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By Mark Beebe, Principal, Stevens & Tate | 10/08/2010
Thousands of buyers from more than 35 countries are descending on suburban Chicago Nov. 15-17 for the Private Label Manufacturers Association's Private Label Trade Show. Representatives from supermarkets, supercenters, drugstores, discounters, mass merchandisers, convenience stores, importers, exporters, wholesalers, even military exchanges will gather to source, to learn, to make contacts. They will occupy more than 2,000 booths spanning five halls of the Rosemont Convention Center.
It is the place to be -- the industry event of the year -- for manufacturers and retailers who have learned that store brands give them the power to compete with big national brands in a broad range of categories without having to spend a lot on advertising or promotions.
Nielson Media reports that private label sales have increased by 12 percent in mass merchandisers, supermarkets and drug chains since mid-2009. Total sales for the year reached $85 billion, and unit market share rose to more than 23 percent. And a recent Roper survey reports more than 60 percent of all shoppers now say that they purchase store brands frequently, up from 40 percent just three years ago.
Store brands are reaching unheard of levels of consumer popularity and retailer commitment. A look back at the evolution of private label brands can help retailers understand why and how they can build on the current hot trend.
From canned goods to cookies
Thirty years ago, private labels were for the beans. Literally. Private labels were found only on the cans of staples such as beans, peas, pickles, corn and other food products that were easy to store on grocery shelves. Product names looked stenciled on the labels.
As important as package design is the creation of quality, even novel, products, which might be expected only of branded manufacturers.
Not a whole lot of thought went into the design of these labels. The packaging was inexpensive, unimaginative – just basic information slapped on a can. Consumers bought the products because they could count on consistency and they needed the products for everyday meals.
Today, private labels are found on clothing, home goods, jewelry, wine, purses, shoes, you name it. If a department store sells it, there's a very good chance that product category has a private label brand.
German-based Aldi was the first retailer to make the leap from private label beans to burgers and baked goods. Aldi brought the concept of private label to the U.S. in the 1980s in order to offer cost-savings to consumers.
The principals with the grocer's marketing agency, Stevens & Tate Marketing in Chicago's western suburbs, proposed a marketing theory to Aldi executives: Smart package design attracts first-time buyers; high quality product content encourages repeat purchases.
Aldi agreed to test the theory by starting with three products: snack crackers, vanilla wafers and chocolate syrup. All three were experiencing poor sales.
The creative team at Stevens & Tate overhauled the design of the packaging. Within a short time, Aldi reported all three products were showing sales increasing by leaps. As a result, Aldi asked Stevens & Tate to redo all of the store's private label packaging.
The team took on 80 products, then 100, then 150, etc., until 100 percent of the store merchandise had updated packaging.
Aldi Stores were enjoying an uptick in sales from these changes. The theory had been proven. Smart packaging increases impulse purchases.
The next challenge for Stevens & Tate was to help brand an upscale line of food products for Aldi. The Grandessa premium line was formally launched and included a logo to reflect the upscale nature of the product line, improved package design, display case artwork and a Grandessa Standards Style Guide. Today Aldi's signature line includes 78 products including German-roasted gourmet coffee, classic Italian sauces, garden-fresh salsas, fruit bars and cookies.
Following the immediate success of the Grandessa line, Aldi with the help of Stevens & Tate, launched another brand, "Fit and Active" healthy living products. That line now has 58 core products and more than 120 varieties that are geared toward today's health-conscientious consumer.
The trend will only grow
Aldi Stores will continue to build and develop these private label brand lines. Building brand families with new products that make sense and eliminating weak products in the brand line ensure the strength of the brand promise is maintained. Ensuring the quality of private label brands will become increasingly important as young consumers increase their spending on these products. Research suggests that they will.
Roper reports that nearly 20 percent of shoppers expect to buy more private label in the year ahead. Young shoppers in particular like store brands, according to SymphonyIRI. They expect retailers to help them save money with functional, high-quality private label products.
They are also more likely to make impulse purchasing decisions. These younger shoppers also are less likely to use coupons and circulars than their elder counterparts. Because of their impulse purchasing, they are less likely to stock up on deals and bargains. This leads SymphonyIRI to suggest that traditional advertising media, such as TV and print, may not be as effective as they once were. To reach these consumers, it is critical to have effective in-store messaging and packaging.
The experience of Aldi is proof this strategy works.
In the past five years, Aldi has seen significant growth. Stores continue to open at a rapid pace. Last year, 22 stores were opened in Florida in a single month. By staying true to its commitment to private label, Aldi has enjoyed success.
There is no secret to the grocer's success. Impactful packaging drives the trial purchase. High-quality products encourage repeat purchases. In-store messaging communicates the commitment of Aldi to deliver consistency, quality and affordability. The aisles at Aldi are chock full of all three ingredients, which brings the shopper back for more.