Brand Killers : Branded Products vs.Private Label and Store Brands in Retail and Foodservice

Walmart Bags Big Brands. Glad, Hefty Food Bags Removed from Shelves

2010-02-05T10:49:33-07:00

AdAge reported today that Walmart has sent Glad and Hefty packing as the big retailer streamlines categories and positions its own private label brand for success.

The news is a major blow to the traditional brands, as Walmart makes up a third or more of their sales.

The good news for Pactiv (who owns the Hefty brand) is that they've been granted the privilege of manufacturing Walmart's Great Value bags.

But is this really good news for Pactiv?

Clorox (Glad) exited the private label business last year after deeming it to be non-strategic.

Pactiv has taken a different approach, preferring to play on both sides of the fence.

Are manufacturers like Pactiv positioning themselves for profit, or total annihilation of their core brands?

The gain realized today will slowly erode brand equity as consumers realize that the private label products aren't only as good as the big brand, they are the same.

Walmart is clearly in the position of strength here, pitting manufacturers against each other and forcing them to spend millions in advertising to drive consumers into stores. (Pactiv and Clorox increase ad spend $23 million and $58 million respectively)

And what does Walmart do?

They simply stock the shelves with their own branded alternative, taking full advantage of the traffic driven in by branded manufacturers battling it out over shelf space.

For Walmart, it's brilliant.

For manufacturers like Pactiv, it's short term gain which will lead to long term pain.

For consumers, product selection is diminished, which only leads to less innovation.

It's an interesting landscape out there, and we're just getting started.

Walmart aims to cut supply chain cost through direct purchasing

2010-01-04T02:02:58-07:00

The Financial Times is reporting that Walmart is now aiming to cut supply chain costs by moving to a direct purchasing model.

The consolidation of its purchasing operations is a global initiative to cut billions of dollars in costs from its supply chain.

Walmart is suggesting that this move could reduce costs by 5 to 15 percent within five years - or a savings of 4 to 12 billion dollars.

So how will this latest move potentially affect branded manufacturers?

Here are my thoughts:

As a retailer who is already known to squeeze suppliers for every last penny, expect even more pressure. Manufacturers who do not comply with new cost requirements could find themselves out in the cold. This is business-as-usual for Walmart, but the stakes are now much higher.

As Walmart continues to drive costs out of the system and passes the savings on to consumers via lower prices, other retailers will find it increasingly difficult to remain competitive. Regional and local grocery chains (like Basha's Supermarkets in Arizona) are particularly susceptible, as they simply cannot compete with Walmart's purchasing volume.

Grocery chains that cannot complete will be driven out of business, leaving branded manufacturers with fewer retail options. It will become more and more difficult for branded manufacturers to reach the consumer.

Consolidated global purchasing will allow Walmart to purchase private label products at a lower cost. This lower cost, combined with Walmart's pressure on private label manufacturers to rival branded products on quality, will put even more competitive pressure on branded manufacturers.

What are your thoughts on this?

What will the retail landscape look like in 10 years?

How should branded manufacturers respond competitively?

Original Article: Walmart aims to cut supply chain cost

Grocery store brands come out on top

2009-12-28T12:51:51-07:00

Ouch! A one-two punch by the San Francisco Chronicle.

Not only have they named their column "Taster's Choice" (owned by Nestle), but they've also announced the results of recent consumer taste testing, where five experienced panelists - local chefs, cookbook authors, and food professionals - do blind taste testings on various food products based on texture, appearance, and taste.

The findings? Time and time again the grocery brands come out on top.

I wonder how many of these products are manufactured by the very companies they are competing against?

Read the full results

2009: The Year of Private Label

2009-12-01T01:52:42-07:00

Brandweek is calling 2009 as the Year of Private Label. And why not?

As consumers continue to cut back, branded manufacturers often do the same with marketing dollars.

But this time, consumers have options. Alternatives come in attractive packages that might say "Archer Farms", "Kirkland", "Sam's Choice", or "O Organics".

The Results

According to a report by Nielson Co, unit sales of baby foods grew 22.3 percent for the 52 weeks ending October 3rd.

Frozen pizza and snacks were another category where branded manufacturers took a serious hit, as private label made a 20.4% gain.   This was followed by salad dressings, mayo, and toppings at 18%.

Overall, unit sales of private label goods rose 5.3 percent for the same period.

Categories where private label made the biggest gains (percent gain over last year):

   1. Baby Food: 22.3%
   2. Frozen Pizza/Snacks: 20.4%
   3. Salad Dressings: 18.0%
   4. Candles: 16.8%
   5. Snacks: 15.9%
   6. Canned Seafood: 15.3%
   7. Detergents: 14.2%
   8. Fresh Produce: 14.2%
   9. Cheese; 14.1%
10. Meat: 13%

Private label alternatives see this as the perfect storm. They truly believe that through attractive packaging and product quality, they can turn the recessionary consumer into a long-term brand ambassador.

Spill-over Trends in Foodservice?

With the foodservice industry witnessing severe cuts in consumer spending, it makes sense that foodservice operators will do all they can to cut costs without sacrificing quality.

In retail, brands fend off private label by emphasizing familiarity and longtime appeal. The success rate is much higher in categories driven by image-based marketing.

In foodservice, there is very little image-based marketing besides your typical tabletop products that consumers expect (Heinz, Equal, etc.).

Couple this with the foodservice distributor's marching orders to emphasize internal brands, and it's clear that foodservice will witness similar patterns.

I believe that changes will happen for three core reasons.

1. Foodservice operators are looking to reduce costs while maintaining quality.

2. Distributors are looking to expand market share of private label brands, as profit margins are much higher.

3. Manufacturers often react to recessionary markets with a contraction or elimination of marketing dollars.

What are your thoughts?

Is this a one-time surge in consumer spending patterns due to tough economic times, or will private label manufacturers continue to make significant inroads into branded manufacturer market share?

Will we see similar trends in foodservice with big distributors like SYSCO, US Foodservice, Gordon, Reinhart, and Shamrock Foods?

Heinz plans big push for products

2009-11-25T10:05:36-07:00

Go Heinz! Go Heinz!

While many manufacturers react to an economic downturn with drastic cuts to marketing, clearly Heinz knows better.

Can branded manufacturers afford not to advertise when consumers are looking for any excuse to save money by switching to private label?

And once they switch, how will you ever get them back?

The H.J. Heinz Co. plans to push its products even harder in the second half of the fiscal year, increasing its marketing budget to combat intense competition in the frozen food and condiments aisles as well as pressures from private label rivals.

William R. Johnson, Heinz chairman, president and CEO, said yesterday that consumers continue to be intensely focused on bargains.

But he also said the market seems to be stabilizing and that makes this a good moment to invest in gaining market share.

Read More...

SYSCO Puts New Emphasis on Private Label Brands

2009-11-23T17:56:39-07:00

Here are a couple of interesting quotes from a recent earnings call with Sysco, where analysts sought clarification on Sysco's internal brand focus.

The response shouldn't surprise anyone. Sysco is only looking out for its own best interest by reemphasizing private label products with its national sales force.

Jason Whitmer (Cleveland Research Company): Last question on your own brand, the Sysco brand, is there any return of a focus on that to drive that business again? Or to kind of continue to define that platform and anything that could change the mix shift or even the margin components of branded versus your own brand versus the national brands?

Kenneth F. Spitler (President and COO, Sysco): Yes, we've just begun a reemphasis of brand and brand sales, reemphasis in our sales force and in our sales meetings start driving those numbers back up.

Meredith Adler (Barclays Capital): I'd like to go back to the answer you just gave about private label and I wasn't sure, you said a reemphasis of brand and brand sales. Did you mean your own brand or did you mean national brands?

Kenneth F. Spitler: No, I meant our brand that we're reemphasizing it with our sales force and our customer base.

Read More...

QSR Magazine Touches on the Rise of Private Label Brands

2009-11-23T16:42:46-07:00

Well, well. Look who's talking private label? None other than QSR Magazine, one of my favorite print publications.

In his blog post, Steffen Weck touches on several good points about private label's insurgence and rapid acceptance on the retail side. His point that private label products are no longer considered inferior rings true, as consumer-based surveys have proven time and time again.

But what about foodservice? The other half of the food dollar?

This happens to be the industry that QSR Magazine covers.

As broadline distributors introduce additional products, and ramp up sales efforts to emphasize their own labels through aggressive marketing and in-kitchen taste comparisons, the foodservice industry will also witness similar patterns.

After all, who's visiting the restaurant more than anyone else?

The food manufacturer? No way. The direct sales force is focused primarily on the big chains.

The food broker? Not quite. Their sales force is way too small to influence all operators.

It's the DSR (distributor sales rep). The distributor makes contact with the foodservice operator more than anyone, and is often driven by attractive incentives to promote private label alternatives – not branded product.

Discussions about the shift in product quality and market share are healthy to have, but let's not pretend that it's limited to retail.

I would argue that it's even easier to transition away from branded products in the foodservice industry. Since brands are unseen, would a consumer truly know the difference between a Tyson chicken breast and a private label alternative from US Foodservice?

QSR Magazine is supported by advertising dollars, most (if not all) from branded product manufacturers.

How long would they survive if the brands disappeared tomorrow?

We all need to wake up, and acknowledge the facts. Left unchallenged, private label brands will continue to grow in both retail AND foodservice. Business as usual is no longer business as usual.

Advertising Age announces America's Hottest Brands

2009-11-18T01:23:28-07:00

And the winner is...

Walmart Great Value?

Absolutely. It's one of the top brands of the year, with Andrea Thomas overseeing the stewardship of the Great Value private label.

The re-staging of the Great Value brand began in April, and two months in, Walmart's private label share was already up .02 percentage points.

Expect this to continue, as they have clearly differentiated themselves with new, crisp packaging that stands out from the crowd of branded manufacturer alternatives.

Marketing costs remain low, as Walmart focuses efforts internally through in-store promotions. According to Ad Age, they've also started to branch out into social media by courting bloggers.

It's this type of marketing savvy that propelled Walmart's Old Roy brand to surpass Purina as the top selling dog food in the nation years ago.

Read the Ad Age article

Kellogg's Takes on "Fake Flakes" with Laser Defense System

2009-10-15T12:07:13-07:00

Well...here's a way to fight off private label copy-cats.

According to the Daily Mail, Kellogg's has been so concerned about cereals in similar packages, that it will now be laser-zapping its logo on individual flakes.

While I'm personally fascinated that they can actually do this, I have to wonder.

Is it really the logo that sells product? Or is it the taste?

Typically it is the taste. But a corn flake is a corn flake, and I'm sure it's fairly easy to duplicate as a private label manufacturer. Reverse engineer corn flake...and presto! You have a product that is confused for the original.

This puts Kellogg's in a tough position. In the past, it was the strength of the manufacturer's brand that carried them. Today, it starts with the product.

Do they truly believe that today's consumer will look into the bowl, notice that each flake is not emblazoned with the Kellogg's logo, then proceed to toss the fake flakes in disgust?

If consumers are truly confused because the private label brand tastes as good (or better) than the branded product, the brand is in trouble. Big trouble.

A World without Branded Products?

2009-10-09T01:17:56-07:00

Fast forward 20 years. What will the store shelves look like? For foodservice operators, what will your delivery look like?

It seems that quarter after quarter, private label brands continue to solidify themselves in the minds of consumers in terms of quality and price.

Consumers no longer need or seek brand comfort as they did in years past. Today, we have a vast network where people search and share information instantaneously. Bad product experiences are shared with the world through websites, blogs, Facebook, Twitter, and many other outlets in milliseconds.

We no longer seek comfort in brands. We simply seek the truth, which is now at our fingertips.

So how exactly do manufacturers compete in this new paradigm?

There seems to be three choices:

If you can't beat em', join em

We’re already seeing this with numerous manufacturers. In many cases, they have been strong-armed by powerful retailers and distributors to become less of a brander and more of a manufacturer, supplying items that compete head-to-head with brands they built up over the years. Insane or a survival necessity?

Be everything to everybody

The hybrid approach. Some companies do a little private labeling on the side. While this seems to work well in the short term, it does nothing but empower the retailer (or foodservice distributor), adding strength to their bottom line, and making it more likely that the branded product will at some point be displaced.

Beat em’ through Innovation

Numerous manufacturers (Proctor and Gamble comes to mind) have decided that the best way to long term survival is to constantly innovate, creating products that “wow” consumers through true product differentiation. They realize that products must be “Purple Cows” (Seth Godin), rather than the same old monochrome Holsteins that everyone puts out to pasture.

Companies like this also embrace the Internet and new media, fully understanding the vast power of word-of-mouth marketing through online communities, social networks, and blogs. They use this powerful new medium to their advantage, and monitor conversations on the web to gauge consumer sentiment, proactively intercept issues and quickly remedy problems.

But it all starts with product differentiation. “Me too” brands will face a certain death.

The writing is more than on the wall. It’s been written in a gigantic, neon pink indelible marker.

I truly do not believe we’re heading to a world without branded products, but we’re certainly looking at major changes in the years to come.

So what do you think the world will look like in 20 years?

How should manufacturers respond to this onslaught?