Better Than 'Almost As Good'
Successful retailers of private label eschew comparisons to "big brands"
LAS VEGAS -- An impressive 85% of consumers purchasing private-label products "feel good" about doing so, while only 3% feel "embarrassed," Todd Maute, partner at global branding firm CBX, told a diverse group of retailers attending the "Private Label Profit Puzzle" educational session at the 2012 NACS Show in Las Vegas on Sunday.
"Private label is a hot commodity and is in the news a lot these days," he said. But it's not all good news.
"Much of [private label's] recent growth has been driven by the sluggish economy and is the result of consumers 'trading down' in search of better price values," Maute said. "If economic weakness is driving much of the growth in private label, this says to me that companies have not done a good job of repositioning their private-label brands in the customer's mind."
According to Maute, one of the biggest problems is that private-label purveyors are content when private-label offerings are viewed as an "almost as good" cheaper alternative to big brand names.
The two retailers joining Maute for the session have found private-label success by identifying segments where national brands don't necessarily represent the best value as well as developing a private-label offering that strives to exceed the "big names."
"We believe national brands are very powerful and are often worth the premium cost--but not always," said Bill Nolan, vice president of marketing for Family Express. "The challenge becomes finding a way to determine the true value of a national brand compared to a private label alternative."
To make this determination, Nolan said the Valparaiso, Ind.-based convenience chain establishes the "delta" of profitability between the cost and power of a national brand verses an alternative product--meaning, if the power of the brand does not justify its cost in the minds of consumers, a private-label product could have the opportunity to outpace the national brand.
Austin Martin, the senior director of sales and merchandising for the Brentwood, Tenn.-based Mapco c-store chain, revealed that his company looks at the entire category (rather than individual brands) to help determine the best potential for private-label triumph.
"We look for '100% category solutions'," he said, defining such categories as ones such as nuts, where there is no clear national brand leader. "The customer is willing to trade sideways if you're providing a premium private-label product at a discounted price."
Even if retailers select a proper channel to offer private-label alternatives, they often do not market or merchandise such products to their full potential.
"It's not an alternative to a national brand--it's a unique choice," said Maute. "Don't be afraid to be different. Private label doesn't have to mimic other brands."
For Mapco, such presentation can be as simple as store-level training. "We have to train operators on what great private-label merchandising looks like," Martin said.
Nolan agreed that merchandising is crucial--and shouldn't be simplified just because it's not a big name brand being showcased. "We're very high on brand positioning: We position our private labels just like a national brand." By doing so, Family Express has seen its private labels vastly outpace national brands in terms of both unit growth and gross profit dollars in key categories like water, milk, energy drinks and salty snacks.
"Obviously, we're very pleased with the types of growth we're seeing," Nolan said.
Martin is equally pleased with Mapco's numbers: Private label ranks as the company's fourth highest sales generator, boasting the second highest profit margin.
"Private label has a pretty tremendous value for us," he said. "I believe that every retailer has that opportunity."