Year-over-year share gains by store brands tell the story clearly. Figures don’t lie. The future is bright for private label — and even brighter for retailers who do private label right (quality, value, then price, in that order). They’ll see the fruits of their labors come back as higher sales and profits.
So let’s get started. The first thing you need to have is your management’s written “store brand rules.” Everyone from buyer to supplier needs to fully understand these rules, as they are the foundation of any successful private label program. If you don’t have rules and standard operating procedures in place, get them. Push hard if you have to. The rules can (and should) be revisited often and changed when necessary. They protect the brand, the company, the customer and the supplier. Today’s winning programs are directed and managed by leaders — not left to personal whims. With rules in place, plan your work and work your plan.
I’m going to focus on the rules of store branding I tried to follow during my career at Walmart and other retailers. Some may work for you, and some may not. But if any of them provide the germ of an idea that helps you, I’m happy. With rules in hand, you need to choose the categories that really need a private label item. Not every category needs a store brand, of course. But how do you decide which categories need it, and which don’t? My process always began with a series of questions: Does the category really need another SKU? What is the cost to the retailer and manufacturer to produce one? Would offering a private label add value for my customer and the category? Can I find a manufacturer or supplier whose quality will be equal to or better than the targeted national brand? And will I be able to sell the item for less than the national brand while still making more profit? (Please don’t confuse margin with profit!)
There’s an unfortunate trap here. Some retailers seem to incentivize their store brand team to develop new items just for the sake of having something new. But come on, do you really need pickle ice cream? Private label is not about cute, it’s about satisfying customers. Be sure new products meet an organized set of criteria and can contribute to the category and meet shoppers’ needs. Rather than wondering about pickle ice cream, do you maybe have voids in quality, unsauced vegetables? How about sherbet? Sure, they’re still out there, but could a private label help meet your customers’ needs?
Here are a few other things to keep in mind: When possible, match the store brand item’s size to the national brand. That way, shoppers can compare prices. (They’ll compare quality when they get the item home; more about that later.) Don’t be too eager to delete the national brand. That won’t allow a price comparison and might chase brand-loyal shoppers to your competitor.
THE 80-20 RULE
Remember the 80/20 rule — 80% of category unit sales come from 20% of the SKUs. Does the proposed new store-brand item have the potential to be one of the 20% that does 80% of the sales? Most items that do will also have a lower profit. That’s okay, as long as you don’t go too deep into them SKU-wise. Now, go down on your list to the next 20% of SKUs in the category and see how they measure up. Any strong candidates? Now, do this same exercise one more time to the next 20%. If by this time the item fails to meet the goal, you probably don’t need it.
Let’s use the canned vegetable category as an example. Beans and corn might fall into the first group. And even though their margins are slim, they drive category volume. The next level may include items like carrots and leaf greens — items with less volume but higher margins. The third level — the level with the least volume but the highest margin — would be items such as asparagus and other specialty vegetables.
This third level is tricky — especially in frozen where space is at a premium. In this level, if a national or regional brand fills shoppers’ needs, go with it. Adding a private label here adds little value to the customer and becomes just another SKU to manage throughout the supply chain.
CONSIDER THE FLOW
These three different levels are generally merchandised in different locations on the shelf. Going back to my canned vegetable example, high-volume items like beans and corn often go on lower shelves. These items are bought frequently and usually have a lower margin. They’re on shopping lists, and customers don’t mind reaching down for them. Carrots and spinach are closer to eye level. They have a bit more margin. Higher-margin, slower-moving items like asparagus might go on the higher shelves. I might add here that the average height of American women is not six-foot-three, and shelves in both dry grocery and frozen increasingly seem to be designed as if they were.
Merchandising products at a variety of levels keeps shoppers’ eyes moving, so they can take in all your offerings. It’s also important to consider the flow of goods in the aisle, with large sizes on lower shelves when possible, so shoppers don’t have trouble reaching and lifting. At the same time, watch out for a single layer of products on a bottom shelf. If you do that, after about the fourth customer has made a purchase, it looks like you’re out of stock. Or you have to get on your hands and knees to pull out a package. (I’ve found that stock on the bottom shelf often doesn’t get rotated properly — you can find some packages badly out of code there.) Now let’s dive into quality (or lack thereof). You can have the best price in the world, but if the quality isn’t there, repeat sales won’t be there, either. Some retailers feel they can cut corners, but this does more harm to their store brand program than any item is worth.
So how do you determine what is really “good quality?” First, management has to set standards based on its own “rules of store branding.” For me, it was simple — quality had to be equal to or better than the national brand, period. The only exception was if you were doing a truly premium item that had no national brand equivalent. An example of this would be an item where you might be using real butter versus shortening, or premium ingredients.
Once you have established the targeted national brand and its quality level, you need to find someone who can manufacture what you need. Look through your internal lists, your PLMA directories, or Frozen & Refrigerated Buyer to start the process. I found it useful to contact at least five suppliers and ask them to submit as many samples as they wanted that they felt met the targeted brand specifications I had provided. Note that I did not give them price or estimated volume. That would come later.
Initially, I wanted them to be 100% focused on quality and quality alone. Part of this exercise was to see if they had the ability to match or even exceed the targeted national brand. This step also allowed me to see if their R&D department had a good level of expertise, and how quickly they could turn out another new item if needed. Once I had all the submissions in, we did a cutting to compare the submissions to the brands. Hopefully, we ended up with a winner or two. But if not, we would give our opinions on what needed to be improved. We only allowed this to go on for a short period — if they couldn’t hit the target then we dropped the item until we found others who could.
PRICING BY ITEM, NOT LINE
Once we narrowed our search down to a supplier or two, we requested pricing by item. Line pricing can be tricky for many reasons. Quality and taste among the items have to match up. And be careful when a manufacturer wants you to take all seven SKUs of something. They may have averaged out their costs, with some SKUs being money makers and some being loss leaders. If you want only one or two SKUs, take only one or two, or walk away.
We also asked for all their manufacturing locations across the country, as well as their delivered and FOB pricing. Then we ran a Dun & Bradstreet report on them and asked them if they had ever had any item recalls. Finally, we told them we would be having a quality assurance team visit them before the first batch was made and shipped, and then throughout our business relationship. We needed to make sure that all permits, codes, laws and best practices were being followed.
Okay, now you have the item. How do you merchandise it on the shelf? There are lots of opinions on this, but I’d use your “rules of store branding.” I’ve always believed that a store brand should be placed to the right of the targeted national brand. Why to the right? Well, people read from left to right, so their eyes stop at your store brand. Also, having the store brand to the immediate right of this national brand allows an easy comparison of price and value.
This rule applies whether you integrate the item into the category or merchandise by brand block. (Frozen foods are brand-blocked a lot now. I understand that, but I don’t necessarily agree with it.) Then, to the right of the store brand, you can lead off with the other national brands as well as regional ones to complete the set. You never want to lead off any category with your store brand.
Keep the flow of products as they might be on your customer’s shopping list. In frozen, try to keep entrees and dinners in the same aisle as pizza. Try placing potatoes and vegetables in the same aisle as single-serve specialty entrées, and putting the ice cream, pies and cakes in the same aisle as toppings, waffles and frozen juice. Keep a good assortment of single-serve and family-size items, using the 80-20 rule to help guide the selection process.
THE X FACTOR
You want the customer to shop the entire aisle no matter which direction they’re going. In your mind, put a big X over the aisle. Think of each end of the X as the starting and stopping point for the shopper. You want them to shop not only both sides but both ends, so you need to have categories/items strategically placed to draw them all the way through. The middle of the X plays a key role. By placing high-profit items at this point, you help drive additional sales and profits. In addition to using your scanner data, it helps to use the old-fashioned method of walking the aisle in the morning and late at night — once during the week and once on the weekend. See for yourself what is and isn’t selling at different times.
Always start out by giving the store brand item the same facings as the targeted national brand unless or until sales tell you differently. Right now, with inflation hitting all categories, take a long look at giving even more facings to your store brands in the name of staying in stock and offering your customers what they can afford. History has shown that some of the greatest growth in private label has come during inflationary times.
Now it’s time to talk about pricing. There’s no shortage of opinions here, either. Do you go high-low or EDLP? How often do you put store brands on ad or in displays? Do you treat your store brand as a brand or as a second option? Well, here’s what I think works and what I believe the customer wants. During my years in retail, I have managed high-low and EDLP. The move to EDLP was not easy but it was clearly the right choice once we made it. It’s one that the customer can trust and rely on, just like quality. EDLP still works in private label but, sorry to say, not so much for the rest of the store anymore.
A POINT TO PONDER!
I can see where the national brands and marketing folks like high-low. But from a buying perspective I don’t. Why? Well, let’s go back to my 80/20 rule. It’s just the 20% that gets most of the promotion and displays. The only way to get incremental money from these items is to buy more and then sell for less than you were. Think about that for a minute. With private label, by comparison, you can cut out all the shuffling of funds from one pocket to another. So work to make your store brand a destination for your customer — the reason why they turn into your parking lot and not your competitor’s. I would be proud to display it, sample it and do everything the national brand does — except accrue and spend marketing funds on it.
But I’ve got to be honest here — national brands are the draw to most customers. And few retailers besides Aldi and Trader Joe’s have done a great job bringing in customers with private label. (By the way, I think in-store sampling is a much better way of building your item and your brand.) If you have priced your store brand program correctly, there is really no need to give away profits. Nor is there a reason to use said profits to help build the national brand guy’s business, either.
Your endcap should lead off the aisle that shoppers are entering. Go big and display one item at the best price you have and be proud of it. Spotlight a top-selling item with the best price in town, generating strong incremental sales. You can also cross-merchandise within any display. In dairy, try adding bacon or orange juice next to the eggs, just on weekends. But be careful. It’s not wise, for example, to display corresponding items with fresh meat too far from the meat/deli departments, as rotation and shelf life might catch up with you. And always make sure that whatever item you’re displaying is near the category where it is normally shelved.
WHO GETS DISPLAYS?
Now for the big fight… who gets all the displays? There’s no perfect answer, but I’ll give you mine. I had success giving the national brands (including DSD) 60% of the displays, store brands 30% and regional brands 10%. Within some categories, I might give the national brands triple (instead of double) the space of private label, until my numbers proved differently. I would have an event with all store-brand displays once in the February/March timeframe and once in August/September. Let the national brands spend their money to bring in the customers and you use demos and displays to capture their sales.
Be sure to merchandise and display as if you’re the customer who’s shopping, keeping in mind the flow of the aisle and the products. Food shopping for most people is a chore — they enter the store with a list with the brands they want. If you’ve done your job well, they will end up with incremental/store brand items in their carts, perhaps without planning it or even knowing it. Always keep your eyes open for impulse sale opportunities and new ways to meet customer needs.
To this end, try helping bag at the front end, and talking with customers. Ask them if they found everything they were looking for. Find out what they like, or don’t like about your stores. This important part of customer service is becoming a thing of the past, between staffing shortages and self-service checkouts.
Showing an interest will also make a great impression on your shoppers, and help you run the business better. Let me close with one of Sam Walton’s rules for building a successful business: “Exceed your customer’s expectations. If you do, they’ll come back over and over. Give them what they want — and a little more.” n