CARLSBAD, Calif. -- While the future of private label is bright, there are still some obstacles to overcome, a new study states.
Retailers predict that unit sales of private label will grow at a rate of 24% over the next three years. This optimism reflects their commitment to store brands, which 90% of retailers surveyed characterized as being "very strong" or "moderately strong," according to "A Blueprint for Private Label Growth," a report by Kurt Salmon Associates, Princeton, N.J., for the Private Label Manufacturers Association, New York.
The report was planned to be the subject of a panel discussion at the PLMA's annual meeting and leadership conference, held here March 26 to 29. The respondents were 50 retail executives and 153 suppliers. Of the retail officials, 42% were from supermarket chains.
While the study showed that private label is in a strong position, it also noted that national manufacturers have already taken the offensive. When asked to comment on the obstacles to private-label growth, 67% of retail respondents cited the reaction by national brands. This reaction includes increased direct advertising and the introduction of new products and packaging. More price promotions, couponing and co-op advertising are other steps being taken.
Brian Sharoff, the PLMA president, said that while the national-brand response is expected, it's up to private-label manufacturers to compete.
"Personally, I don't think the report indicates that private-label manufacturers have to be superior to national brands in every area," he said. "I think what it says is that private-label manufacturers have to be competitive."
As for other barriers to private label, 44% of retailers mentioned consolidation of suppliers, while 36% said the limited number of private-label suppliers is a barrier.
Also, retailers and suppliers have differing opinions of each other. Two-thirds of suppliers said their company understands the everyday problems of retailers, while eight of 10 said retailers do not understand supplier problems. And two-thirds of suppliers have developed more negative views of retailers over the past several years. In comparison, a majority of retailers described private-label suppliers as "partners to me."
The value of the study is that it opens the door for dialogue, Sharoff said. The PLMA wants the report to establish industry benchmarks, on a smaller scale of Kurt Salmon's Efficient Consumer Response project. The next step will be to create regional discussions, as well as get manufacturers to discuss it with retailers.
" 'A Blueprint for Private Label Growth' demonstrates that, despite some hurdles to overcome, private label is gaining more prestige in the industry," said Sharoff. Eight of 10 retailers expect private-label unit sales to grow in their companies between 11% and 50% over the next three years, while 8% believe the growth will exceed 50%.
Six of 10 retailer respondents said they intend to make private label more important and use it as a building block to improve their stores' identity. Retailers with total volume under $1 billion felt particularly strongly about this role.
Suppliers, meanwhile, feel that retailers need to play a bigger role in the business. Four in 10 suppliers said the growth of private label in hindered by a number of factors, including insufficient lead time resulting from late orders and poor communication.
The report revealed that retailers and suppliers have differing opinions about technological abilities. While half of all private-label suppliers said they are heavily involved in electronic data interchange, 90% of retailers say national brands are better at the practice.
Also, one-third of suppliers said they are just beginning to develop category management. While they want to get involved, eight of 10 said they don't have sufficient access to retailer data.