The consolidation reality
The past few years have brought with them a number of significant mergers/acquisitions within the consumer packaged goods (CPG) retailer space. On the private brand front, retailer consolidation brings with it both advantages and challenges to the companies involved. And it calls for action on the part of small- and mid-sized retailers to ensure they remain competitive here.
The upside
As some retailers grow larger via mergers and acquisitions, they have the opportunity to benefit from economies of scale on the store brand side, although many large retailers already have “good procurement practices,” notes Jim Hertel, senior vice president of Long Grove, Ill.-based Willard Bishop, an Inmar company.
Lauren Beitelspacher, assistant professor at Babson College, Wellesley Mass., agrees that cost savings represent an advantage. “Merging private label production can add some operational efficiencies that can lead to additional cost savings to the consumer, as well as revenue to the retailers,” she says.
Larger retailers also could potentially add to in-house product development and marketing expertise to “take additional control over product direction,” Hertel adds, an advantage that is especially important to development within the premium space.
Retailers that become big enough also are able to hire brand development people and perhaps even add a culinary center, notes Jim Wisner, founder and president of the Wisner Marketing Group Inc., Libertyville, Ill. And they could invest more resources in packaging and consumer research.
Sometimes consolidation gives a retailer the chance to implement a private brand strategy for the first time, too, notes Scott Headington, partner and assistant vice president with global Cognizant Business Consulting and the company’s retail and consumer products North America practice leader.
“With the addition of new store banners through an acquisition, retailers can implement a private label strategy in new geographies, enhancing market share in a given category and broadening brand presence and recognition,” he says.
The downside
Consolidation can also bring some private brand challenges to the now-larger retail companies. As Wisner points out, “things always slow down” during the transition process.
“It creates some disruption certainly with some of the manufacturers because they have to deal with packaging changes, reconciling specifications and that sort of stuff,” he says.
The slowdown can be blamed on the increased complexity of the supply chain. But Chris Morrison, chief marketing officer of private label for Trace One, Boston, notes that a growing number of technology solutions could help large retailers better manage supply chain risks and “create a more cohesive supply chain.”
And consumer confusion or dissatisfaction also is a possibility, Beitelspacher adds. For example, consumers might not be too happy if a merger or acquisition changes or reduces their private brand options.
“It can take time to attract consumers, build brand awareness and brand loyalty, especially in a new geography,” Headington adds.
Call for action
But small- and mid-sized retailers forced to compete with the mega-retailers resulting from consolidation do have an opportunity to “fight back” and continue to succeed within the store brand arena. One advantage they have is that they can move faster than bigger retailers, Wisner says.
He believes these retailers also have an opportunity to “aggressively differentiate” themselves in perishable categories such as produce and local products. And packaging innovation also presents an opportunity.
“Small retailers can present a ‘This was made exclusively for us’ strategy that large retailers would have a difficult time pulling off authentically,” Beitelspacher adds.
Yet another advantage that small- to mid-sized retailers could tap into is their tendency to really know their customers, Hertel notes.
“They have good access to their shoppers’ needs and wants,” he says. “Their challenge is to gather those insights, turn them into products that have unique appeal to their shoppers and get them to market quickly. It’s easier said than done.”