Last year at this time, most everyone in the private brands industry was talking about Seattle-based Amazon.com’s acquisition of Austin, Texas-based Whole Foods Market and how the merger would change the grocery industry for years to come, especially in e-commerce where Amazon.com captured 44 percent of all U.S. online retail sales in 2017. Plenty of people were also talking about Lidl’s expansion into the U.S. The Germany-based retailer set up U.S. operations in Arlington, Va., with the goal of opening 100 U.S. stores by mid-2018. Industry pundits predicted that Lidl, which offers a 90 percent assortment of private brands, would open hundreds of stores in the U.S. in the next few years.
Amazon.com’s purchase of Whole Foods Market and Lidl’s landing in the U.S. were two of Store Brands’ top 10 stories last year. The expectation then was that Amazon.com/Whole Foods Market and Lidl would galvanize the private brands industry in 2018 and for years to come. The belief was that competing retailers had better get their houses in order to compete with Amazon.com/Whole Foods Market in e-commerce and with Lidl by upping their store brands programs to differentiate.
But a year later, Amazon.com/Whole Foods Market is not dominating the grocery industry, and Lidl’s expansion in the U.S. has stalled. Meanwhile, many competing retailers have reacted with impressive e-commerce programs and the introduction of exclusive store brands, and the grocery industry is more competitive than ever.
As in 2017, Amazon.com/Whole Foods Market and Lidl are two of our top stories for 2018. But for much different reasons than a year ago.
Here’s our list of the top 10 stories of the private brands industry this year:
1. Amazon and Whole Foods Market aren’t ruling grocery or private brands
It has been almost 1.5 years since Amazon.com officially took over Whole Foods Market after purchasing the retailer for $137 billion in cash. At the time, some industry pundits made it sound like Amazon.com would soon take over the grocery industry — much like the evil Thanos taking over the universe in the summer blockbuster movie “Infinity War” — after it acquired the natural and organic foods retailer. Some industry insiders made it sound like Walmart, The Kroger Co., Albertsons Cos. and other grocery retailers would meet a doomed fate at the hands of Amazon.com Founder and CEO Jeff Bezos.
After the acquisition, grocery stocks dropped like a sack of potatoes. Panicked investors sold their shares in Walmart, Kroger and other retailers. But fast-forward to now. The grocery industry has changed, yet Walmart, Kroger and other retailers are going strong.
If anything, Amazon.com’s acquisition of Whole Foods Market lit a fire under other grocery retailers to react, which several of them have done. Just look at the online businesses of Walmart and Kroger, the nation’s top two grocery retailers, which are flourishing. They are investing heavily in online ordering and free grocery pickup as well as home delivery.
Retailers in general are also using their private brands programs to differentiate. They are making investments in premium private brands to offer exclusive products they know their customers can’t get anywhere else.
Last January, private brand consultant Todd Maute, a partner with New York-based brand agency CBX, told Store Brands his “gut feeling” is that that Amazon doesn’t want to rule the grocery world. But ruling the retail world is another matter.
“As Amazon continues to expand into more and more categories … that is where I think Amazon will rule the world,” Maute said. “I think Amazon is just going to continue to go after one segment of business after another.”
Maute’s point is that Amazon.com wants a sliver of the $800-billion grocery pie, not the whole pie.
In a recent story on CNN.com, reporter Nathaniel Meyersohn pointed out that “the impact of [Amazon.com buying Whole Foods Market] has been overblown.”
So far, it has.
From a brick-and-mortar standpoint, Whole Foods Market, with 470 stores, has a lot of building to do to catch Walmart, which has more than 4,300 stores. And brick-and-mortar stores aren’t going anywhere as long as retailers continue to adapt to their customers’ needs.
That’s not to say Whole Foods Market isn’t growing. Its same-store sales have grown about
3 percent since being owned by Amazon.com. and will continue to grow. But a year after Amazon.com’s acquisition of Whole Foods Market, it’s clearly not the end of the grocery world as we know it.
That said, a year isn’t a long time, especially when it comes to such blockbuster transactions. Amazon.com only recently finished up loading Whole Foods Market’s private brands on its online platform. Amazon.com is also giving its Prime members good deals on the products online and in Whole Foods Market stores. And you more strategies to increase business are coming.
It will be intriguing to see what the next year brings.
2. Lidl struggles. What’s next?
Lidl came out swinging in the summer of 2017 and quickly opened about 25 stores on the East Coast. Lidl’s arrival was marked by much fanfare in the trade and mainstream media. Industry pundits touted the Germany-based retailer’s low prices and quality selection of store brands.
But the honeymoon ended quickly when Lidl began being criticized for underperforming stores. Then, the pundits pounced even more, chiding Lidl for its poor selection of store locations, and for stores that were too large and expensive to operate.
Shortly after, Lidl scrapped or delayed plans to build several stores. Its goal to open 100 stores by mid-2018 fell short by more than 40.
In May, the proverbial private brand pasta hit the fan when Lidl replaced its CEO in the U.S., Brendan Proctor, with Johannes Fieber. No reason was given for Proctor’s departure.
In June, Lidl issued a report by Boston-based consulting firm Oliver Wyman saying that younger consumers have taken a liking to the retailer, especially its private brands and low prices. Younger shoppers — aged 18 to 34 — had a particularly high awareness of Lidl and shopped there frequently, according to the survey, which also noted that 48 percent of 600 consumers who tried Lidl are now shopping there more than twice per month.
Industry analyst Mike Paglia calls Lidl a “disruptor,” which is as fine a compliment as you can give a grocer. Paglia is especially impressed with Lidl’s 90-percent assortment of private brands.
“Lidl is challenging the conventional notion of private brands, which is if you want to get low prices you have to be willing to sacrifice quality,” Paglia told Store Brands earlier this year. “That has been the unwritten rule of private label from a shopper perspective. Lidl is saying that doesn’t have to be the case. You can get both low prices and high quality.”
Much of the news about Lidl in 2018 centered on its growth. Industry insiders speculated that Lidl would open hundreds if not a few thousand stores in coming years. Then those same speculators backtracked, which posed a negative light on Lidl. In fairness to Lidl, the retailer never announced how many U.S. stores it planned to open beyond 2018.
“Overall, I think Lidl is off to a good start,” Paglia added. “But that doesn’t mean there isn’t room for improvement in the long run.”
Will Harwood, Lidl communications director in the U.S., said the retailer sees much opportunity for growth in the U.S. and looks forward to moving into new markets. Harwood emphasized that Lidl is taking an “agile and adaptive” approach to store openings.
“We are looking forward to building on the progress we have made,” he said.
2019 could be a pivotal year for Lidl.
3. Kroger’s Simple Truth tops $2 billion in sales
The simple truth is it will be etched as “extraordinary” in the private brands history books.
We’re talking about The Kroger Co.’s Simple Truth and Simple Truth Organic private brands, released in September 2012. In January, Cincinnati-based Kroger announced the lines had achieved a whopping $2 billion in sales.
Simple Truth products are free from 101 artificial preservatives and ingredients. Simple Truth Organic products are certified organic by the U.S. Department of Agr.iculture. Kroger didn’t just roll out the lines to jump on the free-from ingredient and organic bandwagon in 2012. Listening to its customers, Kroger addressed concerns about free-from and organic products, beginning with price.
“There’s a general belief in the marketplace that organic means more expensive,” said Mary Ellen Adcock, Kroger’s vice president of natural foods at the time (she is now group vice president of retail operations), in a press release announcing Simple Truth and Simple Truth Organic. “While organic products are available in most conventional grocery stores, our customers told us that labels can be confusing. We understand these challenges, so we’re offering our shoppers the Simple Truth Organic brand — an easy, more clearly labeled and affordable way to buy organic products.”
In 2012, Simple Truth and Simple Truth Organic consisted of about 250 products. That has ballooned to more than 1,400 products across multiple categories, including grocery, meat, produce, deli, bakery, baby, household essentials, personal care and Fair Trade Certified.
“Here’s Simple Truth in a nutshell: Natural and organic foods that are affordable,” Gil Phipps, Kroger’s vice president of branding, marketing and Our Brands (Kroger’s private brands), told Store Brands earlier this year.
The success of Simple Truth and Simple Truth Organic is not lost upon Carl Jorgensen, director of global thought leadership/wellness for Stamford, Conn.-based Daymon, which provides retail strategies and services to help retailers grow their private brands. Jorgensen calls Simple Truth the most successful private brand launch in the history of the grocery industry.
When Kroger introduced Simple Truth and Simple Truth Organic, it did so behind an integrated marketing campaign involving both in-store and online components. In-store communications included branded shelf signs, stanchions in produce and meat sections, and front-of-store standees and banners in more than 2,200 Kroger stores. Online elements included a Simple Truth website (www.simpletruth.com) and a social media presence on Facebook, Twitter and Pinterest.
Kroger went all out to promote its new brand, something that was also different for a private brand in 2012, Jorgensen said.
“[Kroger] got behind the brand, which was the opposite of the old practice of launching and leaving it in private brands,” he added.
Kroger is also taking Simple Truth to China — it will sell the line’s products there on an e-commerce site owned by Alibaba Group Holding Ltd. In August, Kroger announced it will open an online storefront on Alibaba’s Tmall global site, a platform for international brands. Launched in 2014, Alibaba’s Tmall Global platform is China’s largest business-to-consumer marketplace for China’s consumers.
Kroger’s online store test will start with select Simple Truth items, providing Alibaba’s more than half a billion Chinese consumers with easy access to the products.
Something tells us that $3 billion in sales for Simple Truth will come sooner than later.
4. Store brands in the limelight
The spotlight shined on store brands in 2018, whether it was local television stations interviewing shoppers about their willingness to purchase more private brands or stores themselves promoting their own brands with more fervor. Whatever the case, store brands definitely received more clout in 2018.
Consider Batavia, Ill.-based Aldi, which won several awards in Store Brands’ 2018 Editors’ Picks Awards, a program that recognizes the best new product concepts available for private branding. Aldi, realizing the chance to differentiate, wasted no time in merchandising and promoting those winning products in its stores with the 2018 Editors’ Picks Awards logo.
Earlier in the year, Store Brands reported that consumers might be filling their shopping baskets with private brands more in 2018. This has definitely occurred, with several reports from market researchers touting store brand growth. In June, when Kroger announced its first-quarter earnings, the grocer also announced it had achieved the highest-ever dollar share in the history of its Our Brands, which made up 28.7 percent of unit sales and 26.7 percent of sales dollars, and achieved 5.1 percent sales growth and 3.4 percent unit growth.
Aldi’s continued growth (the deep-discounter will expand from 1,600 to 2,500 stores nationwide by the end of 2022) hasn’t only heightened competition among grocery retailers, it has also increased awareness of private brands.
“Any retailer that puts that much emphasis on its private brands program lends itself to driving stronger consumer awareness,” Doug Baker, vice president of industry relations, private brands and technology for the Food Marketing Institute, said earlier this year.
The retailers that have made strides by offering private brands that focus on quality products at a low price, including Aldi and Monrovia, Calif-based Trader Joe’s, have already impacted the popularity of store brands and will continue to do so, Baker added.
“As these retailers continue to grow their private brands programs and deliver quality goods and a good experience with products, they continue to improve the consumer trust in those products and therefore have created a halo effect,” Baker said. “If I’m a strong private brand user from one retailer and I go to another retailer, I’m more willing to try that retailer’s private brands because I have had a good experience with the private brands I’ve purchased.”
The resurgence of private brands is not a fad. The fact that consumers are embracing private brands in an upbeat economy — not just in dour financial times as in previous eras — is evidence that store brands are being viewed for their quality, innovation and exclusivity, not just their low prices.
5. A case of the haves and have-nots
If there was a resounding message from Daymon’s “Private Brand Intelligence Report 2018,” it was that store brands are as popular among consumers as they have ever been. However, there is clearly a case of the haves and have-nots regarding the success of retailers’ store brands programs, according to the report.
Daymon estimated that in-store and online sales of private brands from traditional grocers, deep discounters, mass merchandisers, convenience stores and other retailers increased 4 percent in 2017 — eight times more than national brand sales. Private brands contributed an estimated $50 billion in margin to retailers’ sales in 2017, an increase of $2 billion since 2016.
The haves, which Daymon calls best-in-class retailers innovating on many facets of store brands, are flourishing and achieving an average of 32 percent in private brand share of total dollar sales. But when the have-nots — retailers content with simply offering national brand equivalents and lesser store brands — are added to the equation, the industry average of private brand share of total dollars sinks to 17 percent. The retailers deemed best in class — based on consumer perception of private brands, shopper loyalty, breadth of store brand assortment and other factors — have almost double the penetration rate compared to the retailers lacking the designation.
“The best-in-class retailers have figured out something that [other retailers] haven’t figured out,” Jim Holbrook, Daymon’s former CEO, said in February. “It comes back to differentiation.”
Retailers need to build categories based on their offering of private brands and then fill in the gaps with brand-name products, not the other way around, Holbrook explained. The best-in-class retailers, of which there are about a dozen, are doing this but other retailers are not.
“The retailers that want to hang on to the emulation products and the national brand equivalents will not only fall further behind, they will go out of business,” said Holbrook, who is now an advisor for Advantage Solutions, which owns Daymon.
“This really is a defining moment. We believe that you can evaluate a retailer’s overall health just by looking at its private brands. If it has a weak private brand offering, [that retailer is] in trouble.”
6. We just can’t stop talking about millennials
A lot of people — including millennials themselves — are tired of hearing about millennials and private brands. But as Don Stuart said during a seminar at the Private Label Manufacturer Association’s Annual Meeting & Leadership Conference last March, millennials will play a pivotal role in the “boom or bust” of private brands in coming years. They can’t be ignored.
Stuart, managing partner of Wilton, Conn.-based Cadent Consulting Group, believes private brands are sitting on the cusp of a major boom. So do a lot of people. In fact, when Stuart asked the 200 or so attendees of his seminar at the conference to raise their hands if they thought store brands would be booming in the next five years, almost all hands went up. Zero hands were raised when Stuart asked who thought private brands would be a bust.
Stuart and his firm have been studying private brands closely and crunching numbers along the way. While many reports say that “most” millennials are open to purchasing private brands and are brand agnostic, Stuart believes that number is closer to half of millennials, about 51 percent. But that number is still significant, considering that only 39 percent of baby boomers are open to purchasing private brands, he added.
“That’s 12 percent, which makes a difference in the share shifts,” Stuart stressed.
Stuart also noted there will be 15 million more millennials than baby boomers in the next 10 years simply because baby boomers will be leaving this world. So the the share shift factor that Stuart talks about looms even larger. The more millennials, the more chance there is they will purchase private brands. The fewer baby boomers, the less chance there is they will purchase national brands. So you can see where Stuart is coming from.
“All of a sudden, there are those coin flips that could go store brands’ way because branded products don’t mean as much to millennials,” Stuart said.
The perimeter of the store is another factor. Retailers realize they must grow the store perimeter with more fresh private brands because the center store is shrinking and that space must be accounted for. Guess what? Millennials love fresh products. Another score for potential private brands.
Of course, retailers and manufacturers must continue to decipher what millennials want in terms of food and non-food items, which can be a moving target. But it’s clear that millennials prefer organic and free-from products, which is where retailers and manufacturers are already putting much focus.
7. Publix and politics
Publix Super Markets made Time magazine. But not like the Lakeland, Fla.-based supermarket chain wanted to make Time magazine.
In the June 11 issue of Time, a photograph spanning two entire pages depicted a “die-in” protest at a Publix supermarket in Coral Springs, Fla., organized by David Hogg, a survivor of the Marjory Stoneman Douglas High School shooting in Parkland, Fla. A die-in is a demonstration in which people lie down as if dead. Hogg, now a gun control activist, rallied others to protest Publix’s support for Florida gubernatorial candidate Adam Putnam, a stout supporter of the National Rifle Association (NRA).
What does this have to do with store brands? Plenty.
As store brands evolve and become more than just creating and selling tangible private brand products, retailers are trying to make a good name for themselves through excellent customer service and other non-tangible measures to improve their own brand images. But they might want to stay out of politics.
Publix made national news after the Tampa Bay Tribune reported in May that the Lakeland, Fla.-based grocery chain donated $670,000 in the last three years to support Putnam’s campaign. The Republican politician said last year that he was proud to be an “NRA sellout.”
Of course, the acronym “NRA” is a sizzling hot potato these days, especially in Florida, mainly because of the heartbreaking school shootings that have occurred throughout the country, including last February at Stoneman Douglas High School, where 17 people died. Don’t forget the 2016 shooting at the Pulse nightclub in Orlando, where 49 people were killed.
Publix operates most of its 1,160 stores in Florida. In the wake of the Tampa Bay Tribune’s report — when Publix began to be criticized for supporting an NRA proponent — the retailer said it was supporting Putnam for his “pro business values,” and made it clear it was donating money to Putnam, not the NRA. It’s a point well-taken, but it didn’t seem to resonate with everyone.
Soon after the news hit, there were calls to boycott Publix through social media and other mediums, including the die-ins organized by Hogg, which occurred at several Publix stores.
Opposing politicians also jumped in. State Rep. Carlos G. Smith, a Democrat from Winter Park, Fla., tweeted: “How many flowers did I buy from your stores for funerals, graves, + memorials for Pulse + MSD victims? #BoycottPublix”
Realizing it had a potential public relations nightmare on its hands, Publix issued a statement saying it was suspending corporate-funded political contributions and was going to re-evaluate its giving processes. Publix also said: “We respect the students and members of the community who have chosen to express their voices on these issues. We regret our contributions have led to a divide in our community. We did not intend to put our associates and the customers they serve in the middle of a political debate.”
Being a private company, Publix can support any political leader or political issue it wants. Publix, in fact, has supported Putnam for more than 20 years and nobody ever seemed to care. But this was a perfect storm of sorts, with gun control serving as the lightning rod.
8. Placing a premium on premium
The top retailers realize they need to take their store brands programs up a notch. They know that name brand equivalent products just don’t cut it anymore. They realize the relevance of premium authentic private brands as a way to differentiate — and make money.
According to market researcher Nielsen, sales of private brands eclipsed $125 billion across traditional retail, thriving at plus 3 percent in dollar sales year-over-year with premium private brands bringing 10 percent dollar growth.
The Kroger Co., Sam’s Club and Trader Joe’s are three fine examples of retailers embracing premium authentic private brands. So are Albertsons Cos. and ShopRite, which introduced such programs this spring.
“These brands can be pre-emptive in many ways, and consumers view them in an entirely different light than they traditionally have viewed store brands,” says Jim Wisner, a private brand consultant and president of Libertyville, Ill.-based Wisner Marketing.
Wisner calls Kroger’s HemisFares a “watershed” private brand for its authenticity. HemisFares is billed as “a journey of epicurean proportions.”
Last year, Bentonville, Ark.-based Sam’s Club announced the revamping of its Member’s Mark private brand line, which includes several authentic products. Members of Sam’s Club private brand team literally combed the globe — from visiting olive and tomato farms in Italy to wine orchards in France and to a smokehouse in East Texas — to procure the best ingredients and processing methods to create new products and improve existing ones for the line.
Trader Joe’s is also making a name for itself behind its authentic private brands by sourcing products and ingredients from countries where they originate.
Last spring, Keasbey, N.J.-based ShopRite, which has more than 270 stores in New Jersey, New York, Connecticut, Maryland, Delaware and Pennsylvania, debuted the ShopRite Trading Company, a line consisting of premium, artisanal foods that the retailer says is inspired by a variety of world cuisines. Around the same time, Boise, Idaho-based Albertsons introduced Signature Reserve, a line of products for consumers “who are obsessed with the exceptional,” according to the retailer.
“We scour the earth for ingredients and unique flavors that meet the exacting standards of Signature Reserve,” Geoff White, Albertsons’ president of Own Brands, said in a press release announcing the line. “Products earn the Signature Reserve label only after a rigorous selection process, which includes scrutiny by our culinary professionals and expert merchants for top quality craftsmanship.”
More retailers are scouring the planet to discover and scrutinize foods and ingredients in an effort to raise the bar for their store brands. It is what store brands are becoming because retailers realize what it is that will keep consumers coming back to their stores.
9. Ahold Delhaize USA is born
Ahold Delhaize USA was officially created on Jan. 1 from the merger of Ahold USA and Delhaize America to form the nation’s fourth-largest grocery retail group. Its supermarket chains include former Ahold USA chains Stop & Shop (based in Quincy, Mass.), Giant Food (Landover, Md.) and Giant/Martin’s (Carlisle, Pa.), and former Delhaize America chains Food Lion (Salisbury, N.C.), Hannaford (Scarborough, Maine) and Peapod (Chicago). The merger also led to the creation of Retail Business Services, a new services company to drive synergies and provide services for the chains, including for private brands.
Juan De Paoli, one of the industry’s top talents, was named the senior vice president of private brands of Retail Business Services. De Paoli, previously the senior vice president of brand management and own brands for Ahold USA, was charged with putting together a team to combine and oversee the company’s private brands program and strategy.
“It has been the most rewarding experience of my career and one that I don’t know if I will ever experience again,” De Paoli said. “I’m beyond excited about the team we have put together. It’s an all-star team of private brand professionals.”
Ahold Delhaize USA has co-headquarters in Quincy, Mass., and Salisbury, N.C. Its supermarket chains operate more than 2,000 stores across 21 states under a variety of store formats from hypermarkets to local supermarkets and convenience stores.
De Paoli said he and the team want to grow private brands for the portfolio with products “that delight consumers and drive loyalty and growth.”
And not just any private brands. De Paoli, a seasoned industry professional who was previously an executive with H-E-B and Topco Associates in addition to holding positions with consumer packaged goods giants such as Procter & Gamble Latin America and Oscar Mayer, wants the supermarket chains’ private brand lines to be “world class” and “famous.”
“We have a saying, which is the motto of our department: We are here to perfect the expected and inspire with the unexpected,” De Paoli said.
10. ‘Eccellente’ ideas for private brands
Last May, Store Brands attended the CIBUS International Food Exhibition in Parma, Italy, on behalf of the Italian Trade Agency. CIBUS, one of the largest food shows in Europe, featured about 3,100 Italian food exhibitors, including hundreds of exhibitors that introduced new products.
No doubt that “Made in Italy” resonates with many Americans, especially when it comes to food. So the CIBUS show will remain a place to find potential and authentic Italian private brand products.
During the show, we sampled many products, from nduja to pizza. The former is a mainstream product in Calabria, Italy, and has been for nearly 30 years. But nduja — a spicy, spreadable pork salami from Italy — could be the definition of differentiation as a store brand for U.S. retailers.
We also spoke with several representatives from Italian pizza ingredient manufacturers to get their views on selling authentic Italian pizza in the U.S. as a store brand. Stefano Laudadio, business development executive for PizzaSi, which manufactures “premium pizza bases” at its facility in Italy, said that Italians like the “full experience” of pizza, meaning they like to taste the dough, the sauce, the cheese and whatever toppings are placed meticulously on the pizza in every bite. It is why all of the ingredients are viewed as equal, none more important than the other.
“The dough is not just a support that holds the toppings,” Laudadio said. “We stress the fact that it’s not about the quantities, it’s about the quality. Less is best. Pizza doesn’t have to be junk food.”
The visit to Italy also included several tours, including of a Parmigiano Reggiano cheese plant in Parma and of the Balsamico Village, an educational theme park in Modena that teaches visitors the origin of balsamic vinegar.
The origin of Parmigiano Reggiano dates back nine centuries. It’s produced exclusively in the Italian provinces of Parma, Reggio Emilia, Modena and parts of the provinces of Mantua and Bologna. This area is home to 4,000 thousand farms where cows are fed on locally grown forage that bans the use of silage and fermented feeds. Cows are milked twice daily, and the milk is taken to the cheese house within two hours of each milking. The milk is also used straight from the cows without any additives. After the cheese is made in wheels, it is aged for a minimum of 12 months and up to 24 months.
Balsamico Village is located in the picturesque midst of 173 acres of vineyards where the grapes are grown to produce Balsamic vinegar. Modena, known as the “Balsamic Valley,” is the only place in the world where it’s possible to produce it.
According to Luca Gamberi, who provided a tour of Balsamico Village, the area is home to secrets and recipes that were developed in accordance to the unique climatic characteristics of the region. It’s very cold in the winter (32 degrees Fahrenheit) and very hot in the summer (88 degrees F), Gamberi said.
“In this fertile soil with this particular weather, only here can we produce this product,” he added.
It takes at least 12 years for cooked grapes to become traditional Balsamic vinegar, which is aged in barrels.
“We utilize every kind of wood in the barrels to add flavor,” Gamberi said.
Considering Americans’ increasing penchant for authentic foods, Italian foods such as nduja, pizza, Parmigiano Reggiano cheese and Balsamic vinegar would fit the bill.