WHITE SULPHUR SPRINGS, W.Va. — Private-label sales could surge by up to $55 billion over the next 10 years, a factor that signals the need for national-brand suppliers to reexamine their strategies and enhance collaboration with retailers, according to a study unveiled here last week.
Industry executives said the study underlines the need for continued national-brand innovation and for consumer-focused marketing by retailers.
The study, unveiled at the Executive Conference of the Grocery Manufacturers Association/Food Products Association, found a growing private-label momentum that indicates “a tremendous amount of ‘value at stake’ — value that could potentially shift from traditional branded manufacturers to retailers.”
This scenario is possible even though over the last 15 years U.S. private-label dollar share has remained relatively flat, increasing by only 0.6%, despite much private-label activity in the sector, according to the report. The study is called “Competing in the New World of Brands” and was conducted by McKinsey & Co. on behalf of GMA/FPA.
The possibility of faster private-label growth is based on a scenario in which the best practices of leading private-label retailers spread to others. That situation could produce an industrywide retailer private-label dollar share of 24% by 2016, compared with about 15.6% today for the majority of retailers and 21.9% for the top practitioners.
However, the study authors warned that sharp private-label growth is not a certain outcome. Higher levels of growth would not be reached unless retailers “raise their game” to match those of the top private-label marketers, the report said.
Given the possibility this could happen, manufacturers were urged to improve consumer insights, innovation, in-store marketing and relationships with retailers, among other strategies.
A panel of industry executives addressed the findings during the GMA/FPA event, saying the best merchandising decisions are those based on straightforward calculations of consumer needs rather than brand or store label.
“We need to forget our personal or company agendas and instead focus on the customer and the category,” said Donald Becker, executive vice president, merchandising, Kroger Co. “It comes back to the customer.”
Todd Jones, senior vice president, corporate purchasing, supply chain, Publix Super Markets, stressed that consumers should experience both brand and private-label products and make the final choice. “Publix always believes that category growth is the primary focus,” he said. “The category supersedes the brand.”
He noted that Publix recently held a four-week promotion offering a free private-label item to consumers who purchased the same item from a national brand.
“We wanted to see if we could grow the category,” Jones said. “It was extremely successful for both private label and brands, a win-win for both. The outcome was to allow consumer choice.”
Steve Sanger, chairman and chief executive officer, General Mills, said private-label shares have held steady because national brands were innovating even as store labels were getting better.
“We've had to change what we do,” Sanger said of national brands. “To the shopper, store brands are brands. So we have to think competitively about them. Today there is a better-quality assortment for the shopper across the board.”
Sanger said insights from national-brand companies can help retailers improve their overall business.
That kind of collaboration holds a lot of promise in the U.S., where trading partners have traditionally been more open to sharing than in Europe, said Ed Shirley, group president/North America Market Development Organization, Procter & Gamble Co.
“There are lots of opportunities for us to collaborate more with retailer partners,” he said. “We can win if we focus on that.”