoy shopping in the closest Trader Joe’s and do so frequently. Great buys on items I use all the time.

By: johnmoore (from Brand Autopsy)

johnmoore (from Brand Autopsy) — Thu, 05 Apr 2007 13:26:38 +0000

Claire you hit upon something smart by mentioning the Trader Joe’s PL line. Whole Foods Market’s “WHOLE ______” private label line is a direct play against Trader Joe’s.
Whole Foods Market views Trader Joe’s as a VERY strong competitor. And for good reason … Trader Joe’s does a great job of bring value and values to market. They also need only 12,000 sq. ft. per store which allows them many more opportunities to open locations. Whole Foods needs a minimum of 45,000 sq. ft. before they will look at opening a new location. It is far easier to find smaller boxes than bigger boxes. Dig?

By: Ted Mininni

Ted Mininni — Wed, 04 Apr 2007 18:25:59 +0000

Hi John, Claire & Mario,
Thanks for the stimulating discussion on private label. It’s nice to hear opinions on the pros and cons of PL where retailers like Whole Foods are concerned.
I agree, Mario: it would be wonderful to hear from Al and/or Laura Ries on this subject. Hopefully they’ll weigh in.

By: Mario Vellandi

Mario Vellandi — Wed, 04 Apr 2007 17:59:20 +0000

I think PL brand names would be more effective if they’re different for each category such as:
Dairy, Bread, Canned Vegetables.
We’ve all seen this practiced before with varying degrees; I have at Costco and some German food retailers. Although a strong store brand sure is good enough, I must say that retailers like Target could do a better on food items to make them more appealing.
Given the Book Club’s recent discussion, I’d love to hear what Laura and Al would say to this.

By: Claire Ratushny

Claire Ratushny — Wed, 04 Apr 2007 17:00:49 +0000

John,
Thanks for sharing your unique perspective; having been part of WF for awhile, I figured you’d have some great insights. Maybe Whole Foods will narrow its PL brand offerings, or eventually bring it all in under the 365 umbrella. . .
By the way: Trader Joe’s is kind of interesting with its multiple PL lines, many using the “Trader” designation. That is, Trader Giotto’s, Trader Giovanni’s, etc. All except Palermo and I understand there may be a lawsuit due to another company, Palermo Pizza’s ownership of that brand name and the closeness of TJ’s brand to that. We’ll have to see.

By: johnmoore (from Brand Autopsy)

johnmoore (from Brand Autopsy) — Wed, 04 Apr 2007 16:25:42 +0000

Claire … I see WFM’s PL strategy as being wayward. They have expanded into so many PL brands.
A few years ago they began churning out products under the WHOLE “_______” name. Whole Treat. Whole Catch. Whole Kitchen. Etc. This is in addition to the company’s 365, 365 Organic, Whole Kids, and Authentic Food Artisans PL brands. As a consumer, I find it all very confusing and wayward.
I think a smarter play would have been to continue with the 365 brand name and not dilute it with all the offshoot brands. An even smarter play would have been not to discontinue the Whole Foods branded PL line. The Whole Foods name has oodles more equity than does the 365 name or the Whole “_____” name. However, the company discontinued its Whole Foods branded line of products in the early 2000s.

By: Claire Ratushny

Claire Ratushny — Wed, 04 Apr 2007 14:33:33 +0000

John,
As a past category manager for UNFI on the wholesale side, and marketing manager for its retail division, I have followed Whole Foods for a long time. I seem to recall that when WF positioned its price sensitive 365 line, there were some quality issues in some categories which the retailer moved quickly to rectify. I believe they tinkered with their PL brand offerings for some time, honing in on successful categories for line expansion and eliminating others.
Given their approach to their entire business, it doesn’t surprise me that WF has managed to grow its PL business in the least. In fact, I would have been surprised if they didn’t make a success of it.

By: johnmoore (from Brand Autopsy)

johnmoore (from Brand Autopsy) — Wed, 04 Apr 2007 14:10:09 +0000

The Whole Foods Market (WFM) private label (PL) positioning is interesting. Clearly, WFM uses its PL products as a way to address the price issue. WFM gets dinged for being pricey. But its Everyday 365 PL line and various offshoot lines like 365 Organic, Whole Kids, Whole “Catch,” and Whole “Kitchen” are very price-competitive.
In the past four-years, WFM has increased its PL offering dramatically. Sales have validated this strategy as WFM PL products sell extremely well. So well that it rankles some of natural/organic brands. With more and more WFM PL products finding their way on the shelves, it squeezes out some of the natural/organic brands. However, it is my understanding WFM makes more money selling its PL products than it does selling major-label organic/natural brands. Smart business, right?
As has been mentioned earlier, TRUST plays a huge role in the perception of PL. Customers TRUST the WFM brand and thus, trust their PL offerings. Without a strong brand, TRUST doesn’t exist. Without TRUST, sales of private-label brands will be compromised.

By: Ted Mininni

Ted Mininni — Wed, 04 Apr 2007 13:43:16 +0000

Elaine,
Thanks for your input and for providing Daily Fix readers with a great example of a well-respected, successful store brand.
The strong retail brands that have been noted here give a blueprint for retailers large and small who are considering launching their own private labels.

By: Elaine Fogel

Elaine Fogel — Wed, 04 Apr 2007 01:13:16 +0000

Ted, one of the most successful private label brands I’ve seen is President’s Choice. What started out as store-brand products developed for Loblaw’s of Canada to “develop unique or superior products that offered better value,” turned out to become a brand on its own. President’s Choice is now available in a multiple of stores within its own family of stores, as well as in grocery stores in the American midwest.
The company was innovative and ahead of its time, branching out to offer financial services including its own credit card, gift basket orders, long distance cards and an organic product line.
Check them out:
http://www.presidentschoice.ca/AboutPC/Story.aspx
They certainly meet Lewis’ criterion of meeting and exceeding consumer expectations.

By: Ted Mininni

Ted Mininni — Tue, 03 Apr 2007 19:09:03 +0000

Lewis,
I concur with you. Your statement isn’t simplistic, it strips down all of the details to one basic truth: store brands or national brands have to deliver on the promise they make to the consumer, or they simply won’t make it. I also think that the parent brand, strong or not, can ultimately be damaged by poorly executed private label lines. Customer expectations are that much higher when the retail brand is a strong one, aren’t they?

By: Lewis Green

Lewis Green — Tue, 03 Apr 2007 18:33:28 +0000

Ted,
Good post! Don’t mean to be simplisitc but I believe that store brands, like any brands, will succeed or fail based on consumers’ perceptions.
Having a strong brand already, such as Trader Joe’s, will give the store brands a boost. But at the end of the day, if the store brands fail to meet and exceed expectations, they will fail, even when the mother brand is strong.

By: Ted Mininni

Ted Mininni — Tue, 03 Apr 2007 17:51:04 +0000

Thanks Mario, Claire and Shane for your input.
Here’s an interesting tidbit, Stephen and Shane: recall that before the late 1990’s, Korean electronics manufacturer, Samsung, was tied to Wal-Mart for its U.S. distribution. The company made inexpensive products back then. All of a sudden, a new chairman came into the company and made the decision (with a strong gulp and some real courage) to stop selling Wal-Mart and to rebrand itself as a better quality, innovative, higher priced brand. Not only were they successful, Samsung became one of the most studied brands for its meteoric rise to prominence and real growth. Talk about a 360–what did you guys think about that?

By: Shane Mares

Shane Mares — Tue, 03 Apr 2007 16:50:26 +0000

Stephen, you make good points, though I think in the technology sector that the manufacturer brands mirror the retail brands in those regards. I’ve read many business articles about how tech companies get into the low end of the price segments by slapping their shell on a product they buy from a cheaper manufacturer.
As in, if you buy the mid to high priced Sony camera, you’re getting a Sony but the cheap Sony cameras are made by someone else without much oversight. So brand names that people have trusted for years are flopping their name on anything to obtain sales at each price segment while also maximizing cummulative brand presence on the shelves. I don’t like the idea of putting an inferior product out because it’ll be hard to sell the jump into the expensive model if their previous one wasn’t a good performer.
So when we walk into a store, our known brands could be unknown quality and retail brands are all over the map too. It’s getting confusing both ways.

By: Claire Ratushny

Claire Ratushny — Tue, 03 Apr 2007 16:46:41 +0000

Ted,
Retail brands that have done very well include Trader Joe’s and Whole Foods private labels, some of the wholesale club brands like Costco, BJ’s and Sam’s, Target’s own labels, etc. There are lots of failures too, so if the retailers don’t get it right, price alone isn’t going to save the day–if that’s what they’re going for. I see more and more PL brands going high end, though. Should get even more interesting over the next few years.

By: Mario Vellandi

Mario Vellandi — Tue, 03 Apr 2007 16:31:33 +0000

The private label phenomena is very alive and growing, and is a lucrative field for manufacturers whose culture is built on innovation and can get the attention of buyers.
As you stated, this is really an opp for hypermarkets, supermarkets, drugstores, and some specialty stores.
At two previous employers, we gladly modified our product to the (big) retailers wish. In order not to create confusion or conflict with other retail clients, we’d modify the color, packaging size, scent, other. Some of our lines had a pseudo private label such as “At Home” that carried well with middle-tier retailers. If the client had an existing PL program, we’d offer to build something unique for that; Target is one client for which everything was either “Target Home” or an exclusive brand name. With the big box stores, they gladly command what the end product will be like. I think the buyers at that point get a kick out of the process, because they can put on the hat of a designer.
Lastly, I wanted to point out a famous German supermarket chain: Aldi. 80% of their merch is PL, and they are very profitable. Their purchase and capital investment in Trader Joe’s many years ago helped make that company what it is today.
This is an exciting field. I hope to be more involved in the coming years.

By: Ted Mininni

Ted Mininni — Tue, 03 Apr 2007 15:09:22 +0000

Stephen,
You’ve made some very strong points. There is no doubt tension between manufacturers and retailers over this issue.
The reality is, though, that retail brands are not going away. In fact, private label is becoming a bigger and bigger factor in retail operations today. Many retailers have worked to overcome perceptions of shoddy quality, or commodity products positioned solely on price vs the national brands. Those retailers that are working to build trust with the consumer, offering quality products and a real brand option are experiencing success.
But you’re right: it’s a very mixed bag out there. Some retail brands have a long way to go and some just won’t make it with the consumer. Still, retailers are pushing to develop, brand and position their own product lines with increasing fervor. Supermarkets, apparel outlets, home products, drugstores: virtually every segment of retailing is affected by the private label trend, and it’s growing.

By: Stephen Denny

Stephen Denny — Tue, 03 Apr 2007 14:42:57 +0000

Ted: I come from a technology background, so private label has been a cyclical trend over the past 20 years or so. Retailers (Blockbuster, Office Depot, etc) often look at private label for commodity products but then shy away when they realize there’s product management and roadmap issues that must be dealt with, which is a skill set they haven’t developed; as a result, many have an on again, off again relationship with the idea.
Some have decided that they, not the manufacturer, are the brand — carriers like Verizon, for example, have uniform packaging and OEM labeling on all products. Whether this is a good idea or not is debatable. I’d side on it being a negative because their brand isn’t more powerful or trustworthy than a Motorola or a Plantronics. But I’m biased.
From a manufacturer standpoint, the lure of higher factory capacity is a slippery slope. Not only do you compete with yourself, but you become dependent on volume that can switch quickly and is highly price competitive. Not a smart move if you’re a market leader and risky if you’re a smaller player.
As a result, many store brands – regardless of positioning and packaging – are not the highest quality.
Your experience may be different, but when I see a technology product branded by a retailer, I expect a no name China factory to be producing it with little to no quality control and minimum landed cost. Retailers “retail” for a living, in most cases. They often aren’t good “manufacturers”.