The many reasons to invest in private brands
Jim Wisner began his seminar by sharing his bullish views on private brands for the next few years.
“We’re starting to get into a ramp-up phase, and I think it’s going to be really exciting,” said Wisner, the president of Wisner Marketing, during a workshop on Nov. 12, the opening day of the Private Label Manufacturers Association’s Private Label Trade Show in Rosemont, Ill. “Store brands are now more popular than national brands.”
And then Wisner, a former vice president of Jewel-Osco, Shaw’s and Topco Associates, gave even more good news about store brands and reasons why manufacturers and retailers should invest invest in them.
Store brand sales simply return higher gross margins per unit profits, including a 67 percent higher average gross margin, Wisner said. Store brand sales also free up capital for retailers to invest elsewhere, he noted.
“On a comparable unit cost basis, inventory investment is significantly lower [with store brands],” Wisner said. “Each shift of a sale reduces capital costs and improves return on investment.”
While private brands can cost a lot to develop — considering brand development, procurement, quality insurance, packaging, design, marketing and other factors — the cost of managing a store brands program are typically only about 1 to 2 percent more or less of store brands sales at cost, Wisner pointed out.
By the numbers, store brands can generate a 63.7 percent return on capital investment compared to 26.6 percent for national brands, Wisner said.
Store brands can also save each household an average of $714 a year and an average household with kids $969 a year, according to Wisner. Those numbers are even higher for households that are heavy buyers of store brands.
Assuming that those same households spend half of the money saved on more store brands, retailers can realize an additional $1.2 million in sales annually, including about $278,000 additional margin per store, according to Wisner.
While store brand sales are often assumed to be higher among lower-income earners, Wisner pointed to statistics that counter that thinking. Those who earn $20,000 to $29,000 annually, spend about $721 on store brands compared to $785 for those who make more than $100,000 annually.
Wisner cited Daymon research that says 36 percent of consumers are likely to make special trips to stores to buy a retailer’s own brands.
Wisner stressed that retailers need to use store brand programs as an investment.
“Private brands will not maintain share or grow without an appropriate level of promotional investment,” Wisner said. “There must be a measured funding strategy to build private brands. I’m surprised by so many retailers I talk to that don’t budget for store brands.”
Private brands are getting their “fair share” of promotion in only 43 of 241 subcategories, according to recent research that Wisner supplied.
“If we wish to achieve a 25 percent private brand penetration, then doesn’t it make sense that 25 percent of a [retailer’s] items, the facings on [retailers’] shelves, the displays in-store and the space in [retailers’] ads should be allocated to [retailers’] own brands?” Wisner asked.