Private label goods are now standard retail practice, especially in grocery. If executed well, a private label brand can drive growth in volume and in margins. By utilizing in-house brands, you essentially scoot your business down one spot on the value-chain, connecting directly with manufacturers and producers.
In so doing, you leverage economies of scale to gain competitive pricing from manufacturers and producers, and pass those savings on to your customers. From there, you’ve also got complete control over the launch, merchandising, marketing, and pricing of your private label products.
For these reasons, many large retailers are eager to launch brands of their own. One of the more recent successful examples is Amazon’s Amazon Basics. Since its launch in 2016, the line has accounted for roughly $400 million in sales and grew at 10% in 2017. With these and similar growth prospects in mind, it’s no wonder that more and more retailers continue to roll out their own private label brands.
Yet, for every private label triumph, there’s a private label miss. You can’t just slap your logo on a best-selling product and hope it flies off the shelves. To avoid rolling out a product that sounds as unpalatable as “corn knuckles,” here are the 5 pitfalls you should be aware of when rolling out private label goods.
Pitfall #1: Displacing National Brands
In 2005, Kohl’s generated just 30% of its sales from private label brands and products. By mid-2014, that number increased to 52%. If private label products get higher margins, then how could this be bad? Well, each time Kohl’s devoted more floor space to a private label offering, a national-brand product needed to be displaced.
As effective as private label products are for margins, national brands get customers in the door for most retailers. If shoppers are unable to find the product they’re looking for, then they’ll head elsewhere.
Kohl’s lived this scenario and by 2015, revenue and earnings had dipped. Eventually, Kohl’s rebounded to discover the right mix of private and national label. By 2017, just 42% of Kohl’s sales came from private label brands, but the retailer had significantly improved its bottom lines. Learn more about how Kohl’s uses technology to ensure shoppers find what they want each time they step into a Kohl’s store.
Pitfall #2: Overemphasizing the Upper Tiers
There are three tiers of private label products: premium, mainstream, and value. It’s critical to understand how important each tier is to your customers and accurately project demand. One common mistake is focusing too much on premium offerings.
According to IRI Consumer Connect data from 2017, close to one-third of U.S. households struggle to have enough money to purchase groceries each week. The majority of shoppers buy private label products to save money. The increasing popularity of discount retailers, particularly those (like Aldi and Lidl) who emphasize private label offerings, is understandable.
Like the Kohl’s example, this pitfall shows how an unbalanced private label strategy can result in lost foot traffic. If budget shoppers can’t find your bottom-tier private label goods, or if they’re bombarded with their pricey counterparts, they will feel a disconnect with your brand and seek out your competitors. That said, it’s critical use data to gain a deep understanding of your chain’s customers. This will help you determine what will resonate with them so that you can match your assortment to their unique needs.
Pitfall #3: Confining Yourself to Existing Products
According to FMI, “product innovation mixed with consumer engagement and feedback should continue to drive private brands strategy.” In other words, it’s not enough to simply mimic best-selling national brands. For your private label brands to succeed, you’ll need to put on your inventor’s hat and start innovating.
Take a look through the Private Label Manufacturers Association’s 2018 Excellence Awards, and it’s clear that innovation is the name of the game. One unconventional category to note is nutritionally-enhanced baked goods. For example, Agropur Ingredients, out of Lacrosse, WI, won for a gluten-free, protein-enhanced keto brownie mix. So did Russo’s Retail LLC out of Houston, TX for its kale-based pizza crust. Both products took run-of-the-mill national-label products, and created unique, healthy private-label alternatives.
Leading CPG brands are using machine learning to predict local demand and inform their product development strategies. Crunching your basic POS-data alone provides a wealth of insight on untapped customer desires. Regardless of your methodology, you can show customers that you have their needs in mind by continuously delivering unexpected and compelling private label products.
Pitfall #4: Dismissing Design
Low prices were once enough to pique your customers’ interest and compel them to forego national brands for your private label. But the days of generic private label packaging are over. Customer demand is increasingly diverse. Your in-store private label offerings must rise to expectations to attract customers, demonstrate your value, and ultimately move them to purchase.
Uniquely J by Walmart’s Jet.com does a fantastic job of rolling out products with bold prints and colorful, tantalizing packaging. These are products that customers want to display in their homes. Uniquely J isn’t just style, though. The products are designed to resonate with value-conscious consumers thanks to competitive pricing. They’re also high-quality goods that are environmentally friendly.
By backing up a quality interior with a superior exterior, Uniquely J demonstrates the next evolution in private label brands. It’s no longer enough to offer desired products in milquetoast packaging — you’ll need to succeed on both sides of the label.
Pitfall #5: Being Opaque About Production
National brands have several key advantages over private label brands: they’ve been around longer, have national notoriety, and typically come from known manufacturers. Naturally, consumers have greater familiarity and trust with national brands.
Don’t just take our word for it. In a recent study, consumers listed trust and food safety as the two primary factors they weigh while considering a private label purchase. 44% of shoppers said they don’t buy private label because they trust national brands more. Furthermore, only 23% of respondents said they completely trust the safety of private label brands they purchase.
To conquer these challenges, private label retailers have to be transparent about how their goods are produced. Consumers want to know where products are made, what’s in them, whether they’re safe, and how their production impacts the environment.
One easy way to shift these numbers? Make sure your labels and packaging are on point. This goes beyond design and color scheme. Provide detailed information on product origins and attributes. Your packaging should appeal to consumers’ desire for transparency and trust.
Take your efforts one step farther and pay special attention to how you promote and display your private label products in-store. Winsight Grocery Business suggests several ways for private label brands to drive transparency. Retailers can, for example, educate shoppers with in-store demos and secondary displays. On the digital front, QR codes on private label products can link to web pages for inquisitive shoppers. National brands use ads and social media campaigns to build familiarity and trust. Why not do the same for your private label products? If you can effectively combine these efforts, you’ll deepen your connection with customers.
Wrapping Up Your Private Label Strategy
It’s clear that consumer-centric products are key to earning private label accolades. Examine not just which products you offer but how they’re packaged, labeled, and presented in order to roll out a successful private label brand. Brick-and-mortar chains, with their ability to interact directly with customers and demonstrate new product launches in-person, are uniquely poised to capitalize on the power of private label.
To get the competitive edge, you need to be agile. This means updating your merchandising and product assortment in near real-time based on the qualitative feedback you receive. If you’re seeing a lack of customer resonance with your private label goods, make a quick adjustment to keep momentum.
Learn how CB4 helps retailers turn insights from their POS-data into actions to ensure that the products customers want most are in stock and ready to shop.