Learn From The Best

By Barry Berman, Ph.D.

I recently studied the retail strategies of several world-class retailers to identify shared strategies that every retailer can use to drive performance improvement. The firms I identified include six food-based retailers © an extreme value merchant (ALDI), two specialty food retailers (Trader Joe's and Whole Foods Market) and three traditional supermarkets (Publix, Stew Leonard's and Wegmans) © as well as one warehouse club (Costco Wholesale) with significant food sales. I chose these firms based on their consistent financial performance (for example, Trader Joe's and Stew Leonard's sales per square foot have been estimated at $1,750 and $3,750, respectively), as well as their high employee and customer satisfaction scores on accepted measures.

These retailers share two major elements with respect to their private label strategies. First, they take the role of a purchasing agent for their consumers as opposed to a selling agent for their suppliers. Second, they have worked hard to develop and maintain a "feel-good" perception among consumers.

Consumer-focused

All of the studied retailers take an active part in the development of their store brand products, as evidenced by their involvement in extensive consumer research. This is in contrast to a selling philosophy where the retailer simply contracts with a manufacturer to make a private label product and then promotes it.

Category managers at many of these studied retailers more closely resemble product managers at branded manufacturing companies such as Heinz and Campbell because of their high involvement with initial and subsequent taste-testing of recipes and ingredients. Often, they require products to go through multiple taste tests and revisions before they are placed into their stores.

Although private label products typically have been sold on the basis of price, many of the studied retailers are more concerned with developing store brand products based on taste, quality and freshness appeals. This process ensures quality is always tantamount to price issues. Products that do not meet these retailers' strict quality-based criteria are not considered, regardless of their low price or potential profitability.

A 'feel-good' perception

Too often, private labels have weak levels of emotional distinctiveness among consumers. In contrast, the food-based retailers I studied have established and maintained an image among consumers as the ever-watchful "editor" of a selection of merchandise.

These firms constantly look out for their consumers by offering products that are healthful, are environmentally sound and/or make the purchaser generally feel good about serving them to his or her family. The pervasive feeling among consumers is that the retailer is looking out for their best interests.

Two ways food retailers can build this "feel good" perception are through co-branding and by telling a "story" about what makes one's products unique.

For example, Costco now has at least a dozen co-branding initiatives with its Kirkland Signature brand and Starbucks coffee, Newman's Own products, Jelly Belly candy, Quaker Oats cereal and more. When Costco co-brands with such upscale suppliers, it makes sure that its co-branded merchandise is sold at lower prices than comparable merchandise, but still offers a comparable quality.

Story-telling around a product is another way of communicating with consumers. Such stories can be based on a product's ingredients (natural), sourcing (a local farmer), recipe (a 100-year-old secret recipe) or health characteristics (low salt).

Trader Joe's clearly excels in this area by providing such information, in an entertaining format, through its quarterly Fearless Flyer newsletter and its website. The 12- to 20-page Fearless Flyer contains irreverent descriptions of new and existing products with Victorian-era cartoons. Central to the Fearless Flyer strategy is a focus on stories that "foodies" want to read, as opposed to just a low-price message.

Barry Berman, Ph.D., is the Walter H. "Bud" Miller Distinguished Professor of Business at Hofstra University in Hempstead, N.Y. He is co-author of Retail Management: A Strategic Approach, 11 Edition (Prentice Hall), and author of Competing in Tough Times (Financial Times Press, 2011).

Story-telling around a product is another way of communicating with consumers.