Take a look at this new report from consulting firm Accenture, “Private Label: Don’t Fight It Thrive In It” It attempts to answer the question, “How does a consumer packaged goods manufacturer grow profitably in this environment?”
Although the dust is settling from the global recession, demand for private label goods has remained strong. For a number of reasons, most experts agree private label is here to stay and should continue to grow. Retailers are getting progressively better at developing, promoting and selling their own products. They are developing private label strategies that focus efforts on improving product quality, identifying white space at the shelf, expanding price tiers and entering multiple categories—all in an effort to differentiate themselves, improve negotiating power and increase profitability. Meanwhile, consumers are becoming more aware and accepting of private label (or in some cases simply cannot tell the difference). They no longer view private label as a trade-down and, more often, see private label just as another branded option. How does a consumer packaged goods manufacturer grow profitably in this environment?
Traditionally, manufacturers have fought aggressively against the onslaught of private label by evaluating the most effective competitive strategies (such as improved innovation, consumer loyalty programs and value tiers) while also considering the strategic and financial implications of using spare capacity to produce private label products. Additionally, manufacturers recently have started to explore direct-to-consumer sales as a way to bypass retailers. These competitive techniques are designed to win consumer mindshare and thus market share from the store brands—a strategy we believe is not sustainable and destroys value for both the manufacturer and the retailer. Instead, the path to success lies in strategic collaboration.
Strategic collaboration requires a different mindset between manufacturer and retailer, as well as the process and capabilities that allow manufacturers to work more closely with retailers to identify consumer demand and quickly respond to it. In those instances where collaboration is deemed the appropriate response, it requires jointly focusing on category growth and consumer return on investment, thereby eliminating the inefficiencies of working against each other. By sharing consumer and shopper insights—working together on innovation, assortment and marketing toward a mutual consumer—both the manufacturer and retailer can benefit in the form of a more loyal consumer base, stronger overall category sales, better margins and lower costs across areas such as product development, marketing and promotion.