Your Competitive Edge: Private Label

Consumer loyalty, increased profit...experts outline the reasons store brands can be a “big asset”—plus 5 strategies that can help ensure your success

73

Store brands have been looking up for quite some time: According to the Private Label Manufacturers Association (PLMA), in 2019, private label grew 4.1%, three times as much as national brands (1). Market penetration advanced to 19.2% in dollar share and 23.1% in unit share.

A report from Nielsen suggests that this isn’t just a matter of price concerns beating out quality concerns: “Today, consumers are much more willing to splurge for store brands than they would for name brands,” the authors of the report say, noting that 40% of Americans surveyed say they would pay the same price or more for the right store-branded product, whereas only 26% of those surveyed feel that name brands are worth the extra cost at all (2).

And private label brands can be a big asset, according to Barb Honiotes, Private Label Sales Supervisor at NOW. “Retailers can brand their store’s image with private label, which has been demonstrated to attract, and retain, customers,” she says. “When consumers come to prefer a store brand, it contributes to store loyalty because they can’t get it anywhere else. A store brand is one of the top reasons customers keep coming back, along with good customer service. Retailers can sell their brand in the store and online, meeting all their customers’ shopping preferences.”

Now, with COVID-19, private label manufacturers are telling the same story: Demand is on the rise, even as supply is getting harder to manage.

“We’ve seen a significant increase in sales,” says Honiotes. “However, we are facing the same demand challenges as the NOW line. We’re adding additional manufacturing equipment, but it will be several months until that equipment is installed and making products. We are also dealing with market shortages of some ingredients, which also include bottles and lids, as well as labor shortages.”

Lily of the Desert has a similar story, shares Jack Brown, VP of Sales and Marketing. “In the aloe category, there was a short-term increase in demand and sales based on the fact that FDA released information for homemade hand sanitizer that called for using aloe as an ingredient to help keep hands moisturized. Private label sales for aloe gel went up by 150% during the early months of COVID shutdown; aloe juice also went up slightly.”

Paul Licata, President of Licata Enterprises, tells WholeFoods: “Sales have skyrocketed. Items such as zinc, vitamin C, oil of oregano, and others have seen sales increase more than 500%.” He puts this private label bump down to layoffs: “Due to COVID, many people were temporarily laid off from work, leading to consumers really watching their spending. Private label, with inherently lower costs, became the perfect go-to for many consumers.” Not surprisingly, this jump has caused problems for Licata Enterprises, just like everyone else—but Licata says his company was able to rise to the occasion: “It has been near impossible to predict or plan for what the sales volume will be, but at Licata Enterprises we had a good stock position on most items early on, plus our wide selection of supplements helped keep our customer’s store shelves stocked. We offer 18 different vitamin C and six different zinc potencies, so even if we ran out of stock on one or two, we always had several choices to sell.”

 

5 Store Brand Success Secrets

  1. Size it right. “We caution against starting too small,” Honiotes says, “since just one or two SKUs will get lost on the shelf. The retailer should review their top sellers in national brands and begin with their own versions of those products. Consumer requests—as they begin to seek the store brand specifically—can help you decide on expansions.” She adds that NOW can advise customers on top sellers for the company, explaining that many of those are also industry top sellers.
  2. Put yourself first Once products are on the shelves, Licata offers this advice: “Own your brand. Don’t just treat it as another national brand. It is your brand.” What does this entail? “Make sure you feature it on your shelves and advertising. Put your private label in a prominent place in your stores. Use end caps. Put them in more than one location if appropriate. As long as it fits the bill, your brand should be the first product you suggest to a customer. Ensure that your employees know this is your bread and butter—it makes you the highest profit, and you spend more time buying it than other products.”And one more tip from Brown: “Limit your offerings in the category in which you offer private label products, to two or three, including private label.” You don’t want your brand to get drowned out by other options.
  3. Watch the stock. “Private label customers need to do their best managing their inventory, like aiming for higher inventories to help overcome shortages,” advises Honiotes. NOW works with its customers to help them achieve this end: “We’re transparent about fill rates and when we anticipate having specific products back in stock, which helps our customers plan.”
  4. Be the info source. For a start, Licata says, make sure your customers connect it to you: “When customers ask questions, don’t refer them to your private label manufacturer. You need to find out the answer and tell them.”
  5. Market strategically: Licata recommends asking yourself: “Discount, full price, premium brand? Multiple private label brands at different price points so you can ‘compete against yourself?’ In our case, our prices are about 15-20% below national brands, before we give any volume discounts. Some just sell at our suggested retails, while others raise our price 15% to match national brands and then discount 25% or more off. Some use our volume discounts to offer all products at 10-20% off everyday, or they use a ‘fancier looking label’ and sell at a premium. Remember, you can compete with Costco or Sam’s Club on price if you want, with our prices.”Brown’s advice on marketing: Whether or not you’re discounting your product, he says, “market it as a value product, not a discount product. What are the differences between brand name products and your private label product? Show your customers that your private label is equal to or better than Costco’s in quality.”

Smart Tip!

When it comes to purchasing, Licata offers this advice: “Make yourself important to your private label supplier. For example: Consider the customer that buys four to seven items from six different suppliers, and changes back and forth depending on who has the best price this month—versus another that buys 20 products from two different suppliers. When you need a rush order, or ask for a special price, etc., who do you think the suppliers will be more likely to help?”

Questions for Prospective Manufacturers

Start with the basics. Honiotes advises, “Ask challenging questions about ingredient sourcing, testing, and track record of GMP compliance. NOW’s manufacturing facilities feature thorough quality assurance and quality control systems and processes, and are GMP certified and A-rated by the Natural Products Association. NOW does more than 16,000 tests each month. Incoming raw materials are tested for identity, purity, potency, and composition, and we test the finished products, too.”

To that, Brown adds a few questions: “If you change your packaging or label—how much are you liable for finished goods or unused materials? Within the quote they’re giving you, can you maintain the quality of a branded product while keeping a competitive pricing structure?” Brown notes that the cost of private label is driven largely by the cost of packaging, labeling, and freight.

Licata offers this input: “Are they a true private label manufacturer with in-stock product ready to affix your label? Do they require purchases of 1000 bottles, or about the same as having a custom product made? Do they stock a wide variety of products, or just a few? Do they continue to innovate?” And, a new question: “How did they service their customers during COVID?” Whether or not next year’s struggle is something equally unprecedented, Licata says that it’s something to take into account. “Look for private label suppliers who maintain enough inventory to supply them even through tough times,” Licata says. “We were even able to introduce two new products, and to manufacture them quickly: Zinc Lozenges and Elderberry/Echinacea/Propolis gummies.”

Retailers have an edge—you already have a method of distribution. Gael Orr, Director of Marketing at Once Again Nut Butter, offers this insight: “From my perspective, if a private label company already has distribution, that can make a brand succeed. I often get requests for private label products from startups that have no method yet of getting products to market, and so for those organizations, they are the ones that really struggle. So if a retailer is creating their own brand, that can work, or if a distributor is creating a brand, that too can work, because they already have a mechanism to get their products to market.” WF

References

 

  1. “The Store Brands Story,” PLMA.com. Accessed 10/1/2020. https://www.plma.com/storeBrands/facts2020.html
  2. Nielsen Staff, “The Rise of Premium Private Label and Its Impact on Discount Retailers,” Nielsen.com. Posted 08/2/2019. Accessed 10/1/2020. https://www.nielsen.com/us/en/insights/article/2019/the-rise-of-premium-private-label-and-its-impact-on-discount-retailers/

LEAVE A REPLY

Please enter your comment!
Please enter your name here