On Sept. 1, 2015, Daymon Worldwide appointed a new Chief Executive Officer, Jim Holbrook. Doug Baker, Vice President, Private Brands for the Food Marketing Institute had the distinct pleasure of sharing a conversation on industry trends with Jim and learning his perspective on business opportunities. My line of questioning included observations on trends, innovation and sector growth.
Question #1: FMI’s U.S. Grocery Shopper Trends 2015 report suggests that private brand products remain high on consumers’ shopping lists, but consumers’ haven’t made significant habit shifts in terms of how private brands are influencing their primary store selection. Nearly a quarter of those surveyed over the last two years said that private brands were important to them in primary store selection. What are the most significant trends you’re witnessing in the private brands industry that’s leading to innovation and could impact consumer behavior in the aisles?
Doug: Customization is one key trend happening today; from flavors, to sustainable sourcing, to packaging options that fit diverse family sizes and life stages. Brand owners have a unique opportunity to address the trends head-on and avoid the “fast follower” model. The exciting thing about private brand strategies is that they can be as diverse as the consumers grocers cater to. I asked Jim to elaborate from his perspective as to how brand owners are competing.
Jim: Consumers, along with retailers, are learning to navigate today’s incredibly fast-paced, fragmented retail world. The proliferation of online shopping and delivery options is mind-boggling, and shoppers are still trying to figure out what works best for them.
The only way retailers can compete during this turbulent time is to aggressively leverage their Private Brands as powerful differentiators that offer something their customers simply cannot get anywhere else. If they do that, Private Brands play an even more significant role in consumer primary store choice.
Consider that Private Brand penetration in the U.S. today is 26 percent higher than it was in 2000. According to Nielsen, Private Brand growth between 2012 and 2015 in the U.S. grocery sector outpaced National Brand growth by between 3.8 and 5.5 percent. In the past five years, there has been total Private Brand share gain from 18.9 to 19.4 percent. The value of this .5 share gain is a hefty $1.6 billion.
The room for continued Private Brand growth is tremendous as we see the aggregate value of national brands falling steadily.
Conversely, as consumers continue to regard Private Brands as reputable brands in their own right, perhaps after having initially tried them during a recessionary period, they continue to purchase them. Even better, they are generally more willing to try new Private Brand products in other categories.
This tendency to stick with Private Brands that have delivered a positive experience has inspired ongoing retailer investment in developing more impressive, creative offerings.
If you look at the most successful retailers in the U.S. right now, they all have robust Private Brand programs and have created a cult-like following based on deep emotional connections with their consumers. We’re going to see more of that. Conversely, current and new hard discounters coming to town represent a major industry disrupter as they perfect the balance between low prices and high quality.
Question #2: We know from our research that retailers are increasingly investing in private brands, and they identify their own brands as an extension of themselves. In fact, private branded products are ranked as differentiation and loyalty-building tools similar to prepared foods, perishables selections and social media. Knowing what food retailers are reporting, what are your observations and/or advice on how to leverage these tools and win with the customer?
Doug: From the industry’s perspective, as the battle for the consumer food dollar continues to grow, retailers are becoming much savvier with the tools they have to drive customer loyalty. Private Brand owners have created a significant opportunity for new innovations to emerge. The ability to move quickly to respond to consumer demand, the flexibility to make the financial decision to invest, and the opportunity to source from a global supply chain all position private brands for success. Jim tells FMI he’s witnessing these trends first-hand.
Jim: Understanding the advantages of developing Private Brands that represent their entire banner, retailers are investing the time and money needed to carefully research evolving consumer behaviors and global retail trends driving demand.
We’re seeing this come to life in Private Brand products that address the most relevant needs of core consumers, whether that be nostalgic products that take them back to simpler times, a quest for authenticity and transparency in both ingredients and source of supply, or demand for access to locally-sourced products. Private Brands are simply more nimble and capable than national brands of delivering those “can’t get anywhere else” experiences that drive traffic, increase basket size and secure long-term loyalty.
We’ll see more Private Brand success as a catalyst for retailers to define themselves and attract and retain loyal consumers. In fact we expect retailers who successfully leverage Private Brands in their overall strategy to enjoy faster growth.
Question #3: Shoppers equate many new values to their food – personal health has converged with community wellness ideals. How would you define a private brand owner’s opportunity in this new era of consumer conscientiousness?
Doug: I’m hearing from food retailers that the biggest challenge concerns the number of certifications, regulations, and requirements that take space on the principle display package. To meet growing demand for information, the industry is currently working on an electronic solution that brand owners could utilize to share everything a consumer might need or want to know about a product they use or consume. Shoppers demand transparency and we’re working on technologies to better understand and communicate the functional benefits of the products we sell.
Jim: Consumers are armed with more information, and with this knowledge they seek transparency from retailers around health, sustainability, and even pricing. Transparency has emerged as the most powerful way for retailers to create a trust relationship with consumers.
Private Brands should help consumers navigate the often bewildering amount of information and health claims out there, specifically by offering easy to digest ingredient information and simple, straightforward product packaging.
This may include a “free-from” approach to wellness-oriented Private Brands, encompassing clear Non-GMO product offerings, well-defined “does not contain” brand guardrails and allergen-free product offerings (including gluten-free).
Question #4: What does success look like for private brands in the next five years?
Doug: Success can vary based on strategy and target market. Still, in every equation, the winners will have focused on one common denominator, the consumer. Focusing on the consumer also allows companies to stay true to their go-to-market strategy whether the company is a deep discounter or a value-add retailer. Jim notes that opportunities exist in the form of partnerships, formats and services.
Jim: I think retailers need to treat their Private Brands as true representations of what retailers mean to their consumers. By establishing trust-based, emotional connections that attract a loyal consumer following, retailers can continue to deliver Private Brands that are perfectly tailored to their core shoppers, such as new culinary adventures, food and nutrition education and convenient lifestyle solutions.
Moving forward, there are three additional areas of opportunity for retailers to leverage Private Brands to win margin, including evolving partnerships, evolving formats and evolving services.
In the area of partnerships, you still see some traditional players combining forces to achieve greater scale and reduce costs. That’s what the Ahold-Delhaize merger is about, as well as the combination of Kraft and Heinz.
Much more interesting, in my opinion are some of the new retail partnerships that create differentiated value for both retailers and consumers. A great example of this is the Target-CVS partnership to give Target shoppers another reason to visit the store, while allowing CVS to gain a dramatic expansion of its U.S. footprint at a fraction of the cost of opening new stand-alone pharmacies. The question becomes, how can Target leverage this new arrangement to boost sales for related products in its Up & Up brand line, which could set an excellent example for other Private Brand partnerships.
A second major retailer response is to innovate with new formats – especially because everyone wants to get smaller and fresher. You will see a lot of retailer experimentation going on as urban centers elbow past the suburbs as the preferred residential location for households and young families. That hyper focus on Private Brands as the total solution will attract new consumer followers, and there are very creative ways other retailers can do that with their own Private Brands.
In the area of evolving services, retailers can seek partnerships that offer new services and conveniences for consumers, along with lucrative opportunities to more aggressively promote their Private Brands. Personal shopping and cooking classes at major food retailers, express makeup application services in the beauty aisle and in-store pharmacy vaccination offerings, all with a focus on Private Brand offerings, are great examples.
Question #5: What emerging issues do you foresee for private brand owners?
Doug: I think the biggest issue most private brand owners will face is being able to maintain the positive momentum witnessed by private brands due to the economic downturn. Our research is suggesting a plateau effect regarding sales, so there’s also urgency behind the motivation. Jim predicts some challenging issues for the industry, but we’re both confident the food retail industry will have the tools to evolve.
Jim: There is one big question facing retailers, and then a few smaller questions. The weather forecast for retailers as a whole is pretty challenging. Online competition is growing; European hard discounters Aldi and Lidl are committed to U.S. expansion, and consumer tastes continue to evolve rapidly.
Against that backdrop, the biggest question facing retailers is whether they will truly commit to private brands as a core strategic pillar of their business plans. Those that do will see greater success in the future than those that don’t, period. A truly strategic approach to private brand is a retailer’s best shot at durable competitive advantage over the long haul.
Beyond this fundamental question, e-commerce competition will challenge retailers to create an in-store experience that is both unique and powerful enough to steer consumers toward the store more often. To serve those consumers who are committed to online grocery purchase, more retailers will open or expand click-and-collect models.
What is certain is that the retail landscape will continue to fragment further. Survival will depend on genuine differentiation to meet obvious and latent consumer desires. I think private brand is a big part of the solution, and will become even more important in the future.
Question #6: Bonus round: What’s your favorite family meal and how would you persuade a shopper to buy the ingredients in the supermarket to make it?
Doug: Appealing to customers’ senses has been and continues to be the best advertising. Whether one sees something on Pinterest or Instagram that looks delicious and has positive comments from other readers, or a customer smells the inviting aromas when entering a store, the appeal is sensory. For me and my family, we love grilling season. The aroma of a thick, juicy steak accompanied by fresh vegetables with a little “private brand” olive oil, salt and pepper cooking over hot coals and wood chips is always amazing. Still, the most important ingredient of any meal is enjoying it with family or friends. Since Jim and I seem to have similar palates, this interview definitely made me hungry.
Jim: I like to grill out, so my choice would be to serve flank steak that’s been well-marinated in my secret sauce, which is made up of spices, seasonings and red wine. When adventuresome, I’ll also serve up a cheese soufflé (yes, it’s all about whipping the egg whites) with more flavorable cheeses.
We also like a big, fresh garden salad with homemade dressing and, if available, fresh avocados. Since our kids are all over 21, this all tastes much better when washed down with a bottle of California Pinot Noir.
None of this is really hard to make, and if ingredients are easy to find – all the better. Pictures also go a long way in making this meal enticing to shoppers. Plus, our kids will stick around for dinner when we’re serving something this good, which is an added bonus for shoppers to consider.