Expert Column: Investing in Private Label Drives Grocers’ Success
The grocery industry is currently going through a period of incredible change. It's possible, however, that one change is the hardest to plan and deliver on. Grocery consumers are getting smarter.
They're shopping at a wide variety of retail options, and they're not governed by price alone. Consumers are willing to pay more for what they want, and they value the shopping experience as much as selection. More and more, the industry is polarizing. From a rise in high-end grocery stores, where consumers are paying a premium on everything they purchase, to stores with few frills, limited selection, lower quality and low prices.
Given the rapid changes we're seeing in this industry, it's surprising that we don't see more investment in private label quality and value. It's an area where grocery chains can better control price and profit while creating customer loyalty and return visits. Yet, during a more than two-decade career in coffee and private label, I’ve been amazed at how many chains aren't growing their private label brands.
Everyone in the industry knows the story. Years ago, private label was all about cheap products and low prices, but the generation that grew up with that model is no longer driving sales. Now a new generation of smarter shoppers is driving change.
Gain Control
The way for grocery chains to create stability in this period of change is to accelerate the move away from the past model of private label brands as a cheap alternative. Consumers today want value, and having private label products with great quality at lower prices is the formula that works.
By finding independent food, beverage, cleaning, and health and beauty suppliers, a grocery chain immediately gains more control. With consumers concerned about a wide-variety of sourcing issues, including organics and locally grown foods, spending the time and effort in tracking down the best sources puts any chain in an excellent position, because it has source certainty.
Once any grocery chain has a quality private label product, they also have the upper hand against national brands, because they can control the in-store experience. The most successful chains feature their private label brands in circulars at the store, in newspapers and via direct mail. They can give their in-house brands more upper and mid-aisle shelf space, a far cry from the old days, when private label products were bottom-shelf and generally hard to find.
Just remember, price can drive a first purchase, but quality drives return purchases and loyalty.
Be the First Ones In
One area where grocery stores and private label producers can do better is reacting quickly to new trends. Consumers are always ahead of the industry in this area. In coffee, the move to single-serve cups was a major trend. Many grocery chains were quick to allocate space to single cups, but they weren’t quick to bring to market their own single-cup brands. The same has been true with gluten-free. Consumers demanded it, and national brands got into the supply chain first.
The result in both cases is not just lost sales, but also lost loyalty. When new trends emerge, consumers haven't pledged loyalty to any one brand; they're in a try-and-see mode. In the past, stores have been slow to commit because trends sometimes take time to show "legs," a sense of permanency. However, time has shown that once a trend takes off, the first brands in are the ones that enjoy long-term success. However, spotting trends and being first to market are things that everyone in the industry could be better at, private label and national brands alike.
Today's consumers not only want high-quality products at the best price, they're also willing to go to many different stores to find what they want. The best way to capture this new generation of mobile, savvy shoppers is to offer them products they can't get anywhere else. To do that requires a commitment to a strong private label program.
It's clear that grocery chains that commit to a strong private label program, and put their brands in the No. 1 position in terms of quality and placement, will be the ultimate winners in the crucial goal to obtain customer loyalty.