BARRINGTON, ILL. — The aggressive expansion of private-label offerings by food retailers is putting pressure on branded manufacturers, although opportunities exist for collaboration in the form of partnerships and supply agreements, according to panelists on a webinar presented by consulting firm Willard Bishop here.
Such “co-opetition” can benefit the overall performance of individual categories, although it poses significant challenges, especially for manufacturers.
“I believe from a retailer's perspective, the retailer's primary goal is to offer things that meet the needs of customers, so the onus is really on the manufacturer to make sure his brand of product is relevant and attractive to the consumer,” said Nick Hahn, former director of corporate brands at Kroger Co., Cincinnati.
“[Manufacturers] need to think differently when they are approaching the retailer today,” agreed Andy Abraham, vice president of brand management and strategy, Supervalu, Minneapolis. “If you think about some value brands trying to compete with retailers on a value-tier equivalent, does it have a differentiating position, or will it simply be redundant on our shelves? I think in all those cases, in today's world of rationalization, the store brand will win out over the redundant national value-tier brand.”
Participants agreed that leading brands in categories that have private-label competition can continue to thrive — and even expand their share — as successful store brands weed out competitive items that lack a point of differentiation.
Dan Glei, senior vice president of grocery for Giant Food of Carlisle, Pa., said a “halo” can be generated by cooperation between retailers and suppliers on private brands.
“It's one of the only times [manufacturers] can sit in a room with a competitor and make a plan,” he said.
Opportunities do exist for collaboration, especially when private brands and national brands team up for specific promotions, some of the panelists agreed.
For example, Anthea Jones, senior vice president of store operations for Bi-Lo, Mauldin, S.C., described how a buy-one, get-one-free offer combining national brands and private label can build volume of both.
“There's an opportunity when you are launching a brand, to offer a buy one national-brand item, get the store-brand free,” he said. “That drives trial into the item you are trying to push and helps the national brand as well. We tried this and had a great deal of success, and did not erode the national brand.”
At Bi-Lo, he said, the two parties developed a calendar together for the promotion, which was incremental to other promotional partnerships.
Another example of retailers and manufacturers working together to promote both store-brand and national-brand products is through meal solutions.
Joe Landfair, vice president of sales for pasta supplier Barilla America, said his company participates in promotions like this, but noted that any such promotional collaboration must seek to enhance the category overall.
“At the end of the day, it has to be about driving the category,” he said. “If our brand succeeds and the category doesn't, it's not a good long-term solution.”
Suppliers on the panel pointed out that collaborating on production can be another area where retailers and suppliers can work together to help retailers develop their store brands, although it poses its own set of challenges.
Bill Sever, vice president and chief marketing officer for Sunstar America, a Chicago-based supplier of oral care products, said one of the challenges to packaging store-brand product for retailers is in realizing a return on the investment that suppliers might need to make to expand production capacity.
“Once you get past the top seven or eight retailers, efficiencies drop off dramatically, and if you have to customize products for lower-tier retailers, the efficiencies just aren't there,” he said.
Manufacturers also risk making a large investment in providing custom and then losing the business if the retailer decides to change suppliers for a certain store brand.
“You make a capital investment, then the next guy comes in with a better price, and you're gone,” he said.
Tom Ewing, director of national accounts, private label and international, for supplier T. Marzetti Co., said there needs to be a degree of commitment on both sides.
“When a branded company wants to get into private label, they have to want to do it from top to bottom,” he said. “You have to have a commitment because this is the retailer's brand, and you are talking to a buyer whose career rests on the success of the brands that they manage. The buyer needs you to be in it up to your elbows.”
Asked if there are “turf issues” within Supervalu between the store-brand team that is seeking shelf space and the category managers who are trying to maintain relationships with suppliers, Abraham said there were not.
“We act as if we are no different than any other CPG manufacturer,” he said. “We don't get granted distribution if we don't deserve it. We need to deliver the same margin enhancement or reason for being on the shelf as the brands do.”