Are retailers ready to take the next step in nonfood private label?
In other classes of trade, this is hardly a question. Wal-Mart just expanded into compact fluorescent light bulbs, Target has a long list of exclusive brands, and Costco's Kirkland brand is preferred by consumers in multiple categories.
With some supermarket companies struggling for survival, food is their top priority, and private-label nonfood remains the domain of established over-the-counter drug categories like analgesics and cough/cold/allergy.
For others — notably those recognized for their leadership, such as Kroger, H.E. Butt Grocery, Wegmans and Publix — private-label food preparation items are starting to take hold in the stores, along with broader ranges of “beauty” products, especially in the skin care and hair care categories.
Private-label batteries and light bulbs may be old news, but some retailers are starting to expand their presentations of them, even merchandising these store-brand items away from the national brand in an effort to establish the credibility of their own name.
“You are seeing more branding [by retailers] of private label,” said Charles Yahn, vice president of sales, retail development, customer service and pharmacy, Associated Wholesalers Inc., Robesonia, Pa. “You don't have to merchandise it near a national brand. If that consumer has used it before, they'll come back to you.”
“The trend is nonfood, food-related,” said Brian Sharoff, president, Private Label Manufacturers Association, New York.
Among supermarket chains, “the opportunities are with those retailers who are focusing on the more affluent consumer and the specialty food offer.” As retailers develop their specialty and upscale foods, “a natural area for growth is products related to cooking — cooking accessories, equipment — anything to do with the gourmet side of enjoying foods,” he said.
For example, Kroger has an extensive private-label sub-brand of kitchen-related items, he said, which can be seen in its new, bigger stores. “It's a no-brainer for a retailer that is in that first tier,” Sharoff said.
“There's a move afoot to look at new ways, and new opportunities, to sell corporate-brand items,” said Anthea Jones, group vice president, Center Store, Bi-Lo, Mauldin, S.C. Bi-Lo is looking at kitchen gadgets, bake ware and pet products. “You can give the consumer a good-quality product offering at a value,” he said. Like other retailers and wholesalers in this article, he was interviewed at a recent conference of the Global Market Development Center, Colorado Springs.
“The biggest growth area for us in private label is general merchandise,” said Al Jones, senior vice president, procurement and merchandising, Imperial Distributors, Auburn, Mass. Imperial is a member of Topco Associates, Skokie, Ill., a privately held cooperative owned by supermarket retailers, wholesalers and food-service companies. Topco has a major initiative to expand in GM, Jones said.
“We've got complete new lines in stationery, with a dramatic item selection. We've got new private-label metal bake ware in a “good, better, best” three-tier selection. Batteries were new last year — a complete redo of the battery and light bulbs. It's pretty exciting what's going on there,” Jones said.
“GM is a very dynamic category, with a lot of complexity, and Topco has put significant resources, and is increasing those resources, behind developing general merchandise private-label solutions,” said Tony Harrington, Topco's director of business management, HBC.
Caution is needed in moving into GM private label, said Larry Ishii, general manager, GM/HBC, Unified Grocers, Commerce, Calif. “You have to carefully weigh the benefit relative to the commitment and investment in things like packaging and building a brand if there are other alternatives available,” he said.
“Private label is something you constantly look at, and check for opportunities, but they have to be viable,” said Dan Spears, director, HBC/GM, Ingles Markets, Asheville, N.C. “It has to make sense to do a private label, whether it be in GM or HBC.”
General merchandise private label has seen more penetration into the grocery channel in recent years, noted Bill Mansfield, president and chief executive officer, VIP International, Garland, Texas. Mansfield is a longtime nonfood executive, and now a consultant.
“Entire categories in some chains, whether in kitchen gadgets or electrical devices, now have a complete private-label look, rather than a national brand,” he said.
Master Brands
In evaluating whether to expand private-label offerings, retailers need to look at how it will relate to their own name and “master brand,” and how well they can support the various segments, said Jayne Eastman, a managing director with Henry Rak Consulting Partners in Chicago.
“They have to understand the benefit structures of the categories they are thinking about entering,” and how those benefits align with their stores' image, she said
Retailers should also look for categories where manufacturers have been “lazy,” she said. For example, the hair care category was relatively dormant until a recent barrage of new products and packaging redesigns.
Another opportunity might be in categories where manufacturers have invested heavily in technology and innovation, and had to raise prices to compensate, Eastman said. She cited skin care as an example. Manufacturers have created a demand for the products, “but there is consumer dissatisfaction with the value proposition,” she said.
“There are a lot of developments in the skin care category that are driven by technology,” Ishii said. “That creates an environment for more potential corporate-brand items. Whether those make sense or not remains to be seen.”
“We're seeing some good results on our [private-label] hair care items,” said Bi-Lo's Jones. Some categories with potential are deodorant and skin care, he said, where there aren't that many corporate-brand items.
Selling private-label OTC items is relatively easy, because the ingredients are identical to the national brands, but beauty products are harder because of the emotional connection that advertising has established for the brands, said Topco's Harrington. “We're exploring ways in which we can achieve the same results in beauty care that we've seen in OTC,” he said.
The solution may be in positioning a product line as a proprietary exclusive rather than another store-brand extension, he said.
“There is a lot of opportunity and a growing interest for consumers to try products that are not necessarily just brand equivalents. They're looking for some unique items, and they're starting to trust their retailer to provide those things in their brands. That really expands where private label can go. We can start to look at developing things that meet a consumer need, not just following the direction that a national brand would take,” he said.
“Look for ways to expand your thinking about your competitive frame,” Eastman said. “Don't just look at the lead brand in the category. Think about what the consumer is really using this product for, and do they have other sources for that product, and are you better off trying to emulate those in a product than you are in simply replicating the brand that is in your store. That gives you differentiation.”
Retailers and wholesalers are looking forward to the upcoming switch of Pfizer's Zyrtec, a popular antihistamine prescription item, to over-the-counter status late in the year. With its patent expiring in late December, a private-label generic of cetirizine hydrochloride will follow shortly, executives told SN.
“It's the biggest allergy product in the prescription market,” said Imperial's Jones. “That's the most exciting thing that is coming in an OTC launch, and to private label,” he said.
“It's going to drive the category. There are going to be very big increases in the entire remedy category because of it,” Jones said.
Zyrtec will go OTC on Dec. 27, said Sue Vodika, HBC buyer/category manager, Bashas', Chandler, Ariz. “That is the next best thing to Claritin.