A ‘prime’ opportunity

The increasing shopper interest in newer cuisines and healthy eating is creating powerful growth opportunities for store brands.

While many consumers perceive private brands to be lower-cost alternatives to national selections, more retailers are now targeting a wider range of shoppers by launching innovative and higher-end specialty, gourmet and premium items.

Such products typically have higher margins and can function as powerful magnets to draw new shopper segments to outlets. Attractive elements include trendy flavors such as Mediterranean, Middle Eastern and Asian selections, as well as items that are locally sourced, sustainable and have cleaner labels.

“Offering the same things as everyone else won’t get a retailer anywhere,” says Jim Wisner, president of Wisner Marketing Group Inc., a Libertyville, Ill.-based consumer research, consulting and education firm. “There is a need to create products that will generate greater customer loyalty.”

That includes offering higher-tier, health-oriented selections such as items that are gluten-free, organic and non-GMO, as well as premium products that go beyond the national brand equivalent, says Carol Spieckerman, president of Spieckerman Retail, a Bentonville, Ark.-based retail strategy firm.

“Private brands are seizing upon consumer trends and, in some cases, going after the trends before the national brands,” she states. “The old model was for private brands to be slow followers and then fast followers. But in many instances they are now leading the charge.”

Keep the customer

Offering specialty private brands such as natural and organic items, meanwhile, can boost total store revenues by enabling shoppers to do their entire grocery shopping in one location, notes Diana Sheehan, director of retail insights at Kantar Retail, a Boston-based retail and shopper insights consultancy.

“It lowers the risk of losing the customer to other outlets … while also adding convenience by eliminating the need for consumers to make a second trip to a different store,” she notes.

The steady rollout of premium, gourmet and specialty selections is part of the evolution of private label programs, Spieckerman says.

“Most retail organizations have many years of experience running in-house brands and are becoming more efficient, nimble, agile and proactive in developing and merchandising the products,” she states. “Companies are moving into niches when before there may have just been a lot of hand-wringing.”

Indeed, the amount of private brand specialty foods in retail outlets is “growing like crazy,” Wisner says, noting that category revenues over the past decade have been increasing by double digits annually.

That expansion is likely to continue, as research by Wisner Marketing Group found that about 40 percent of shoppers say it is important that their stores offer private brands that are different or better options than other products on shelves.

“The core national brand equivalent still accounts for 70 percent of store brand volume, but that is starting to shrink,” Wisner states. “Consumers are moving to premium because it also represents value as they feel they are getting more for their money.”

Retailers that are expanding their lines of store brands to offer more specialty, gourmet and premium selections, however, face potential operating challenges.

Some companies, for instance, lack the ability and staffing to adequately source, brand, merchandise and market the higher-tier items, Wisner says.

“It requires the judgments and creative skills that have not always been core competencies of retailers,” he states.

Corporate backing is crucial

To be successful, operators also must have a chainwide commitment, starting with senior leadership, to offer and support specialty and premium items, says Scott Lindsay, president of Product Development Plus Inc., a Toronto-based developer of private brands.

“If the organization isn’t fully prepared, the retailer could have a costly failure to clean up,” he states. “The private brand strategy needs to align with and support the retailer’s corporate mission. The brand team must understand as much about its target consumers as possible and develop a proposition that will resonate with them.”

Unlike basic private label assortments, which attract many price-conscious shoppers, the upperend selections must appeal to consumers seeking quality and typically warrant more promotions and advertising, Sheehan notes.

A further consequence of launching specialty, gourmet and premium private brands is the prospect of diminishing shelf space for national brands, which could make those product suppliers hesitant to offer retailers their latest selections, she states.

“National manufacturers may pull back on promotions and bring fewer items to stores if they are not getting the necessary lift,” Sheehan says. “They may not see the need to replace products that are performing well with something new.”

Deciding on the optimal specialty, gourmet and premium selections to carry, meanwhile, can be tricky as retailers in different locations often have widely diverse customer bases and competitors.

“Offering the proper mix of products is always contextual and it involves considering the other brands already in the retailer’s product portfolio, including national selections, as well as the identity of the store and what consumers expect,” Spieckerman says. “In some cases, introducing premium store brands is ill-advised if it will create confusion, while in other instances it can be a real opportunity.”

Give a nod to non-foods

Food items are typically the simplest store brands to develop and likely will generate the greatest returns, Wisner notes. What’s more, suppliers seeking to launch higher-end non-food store brands, for instance, can face patent barriers that prevent them from leveraging the necessary production technologies, he states.

Because many consumers also view non-food private brands as staples, “retailer investment in such products is less of a concern to them,” Sheehan states.

The exception involves outlets where retailers position non-food store brands as points of differentiation, including items in the health and beauty sections of drug stores, she adds.

Indeed, private brand medications already are a prime focus of consumers.

In a February 2016 Kantar Retail online survey of 4,000 primary household shoppers, 44 percent of respondents indicated that they had purchased a private brand over-the-counter item the last time they bought from the category.

Other non-food sectors, however, appear to have less potential for dominant premium private brand activity The Kantar Retail survey revealed that just 38 percent of respondents purchased a store brand household paper product when last shopping the category, as did 15 percent of soap/body wash shoppers, 14 percent of skin care purchasers, 9 percent of hair care product buyers, 8 percent of pet food customers and 7 percent of baby care consumers.

Yet, because 61 percent of respondents noted that they are willing to spend more on a brand that they trust, retailers with popular private label programs are in a stronger position to prosper from the higher-end selections.

“Consumers across the store are moving toward more premium, gourmet and different types of products that apply not only to food but to nonconsumables as well,” says Jordan Rost, vice president of consumer insights for Nielsen, a New York-based market research firm.

There is an opportunity for retailers of store brands to take “what might be an outdated view of what a private label can be and modernize that” by instilling confidence in higher-quality and premium private brand items, he notes.

Though store brands are losing share to national brands in some product categories, Rost states, premium, gourmet and healthful private brands are expanding in different sectors.

“I’m not sure private label has been able to capture as much as a lot of retailers would like,” he adds. “But that’s the big opportunity — figuring out how to bridge that gap and start to appeal to some of those consumers.”