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The time has never been better for store branders to seize the day -- at least for those retailers that are ready to treat their own labels with the same level of sophistication and strategic commitment that national branders have used to control the shelves for decades. If they're ready, it's a good bet that Daymon Worldwide will be right alongside them.
Since 1970, the power brokers behind what was then known as Daymon Associates have been doing their best to elevate private label's role from that of the illegitimate stepchild of the grocery industry to its rightful status today as the probable linchpin for the future of forward-thinking retailers of virtually every stripe. It's taken a while, but the folks at Daymon, and, most importantly, co-founder and chairman Milt Sender, have turned an unswerving faith in the power of private label into a booming business -- and the best is yet to come, according to the analysis, predictions, and gut feelings on display at the first Daymon Worldwide Forum, held just before the Food Marketing Institute's Chicago show last month.
The convergence of many forces is behind this store brand opportunity. Those forces include the rise of value retailing; the ever-growing need for retailers to stand out from the pack; the mainstreaming of specialty food segments such as organics/natural, specialty/gourmet, and meal solutions, each of which offers fertile ground for store brand activity; more private label programs than ever before offering superior-quality products, and the public awareness of, and attitudes toward, store brands at an all-time high.
As Sender stood before a packed audience of c-level retail executives, top manufacturers, and assorted sharp industry minds to open the forum, he confessed to nervousness, both about who would show up and the efficacy of exposing the collective vision of his huge team and their strategic partners to public scrutiny, which is quite a leap of faith for a company that has traditionally kept a low public profile.
"We've learned a lot in the last 36 years," Sender told his audience. "Private label today is a science, but it is still an art. We can forecast by the item what a customer will sell by looking at the data from all our other customers, but that presumes comparable packaging, prices, placement, promotions -- and all of that is the art." The key now, he said, is that "these artistic decisions can be reached through science."
Even more essential, emphasized Sender, is that the main players in the private label game -- "the retailers and manufacturers and Daymon," as he put it -- work in more sophisticated collaboration, following a unified vision for store brand strategy.
"If we do not find ways to share information, we will all leave something on the table," said Sender with characteristic frankness. "Each has a lot more to share with each other, not across a desk, but all three together at a round table."
The two-and-a-half-day event was packed with presentations of hard data, as well as strategic insights pointing toward opportunities for private label growth in the immediate future and beyond.
It's clear that the stage is set for store brands to ascend. Private label is already the No. 1 seller in 240-plus grocery categories, which comprise about a quarter of all categories in the store, according to Peter Brennan, Daymon's president. But, he noted, "Do we treat them as the leading brand? At Daymon we believe in private label." Brennan added that the industry has been missing out on key opportunities to leverage the fact that store brands dominate such a large chunk of business in the store.
Brennan urged retailers and manufacturers to stop following the lead of national brand manufacturers, and instead become product and marketing innovators in their own right.
What follows is just a sampling of the store-brand-centric thought leadership circulating through the Chicago Hilton during the Daymon Worldwide Forum.
Retailers may actually be hobbling the growth opportunities of their private label businesses, according to a groundbreaking study conducted by Daymon Worldwide, ACNielsen, and DemandTec, presented for the first time at the forum.
The study, which spanned more than a year and involved over 200 stores at multiple retailers, integrated consumer demand into strategic merchandising planning, to identify and resolve shelf inefficiencies and create optimal pricing strategies for branded and private label products. Among the several illuminating results: When it comes to the power of private label, many consumers seem to "get it" on a more sophisticated level than do most retailers.
New York-based marketing information firm ACNielsen, a sister company of Progressive Grocer, provided relevant market data for the study, while San Carlos, Calif.-based DemandTec's consumer-centric merchandising and marketing software and services were used to analyze the intelligence for the stores and markets involved in the accompanying retailer case studies.
"We actually made some discoveries that were contrary to current beliefs on private label pricing," Daymon e.v.p. Kevin Sterneckert told PG during an interview after a tag team of Sterneckert and experts from ACNielsen and DemandTec shared the study highlights. "For example, increasing the price of private label products may in some cases actually increase volume sales at the same time. Pricing should reflect the quality of products and consumer expectations, so increasing the price of some private label items may actually strengthen the image and competitiveness of both the brands and the retailer."
Two case studies were conducted as key extensions of the research. One focused on proliferation, with its goal the elimination of excessive SKUs that don't add variety, and price-point targets. The other field test focused on the pricing of private label relative to branded products, and consumer reactions to these pricing practices.
The proliferation study found that reducing such redundancies improves overall category performance, and that consumers had no complaints when 7 percent to 10 percent of the SKUs in various categories were removed.
In the pricing case study, the three companies sought to identify categories in which private label brands were undervalued (or overvalued) relative to national brands, and employed pricing to shape consumer demand and drive private label and category growth. The study analyzed consumer purchasing behavior between private label and branded products, and consumer attitudes toward private label quality, price and value, and assortment. It examined all private label and total category spend segments within households that shopped in low to high private label share retailers.
This case study found that there's no one correct price gap between private label and similar branded products, and that price management should be based on consumer demand and aligned with strategy and objectives for volume, sales, profit, and price image.
"There is no 'right' price gap," said DemandTec senior director Mark Dietz. "Such gaps are a byproduct of pricing one brand relative to other brands, and will therefore vary by SKU."
Following were some other key findings from the study:
--Consumers who buy higher quantities of private label products shop the store more often, making more private label trips as well as more branded trips. This gives the retailers more opportunities to drive store loyalty.
--Retailers have an opportunity to narrow the price relationship between private label and branded items. However, there's a need for greater focus on premium private label offerings and/or the need to increase private label trial via in-store sampling, advertising, and features and displays.
--Private label is no longer limited to the historic buyer profile of low- to middle-income families. In addition, there's higher private label buyer development in households with $70,000 or greater annual income, especially among households comprising top-spend private label buyers who shop retailers with a strong private label commitment.
--Private label is in a position to compete on quality with national brands:
Approximately 85 percent of top-spend private label buyers say that it's a good alternative to brands.
Fifty-nine percent of consumers say that it's "just as good" as national brands.
One-third of consumers say that some private label items have "higher quality" than brands.
Even low-spend private label consumers have a positive image of packaging.
Approximately 90 percent of consumers feel comfortable serving private label to their guests.
--Seventy-two percent of consumers don't believe that national brands are worth the extra cost.
--Sixty-eight percent of consumers believe that private label is an extremely good value.
--Pricing should be an integral part of category management.
The store as message
Many retailers are doing a bang-up job with their private label programs, but if they're not marketing these products with the level of sophistication they deserve, those programs will never deliver on their true potential value.
Daymon clearly believes that it's time for retailers to turn up the volume on marketing. Brennan stressed the underdeveloped opportunity in the market for making a bigger deal of the quality and innovation that many private label programs offer today. He pointed to the organic private label efforts of Safeway and Supervalu as prime examples of private label leadership, rather than following in lockstep behind national brand marketers.
Both efforts rely on marketing as a key follow-through for fully executing the chains' strategies. To lead means to market better, not only through advertising, but also through the associates who work on the front line and understand the business the best, added Brennan. "Leverage the store associates to be ambassadors for the brand," he noted.
Todd Maute, v.p. of Daymon, presented a compelling argument, and a multifaceted prescription, for enhanced store brand marketing.
"Over half of an average store's 30,000 SKUs are exactly the same," said Maute. "A national brand will come out with a new product, then the next brand, and the next; then private label versions of the product are launched."
To be heard in a world characterized by 500 cable channels and the gatekeeper Tivo, supermarket operators must become marketers and innovators -- and private label provides an opportunity to do just that. "Brands are defined by individuals, not by companies and markets," noted Maute. "And private label is a powerful medium to carry your brand's message."
To emphasize this point, Maute explained that each product makes three impressions with the consumer who buys it: first at the shelf, where it's initially presented to the shopper; then when it's purchased; and finally, when it's consumed. With 500 million private label products sold each year, that's 1.5 billion impressions made on the consumer. For a retailer to generate that many impressions using traditional advertising, it would cost more than $20 million. Since the retailer is in control of its own private label program, it presents a great opportunity for marketing the store's brand message.
"The store is a powerful medium for marketing," said Maute. "The total involvement of all the senses creates a complex, complete experience that lingers."
Examples of successful strategies that retailers have employed to leverage their private label programs include:
--"Quirkiness" and humor: Trader Joe's employs quirkiness to great effect -- "in a way that only Trader Joe's can pull off," noted Maute -- in its private label package design, such as its Joe's O's cereal.
--Licensing and borrowed equity: Examples of this included Kmart's successful Martha Stewart and Joe Boxer lines.
--Design: Unique designed products can set off products from the competition.
--Celebrity endorsements: Bob Vila's Craftsman endorsement is an example of closely aligning a celebrity with a related private label brand.
--Perimeter branding: This presents a tremendous branding opportunity, according to Maute. "Retailers should put effort into their perishables branding," he said. "They tend to have a 'halo effect' on other areas of the store."
What's most important for retailers leveraging private label in their marketing efforts, said Maute, is that they focus on the consumer, remain true to their brand, be different, and market this point of difference.