Baseball great Satchel Page said, "Don't look back, something might be gaining on you." I think branded food processors should be more aware of the ground store brands (aka private label) are gaining on them. I think everyone knows store brand sales have been growing, but it is how they are changing that really threatens branded products.
Many branded food companies see store brands as a cheap alternative to the national brands. But I think otherwise. According to Store Brands magazine, 34 of the store brand food categories unit sales increased during this timeframe last year. In general, the drivers behind the rises include new product introductions and price increases that result in a "mix shift" from the national brands to store brands for many shoppers, notes Jim Hertel, a managing partner with Willard Bishop, a consulting and market research firm in Barrington, Ill.
I have been studying store brands for a few years and have been examining the claims they make on their labels. We also studied various individual food groups. Our study has looked at about 30,000 labels per year over a four-year period.
What we discovered was that store brands were using more label claims each year. They were giving consumers reasons to buy what is most likely the less expensive product. Their message to consumers was not on primetime TV but right where the consumer is standing: at the shelf with the two choices in their hands, the most critical moment of truth.
In 2009 about 76 percent of store brands had some label claims and that rose to 84 percent in 2011. There is no question the types of claims vary across the various food categories (we used 20 different categories) but it tends to be the health and nutrition claims that increased the most.
For example, the "all natural" claim on store brands was on about 7 percent of all labels in 2009 but increased to 11 percent in 2011. For one example, Safeway introduced its Open Nature Bratwurst Chicken Sausage, which is 100 percent natural. It is made with poultry that is vegetarian fed and raised without antibiotics. Wegmans Food Markets used its functional Super Pasta to develop a new shelf-stable macaroni and cheese. It's in the category called "Wegmans Food You Feel Good About."
The purpose of this article is not to provide a long list of store brand label claims, but to sound a warning to branded companies that they have a new, more aggressive competitor. It is also to remind private label manufacturers that they have to continue to up their game as well.
What are the strategies to compete against the new store brand competitor? There are a lot to choose from, but doing the same old thing may not work.
The first step is to put the store brands on your competitive radar. Since the sales are dispersed across multiple stores, they often are overlooked. Also don’t include "store brands" as a single competitor but list each individual store brand. Remember the words of Napoleon, "It doesn’t matter how many troops you have, it only matters how many are at the point of attack." This of course gives the advantage to the retailer.
One alternative is to use a defensive flanking strategy and start making store brands. The objective is not to make "big profit" from the products but to block other manufacturers who will be asking for your shelf space once they have a relationship with the retailer. Remember a defensive strategy is focused on the strategy objective and not just how much money it makes.
Another strategy is to outflank them. Find uncontested markets (or at least less contested markets). As the number of grocery store consumer visits goes down, branded companies can create products perfect for drug stores, dollar stores, convenience stores and club stores (and I am not talking about wrapping two packages together).
And don’t forget Amazon and the other online grocery stores. Will they be developing their own brands, or can you help them understand the value of your brands? Have you ignored TV channels such as HSN or QVC? Have you seen the number of food products they sell? Have you considered these channels?
Be sure you re-examine all of your strategies and procedures to make sure they are consistent with objectives of the alternative channels. Are your minimum shipping sizes designed for supermarkets or are your product sizes consistent with buying habits of the alternative channel consumers?
There are more strategies than I can write about here but times have changed and the branded companies need to up their game, because store brands are upping their game quickly. Someone asked me when should they begin, and I reminded them that Noah started to build the Ark before it started to rain.
There will be one big winner in the branded/private label wars: the consumer. The more intense competition will encourage more innovation and more targeting of market segments. For example, store brands have significantly increased their presence in the kosher, vegan and lactose-free submarkets. It should lead to more flavors, more varied packaging and more alternative retail markets. And more satisfied consumers!