Retail pressures driving private brand growth
The Private Label industry now represents $1 of every $6 of spend in the United States and poses a significant opportunity for retailers to drive margin, differentiate products and serve consumer’s wide and changing tastes. And according the new 2015-2016 Private Label Sourcing Survey from New York-based Deloitte, several trends are spurring private label growth, including retailers' desire to create lower-priced alternative at equivalent quality, to stablish exclusivity and differentiation, to build a price-fighter brand in a category, to control manufacturing to create a higher quality product, and to defend bargaining power against national brands.
But retailers are feeling a diverse set of sourcing pressures related to cost, quality and speed to market. The three top pressures retailer survey respondents pointed out are raw material cost increases and/or volatility, demand for increased speed to market and evolving product trends causing shifts in consumer demand, Deloitte stated. The company interviewed almost 400 grocery, general merchandise and apparel retailers for the survey, which builds on the company's inaugural 2013 Private Label Sourcing Survey.
Within grocery, raw material cost pressures were most concerning to retailers, followed by consumer interest in environmental and socially sustainable products, evolving product trends causing shifts in consumer demand, and energy price volatility. Overall, the rising pressure to address speed to market and supply chain integrity considerations might indicate the beginning of a shift for private label, particularly as consumers are demanding products faster and with increased exposure to the sourcing process and integrity, Deloitte said.
Given the continued importance of cost pressures, Deloitte asked respondents to highlight issues that are driving raw material cost increases, energy price volatility and rising production labor wages. Despite recent global declines in fuel costs, transportation continues to be the top pressure for raw materials. Meanwhile, increased cost of living and employee turnover are top drivers for rising production labor costs, Deloitte added.
To combat cost pressures, retailers are pursuing strategies that have the effect of driving closer, more collaborative relationships with manufacturers. Currently, they are working to enhance quality assurance programs; engaging in innovation, product design and R&D collaboration with their vendors, and using advanced planning and scheduling, Deloitte said. However, as they look to the future, retailers are interested in reshoring production to domestic vendors, aligning metrics and systems to foster supply chain partner collaboration, and implementing vendor performance management.
Pursuit of these strategies has the potential to significantly alter the private label sourcing landscape. For example, retailers might place bigger bets on fewer manufacturers, Deloitte said. Many of these strategies require an upfront investment in return for payoffs that include lower production costs, greater manufacturing flexibility and turnaround time, and more visibility to quality and ethical sourcing practices.
To read the in-depth survey findings, visit http://www2.deloitte.com/content/dam/Deloitte/us/Documents/consumer-business/us-cb-private-label-2015-2016.PDF