Tom Branna, Editorial Director09.01.16
Business strategizing isn’t always relegated to the corporate conference room. Sometimes, executives take a step back, retrace their steps and take the time to learn something new about their business, their business partners and themselves. That was the goal of Executive Education Program developed by the Private Label Manufacturers Association (PLMA). More than 40 executives, including those from retailers such as Whole Foods and Wakefern, marketers like Hormel and Rug Doctor, and suppliers such as Republic Plastics and Unipharma USA, attended the three-day workshop, held at St. Joseph University in Philadelphia.
“Consumers only buy two things, good feelings and solutions to problems,” observed conference facilitator Richard J. George, professor emeritus, St. Joseph University. “Shoppers want good value when and where they want it.”
George noted that there’s been a paradigm shift in retailing since King Kullen opened the first supermarket in 1934 to the emergence of Walmart 50 years later to today’s online shopping routine. In such a dynamic setting, PLMA created the Executive Education Program several years ago to help attendees:
Some Background
Years, ago, the perception of store brands was anything but positive, admitted PLMA president Brian Sharoff. In 1977, private label’s share of the market was 11%. But when Walmart started carrying President’s Choice in 1992, demand for quality, private label products began to rise. Within a few years, premium private label items began appearing on store shelves and when Trader Joe’s, Whole Foods and other retailers developed their own labels, it has ushered in a new era for private label products, retailers and their suppliers.
But, as Sharoff noted, new issues are challenging the industry. Consolidation, for instance, is rampant. The number of independent supermarkets has fallen from 15,500 in 1965 to 4,500 in 2015; at the same time, chain supermarkets have risen from 15,500 to 31,200 and the total number of operators has dropped from 1,200 to 160. As a result, the top five operators account for 42% of all stores. A similar scenario has taken place among drug chains; in 1965, there were 33,500 independent drugstores, but by 2015 there were just 17,000. During that time, the number of chain drugstores rose from 15,600 to 26,000, while the number of operators fell from 250 to 55, enabling the top three drugstore chains to account for 48% of stores.
As the number of drug and food retailers has declined, the number of coupons has soared, noted Sharoff. For example, in 1965, 350 companies issued 10 billion coupons. By 2015, 4,500 companies issued 360 billion coupons. At the same time, traditional broad media channels such as radio and TV began losing their audiences. The rise of social media, smart phones and national retailers is presenting new opportunities for consumers and retailers, as well as national and private label brands.
But before building a brand—whether national or private label—the term must be defined. Doug Palmer, senior vice president, Agro Sevilla, gave attendees this definition: “A brand is a promise of value that results in positive collection of perceptions, which causes an expectation in the minds of consumers.”
Issues with Private Label
He reviewed some of the successful brands of the past several decades, including McDonald’s, Nike and Target, and urged retailers to be brand proficient via private label sales, which can enable them to own the shelf and the merchandising, leverage against competing brands and the competition and give them pride of ownership about others.
Unfortunately, according to Palmer, too many retailers are not brand proficient for a variety of reasons, including senior management apathy and lack of involvement. Of course, sometimes, the guy or gal in the corner office can get too involved.
“What’s the No. 1 reason why a private label gets a label change?” he asked attendees. “A new CEO.”
But in an era when more retailers are moving from buying-centric to marketing-centric, the private label brand can play an increasingly important role. Palmer pointed out that Safeway has created O Organics line by treating it like a national brand.
“Even the employees didn’t realize that it was a private label line,” he recalled.
O Organics’ simple design stands out on store shelves and owns the organic space in Safeway stores and has become a point of difference for shopping at Safeway. That’s resulted in increased profitability and sales for the retailer, according to Palmer.
A Changing Landscape
Smart retailers are rethinking private label opportunities, but they must rethink the entire retail channel in order to survive and thrive, according to Neil Stern, senior partner, McMillanDoolittle.
“When Amazon first came along, all they were doing was selling books,” he recalled. “Nobody was worried about Amazon.”
Stern explained how trends such as demographics, behavioral changes, shifting priorities and time compression are all interconnected and lead to an inflection point; i.e., a key moment in time when everything changes. The proper reaction will lead to sustained growth, while the improper reaction is eventual failure and obsolescence. Among the top 25 supermarket chains, retailers who are successfully managing change include Kroger, Publix, Wegmans and Whole Foods. Laggards include Albertsons, Ahold USA, Southeastern Grocers (Bi-Lo) and Hy Vee.
“Supermarket retailers with a clear brand outgrow the market,” he maintained.
Even Walmart, the nation’s largest retailer, is in a state of flux. Stern maintains that Walmart remains a primary competitive benchmark for retailers and suppliers, but it is no longer the primary driver of change. On the flip side, Stern said that Aldi is one to watch. The European chain is expected to have 2,000 stores in the US, with extremely low-priced, high-quality private label products fanning Aldi’s growth.
Drugstores are in flux, too, with increased prescription growth, expansion of health clinics, new store openings and the emergence of digital. As health care costs climb, more people are turning toward fewer retailers. In fact, the top three retailers are expected to account for 95% of sales gains from 2015 through 2020, according to Stern. But the two largest players, Walgreens and CVS, are taking decidedly different paths. After ending cigarette sales in 2014, CVS sharpened its focus on health care issues, while Walgreens moved toward convenience. But whether, they are food stores, drug stores or mass merchandisers, all retailers are experimenting with store format innovations.
“Retailers are developing new store formats to adapt and remain competitive in crowded markets,” observed Stern. “As consumer shopping dynamics change, retailers are forced to adapt their current offering.”
Technology increasingly puts the customer in control, he told the audience.
“Technology arms consumers with choice, access and information to enable customized offers, seamless checkouts and more,” according to Stern.
He urged retailers to win market share by upgrading stores, expanding foodservice options, improving private label offerings and creating new pricing and promotional strategies.
“Get better at what you already do!” he insisted.
In order to win share of wallet, retailers must create new missions using new formats such as e-commerce solutions that create new ways to reach the consumer.
“It’s not the strongest of the species (that survives),” Stern reminded the audience. “It is the one that is most adaptable to change.”
Adaptability is critical in order to meet the changing needs of consumers, noted consultant Brad Edmondson and understanding the consumer is more critical than ever.
“Get over your fear of census.gov,” he urged the audience. “These demographic bits offer clues to where the markets are headed.”
For example, years ago, smart retailers asked themselves: what does a woman in her 60s want to eat? In survey after survey, the answers came back as something that’s creamy and tangy, loaded with fiber and protein, and affordable. What meets all those qualifications? Hummus! In recent years, category sales have reached $750 million, while store brand hummus sales have climbed 30% a year. Gen X and Millennials may grab much of marketers’ attention, Edmondson reminded the audience that Baby Boomers are still shaping consumer-buying patterns in the US.
“Boomers have entered the age of retirement, but they’re not retiring! They’re working less and moving toward doing the things that they’ve always wanted to do,” he explained.
Not only are Baby Boomers better educated (more than 50% have some higher education), but female boomers are more likely to have a college degree, work outside the home and be homeowners. Smart retailers, such as Wegmans, are catering to Boomers, he said.
In contrast, the Great Recession put a crimp in the lifestyles of many younger consumers. For example, compared to other generations, Millennials have abandoned marriage, delayed parenthood, bought fewer cars, and even eat less meat! The makeup of America is changing, too. Edmondson said Hispanics are the growth engine for the US population and that Americans are older in the east and more youthful in the southeast.
Finally Edmondson noted that shoppers with more education are more likely to use apps, consumer reviews and other tools to help them reach a decision.
“People who have been to college use sophisticated tools to make decisions,” he told the audience, adding that the trend will continue.
The Right Tool for the Right Job
When consumers go digital, retailers and their supply partners can take advantage by segmenting, targeting and positioning, explained Heidi Lorch Reale, founder, SparkShoppe Ltd. Segmentation groups customers based on similar needs and each segment is profiled.
“You have to know more than what’s in their shopping cart,” she warned.
Common segmentation variables include geographic, demographic, psychographic, behavioral and benefits sought.
“Companies do not create segmentations, they uncover them,” explained Reale. “If done effectively, they are beneficial to the consumer and the company.”
When done correctly, segmentation can uncover:
Digital retailing can support the brand in ways traditional marketing tools never could, according to Reale. It can reach consumers on a 1:1 basis on their path to purchase, is actionable and measurable, too. But retailers and their supply partners must be sure to listen to consumers when developing their content marketing campaigns.
“Content marketing is like a first date,” she explained. “If all you do is talk about yourself, there won’t be a second date.”
To get a first date with PLMA and its members, attend its annual Private Label Trade Show, November 13-15 in Chicago. More info: www.plma.com.
“Consumers only buy two things, good feelings and solutions to problems,” observed conference facilitator Richard J. George, professor emeritus, St. Joseph University. “Shoppers want good value when and where they want it.”
George noted that there’s been a paradigm shift in retailing since King Kullen opened the first supermarket in 1934 to the emergence of Walmart 50 years later to today’s online shopping routine. In such a dynamic setting, PLMA created the Executive Education Program several years ago to help attendees:
- Better understand the customer and consumer;
- Better understand national v. private label strategy and tactics;
- Enhance planning, selling and merchandising skills;
- Develop problem solving and crisis management skills;
- Identify emerging trends; and
- Become better marketers.
Some Background
Years, ago, the perception of store brands was anything but positive, admitted PLMA president Brian Sharoff. In 1977, private label’s share of the market was 11%. But when Walmart started carrying President’s Choice in 1992, demand for quality, private label products began to rise. Within a few years, premium private label items began appearing on store shelves and when Trader Joe’s, Whole Foods and other retailers developed their own labels, it has ushered in a new era for private label products, retailers and their suppliers.
But, as Sharoff noted, new issues are challenging the industry. Consolidation, for instance, is rampant. The number of independent supermarkets has fallen from 15,500 in 1965 to 4,500 in 2015; at the same time, chain supermarkets have risen from 15,500 to 31,200 and the total number of operators has dropped from 1,200 to 160. As a result, the top five operators account for 42% of all stores. A similar scenario has taken place among drug chains; in 1965, there were 33,500 independent drugstores, but by 2015 there were just 17,000. During that time, the number of chain drugstores rose from 15,600 to 26,000, while the number of operators fell from 250 to 55, enabling the top three drugstore chains to account for 48% of stores.
As the number of drug and food retailers has declined, the number of coupons has soared, noted Sharoff. For example, in 1965, 350 companies issued 10 billion coupons. By 2015, 4,500 companies issued 360 billion coupons. At the same time, traditional broad media channels such as radio and TV began losing their audiences. The rise of social media, smart phones and national retailers is presenting new opportunities for consumers and retailers, as well as national and private label brands.
But before building a brand—whether national or private label—the term must be defined. Doug Palmer, senior vice president, Agro Sevilla, gave attendees this definition: “A brand is a promise of value that results in positive collection of perceptions, which causes an expectation in the minds of consumers.”
Issues with Private Label
He reviewed some of the successful brands of the past several decades, including McDonald’s, Nike and Target, and urged retailers to be brand proficient via private label sales, which can enable them to own the shelf and the merchandising, leverage against competing brands and the competition and give them pride of ownership about others.
Unfortunately, according to Palmer, too many retailers are not brand proficient for a variety of reasons, including senior management apathy and lack of involvement. Of course, sometimes, the guy or gal in the corner office can get too involved.
“What’s the No. 1 reason why a private label gets a label change?” he asked attendees. “A new CEO.”
But in an era when more retailers are moving from buying-centric to marketing-centric, the private label brand can play an increasingly important role. Palmer pointed out that Safeway has created O Organics line by treating it like a national brand.
“Even the employees didn’t realize that it was a private label line,” he recalled.
O Organics’ simple design stands out on store shelves and owns the organic space in Safeway stores and has become a point of difference for shopping at Safeway. That’s resulted in increased profitability and sales for the retailer, according to Palmer.
A Changing Landscape
Smart retailers are rethinking private label opportunities, but they must rethink the entire retail channel in order to survive and thrive, according to Neil Stern, senior partner, McMillanDoolittle.
“When Amazon first came along, all they were doing was selling books,” he recalled. “Nobody was worried about Amazon.”
Stern explained how trends such as demographics, behavioral changes, shifting priorities and time compression are all interconnected and lead to an inflection point; i.e., a key moment in time when everything changes. The proper reaction will lead to sustained growth, while the improper reaction is eventual failure and obsolescence. Among the top 25 supermarket chains, retailers who are successfully managing change include Kroger, Publix, Wegmans and Whole Foods. Laggards include Albertsons, Ahold USA, Southeastern Grocers (Bi-Lo) and Hy Vee.
“Supermarket retailers with a clear brand outgrow the market,” he maintained.
Even Walmart, the nation’s largest retailer, is in a state of flux. Stern maintains that Walmart remains a primary competitive benchmark for retailers and suppliers, but it is no longer the primary driver of change. On the flip side, Stern said that Aldi is one to watch. The European chain is expected to have 2,000 stores in the US, with extremely low-priced, high-quality private label products fanning Aldi’s growth.
Drugstores are in flux, too, with increased prescription growth, expansion of health clinics, new store openings and the emergence of digital. As health care costs climb, more people are turning toward fewer retailers. In fact, the top three retailers are expected to account for 95% of sales gains from 2015 through 2020, according to Stern. But the two largest players, Walgreens and CVS, are taking decidedly different paths. After ending cigarette sales in 2014, CVS sharpened its focus on health care issues, while Walgreens moved toward convenience. But whether, they are food stores, drug stores or mass merchandisers, all retailers are experimenting with store format innovations.
“Retailers are developing new store formats to adapt and remain competitive in crowded markets,” observed Stern. “As consumer shopping dynamics change, retailers are forced to adapt their current offering.”
Technology increasingly puts the customer in control, he told the audience.
“Technology arms consumers with choice, access and information to enable customized offers, seamless checkouts and more,” according to Stern.
He urged retailers to win market share by upgrading stores, expanding foodservice options, improving private label offerings and creating new pricing and promotional strategies.
“Get better at what you already do!” he insisted.
In order to win share of wallet, retailers must create new missions using new formats such as e-commerce solutions that create new ways to reach the consumer.
“It’s not the strongest of the species (that survives),” Stern reminded the audience. “It is the one that is most adaptable to change.”
Adaptability is critical in order to meet the changing needs of consumers, noted consultant Brad Edmondson and understanding the consumer is more critical than ever.
“Get over your fear of census.gov,” he urged the audience. “These demographic bits offer clues to where the markets are headed.”
For example, years ago, smart retailers asked themselves: what does a woman in her 60s want to eat? In survey after survey, the answers came back as something that’s creamy and tangy, loaded with fiber and protein, and affordable. What meets all those qualifications? Hummus! In recent years, category sales have reached $750 million, while store brand hummus sales have climbed 30% a year. Gen X and Millennials may grab much of marketers’ attention, Edmondson reminded the audience that Baby Boomers are still shaping consumer-buying patterns in the US.
“Boomers have entered the age of retirement, but they’re not retiring! They’re working less and moving toward doing the things that they’ve always wanted to do,” he explained.
Not only are Baby Boomers better educated (more than 50% have some higher education), but female boomers are more likely to have a college degree, work outside the home and be homeowners. Smart retailers, such as Wegmans, are catering to Boomers, he said.
In contrast, the Great Recession put a crimp in the lifestyles of many younger consumers. For example, compared to other generations, Millennials have abandoned marriage, delayed parenthood, bought fewer cars, and even eat less meat! The makeup of America is changing, too. Edmondson said Hispanics are the growth engine for the US population and that Americans are older in the east and more youthful in the southeast.
Finally Edmondson noted that shoppers with more education are more likely to use apps, consumer reviews and other tools to help them reach a decision.
“People who have been to college use sophisticated tools to make decisions,” he told the audience, adding that the trend will continue.
The Right Tool for the Right Job
When consumers go digital, retailers and their supply partners can take advantage by segmenting, targeting and positioning, explained Heidi Lorch Reale, founder, SparkShoppe Ltd. Segmentation groups customers based on similar needs and each segment is profiled.
“You have to know more than what’s in their shopping cart,” she warned.
Common segmentation variables include geographic, demographic, psychographic, behavioral and benefits sought.
“Companies do not create segmentations, they uncover them,” explained Reale. “If done effectively, they are beneficial to the consumer and the company.”
When done correctly, segmentation can uncover:
- Who are the customers (demographics, media habits and lifestyle);
- What the customers have done (usage, loyalty and profitability); and
- Why customers make decisions (needs, preferences and decision process).
Digital retailing can support the brand in ways traditional marketing tools never could, according to Reale. It can reach consumers on a 1:1 basis on their path to purchase, is actionable and measurable, too. But retailers and their supply partners must be sure to listen to consumers when developing their content marketing campaigns.
“Content marketing is like a first date,” she explained. “If all you do is talk about yourself, there won’t be a second date.”
To get a first date with PLMA and its members, attend its annual Private Label Trade Show, November 13-15 in Chicago. More info: www.plma.com.