Private Label Drives Sales Growth
It’s been said that the only strategy that has driven incremental sales in the past decade is private label.
Is that an overstatement?
Not if you follow market research in the US where Private Label (PL) has been around for more than a century.
Nielsen says “we’ve seen a complete reversal in growth trajectory compared to manufacturer branded items”.
Nielsen’s Total Consumer Report also showed a sales increase in US store brands in 2017 of 3.2% – during the same period that the Top 20 FMCG manufacturer brands showed a sales decline of 0.6%.
What’s going on here?
Is this the beginning of the end of the likes of Unilever, Nestle and Proctor & Gamble?
Is this all part of the bigger picture of retail disruption?
I suspect not – but the growth of PL must be a concern for these multinationals.
As a Unilever brand manager some 40 years ago I thought I was all powerful – and I thought retailers were quite basic in their understanding of branding.
When I left Unilever to start my retailing career most of my friends thought I was dumb – it wasn’t exactly a glamour industry back then.
I have to say going into retail was one of my smarter decisions because it brought me a whole lot closer to customers because in the hallowed halls of Unilever we were somewhat isolated from what was happening on the shop floor.
Now, somewhat older and wiser, and in my third career iteration as one of the founders of a retail design practice, I have a whole lot more respect for smart retailers around the world who are taking private label to the next level.
So much so that we have developed this area of RED quite rapidly to cope with the demand.
So what are the benefits of Private Label?
Building a competitive advantage – it’s not easy for shoppers to compare prices on products that are exclusive to retailers
Retailers have more control over their margins, their supply chain and their quality standards.
Consumers have more choice – retailers tend to innovate faster and are better equipped to test and measure the results.
Private label drives category development – large categories such as fresh, grab ‘n go and health foods are ideal for PL.
Prices are lower – by eliminating middlemen in the supply chain, retailers drive down prices – but improve margins
PL manufacturing is more efficient – a big claim, but specialist PL manufacturers now produce far greater volumes
Millennials love PL – research shows that these consumers are not over-awed by big manufacturer brands – PL is more appealing to them, provided their quality expectations are met.
PL is anti-brand – it sounds contradictory, but the absence of branding sometimes creates a new form of brand – look at retailers like Brand-less who are rewriting the rule books on what used to be called generic or no-frills packaging.
Online retailers love PL – Amazon and Alibaba are super aggressive when it comes to developing private labels
PL works for most product categories – from food to fashion, from technology to homewares and services – there are PL examples all around us.
Can we have too much Private Label?
The simple answer is yes.
In my fashion days in department stores we pushed PL too far – in one case up to 60% penetration.
The result was the customers didn’t buy it – literally.
I recall a past CEO of David Jones driving a strong PL program and failing.
But I also recall how well Myer’s Miss Shop label did when RED worked on the Myer Basement concept. Their private fashion label occupied prime retail space in the new youth fashion destination – and delivered a much higher ROI as a result.
In countries like Switzerland PL is already over 40% of the total FMCG market – how would Nestle feel about that in their boardroom overlooking Lake Geneva in Vevey.
But there is more to it than you would expect.
Aldi does remarkably well with most of its range being PL.
Many fashion and specialty retailers are 100% own brand and are very successful.
Trader Joe’s and Sprouts in the US have a very high percentage of PL.
Walmart has an aggressive private label strategy, as does Carrefour, Costco and Carrefour.
So many retailers can’t get enough of it – and çonsumers are migrating from manufacturer brands to PL.
Something is working.
What’s the future of PL?
In my experience private label is growing in strength and sophistication.
We have the developed markets like Europe, UK and US continuing to evolve the PL space – reaching what some experts have described as Gen 5 private label.
In Vietnam the PL market is still in Gen 1 or Gen 2 – they still have 3 generations of brand and product development to catch up on.
Private Labels are being developed for very targeted consumer segments, quality is much higher than in the “no-frills” era of generics, and in category marketing PL is playing a far more important role.
What a huge opportunity.
Can retailers do it alone?
My advice – and of course I am biased – is that retailers should look for outside expert help to boost their in-house teams.
In RED we have now set up a specialist team that can work on private label projects from end to end – in collaboration with the retailer’s team and in liaison with their external partners. Our work covers the whole spectrum of services needed.
· Brand Design
· Packaging Design
· Product Development
· Customer Experience Design
· Promotion and POSM
· Instore merchandising presentation
Our RED CONNECT team are the researchers and strategists – whilst our RED DESIGN colleagues are the creatives.
RED CONNECT also fulfils an increasingly important role in finding, introducing and integrating external partners into PL projects.
We also facilitate the delivery stage of PL programs.
We summarise our scope of works in 3 stages:-
For the Vietnam market we are putting together a consortium of “best of breed” partners in food production, “farm to fork” traceability, food safety, quality assurance, training, certification, supply chain and instore operational management.
The successful partners that RED CONNECT invites to the table will eventually contract directly with the retailer.
Our main purpose is to establish the relationships between buyers and sellers,
Our geographic focus at the moment is Australia, New Zealand and Vietnam.
Perhaps you are looking to expand your brands or products into the Asian market.
Perhaps you have world class technology you want to take to a regional market.
We have a team in Melbourne – and a team in Ho Chi Minh City.
Private Label is one of the few strategies still open to retailers to drive sales growth.
We will show you how to achieve success.
Roy Tavenor – Chairman
Ho Chi Minh City
David Nguyen Tien Dung – Strategy Director