February 19, 2010

Growing Brand Equity and Supplying Store Brand Programs

Tim Forrest, Senior Advisor and CEO at Tim Forrest Consulting 

U.S. retailers in grocery, convenience, and mass along with distributors and co-ops continue to increase the number of products offered under their own brands and labels, commonly referred to as private label and store brands. The success of store brands creates an opportunity for manufacturers to examine their current product portfolio and market for opportunities.  

Everything from fresh, frozen and refrigerated foods, beverages, snacks, shelf-stable groceries and ingredients of all types are now in store brand offerings. On the non-food side, there are household and kitchen, paper and plastics, health and beauty, GM and DIY. 

This practice has increased over the last decade for several reasons causing Branded Marketers to step back and evaluate their current positions and make critical decisions for their companies product line-up and retailer supply relationship.
  • Like many companies, retailers have found that building their own brands helps bring value by differentiating them from their competitors and by clearly identifying their products and services for current and potential customers.
  • It has become easier for retailers to lower the cost of store brand products.
  • Due to the larger size of retailers and consolidation, retailers can readily purchase direct without distributor middlemen and import overseas product.
  • Retailers groups entering into distributor supplier programs prefer to purchase as much as possible through their contracted food distributor organization. In doing so, they support and prefer products to bear the distributor or co-ops own brand and treat it as their own.
Because private label programs have enjoyed much success and approaching about a quarter of grocery sales, retailers are now more likely to choose as partners those manufacturers willing to support private label product roll-outs. Food manufactures that supply retailer and distributor organizations with private labeled products are reporting strong sales growth. Manufacturers that reject private label programs may be missing out on a critical sales opportunity. However, while retailer private labeling is beneficial to the retailer, it presents a major threat to the grocery manufacturers whose own brands are stripped away in the process and will be unable to keep the business if they fall short on the next competitive bid to other potential manufacturers.

By examining the nature of your category, competitive manufacturing capacity and initiatives, your own product development process and capacity will provide guidance. This information will assist in deciding on how your company might participate in a store brand program.  Your response should include consideration on manufacturing capacity for a particular item and we will consider three basic categories (commodities, unique, and revolutionaries) for building your response:

Commodities; include, among many other items and various suppliers and manufacturers:
• Milk and Dairy products especially fluid milk.
• Fresh eggs.
• Cold and Allergy Tablets along with vitamins.
• Sugar

Unique products include such niche items that few can manufacture such as:
• Specially Meat Snacks
• Taco Mexican Dinner Kits
• Organic and Local Harvest

Revolutionary products are often first to market in a category or provide unique benefits not available from other manufacturers. Examples include:
• Kraft Bagelfuls
• Unilevers Pro-Activ Yogurt
• iChill Relaxation Shots
• Rosa’s Horchata
The illustration below may be helpful in determining where your product falls on the continuum of product uniqueness and its potential movement towards commoditization.  The larger the universe of manufacturing plants capable of producing an item, the less likely you will benefit from selling a branded product into the set without some unusual and special differentiation and purchase by the consumer.

By definition, Store Brand products are generally not supported by manufacturers with trade spending or advertising to consumers.  That function is left to the retailer and their marketing arm and budget.  The consumer recognizes the store brand as part of the product mix of the retailer and will anticipate a particular level of quality and determine purchase opportunity.
Therefore, traditional budgeting and overheads of a branded product do not adequately reflect the nature of costs associated with Private Label suppliers.  The specific marketing costs, packaging design, and product development costs are radically different from branded product manufacturing and marketing. 

Your company should examine the portfolio of items you currently produce and have the ability to produce with the focal point being the market and manufacturing capacity to produce similar or like items.  For example, if you have a machine producing standard frozen ice pops and there are many plants that can produce this item then you should think that would be an excellent option for offering as a store brand or distributor branded product. 

Your newest equipment might be producing some fancy unusual and revolutionary frozen dessert and that item should not be placed into a store branded portfolio but should continue to push your brand in the brand in the marketplace.  Revolutionary products should always stay under the manufacturer's brand. In some instances, co-branding can provide a win-win option for the latter two categories of products and you can see examples of this in the Kirkland Signature product line at Costco.

As your product portfolio migrates down the curve to commodity status over time as all products eventually fall, you should maintain and continue to advance new revolutionary items.  Invest in product enhancing attributes and new manufacturing practices that will result in your companies continual brand success.

Developing revolutionary breakthrough products can be expensive. One area to drastically save on development of revolutionary product breakthroughs is to license or purchase products, patents, and intellectual property from outside of the company.  Proctor and Gamble and Nestle both are moving fast in this direction.  The Swiffer Wet Jet® and Forceflex Bags® are examples of the results of this process.

In summary, Retailers are moving fast to develop and enhance their portfolio of store branded merchandise.  Manufacturers should carefully consider the portion of their portfolio for commodity style items that can easily and quickly deploy into the store brand channel along side their branded unique and revolutionary items.  The avoidance of store brand manufacturing with retailers not only shrinks the dollar volume opportunity but weakens the potential for a strong and viable supply relationship with the retailer.  Gather all the necessary information on your market category, the retailers efforts, and your product line-up to determine your best strategy in this environment.

What actions are you taking to grow your business? Send a note or comments to   tim@timforrest.com also, follow me on Twitter I want to hear about your success!

© Tim Forrest 2010. All rights reserved
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