Private label (or control label) can represent significant volume for retailers and those producers and processors who supply the products. In some retailers this can represent between 30-50% of sales. Google can provide definitions, but it does not always help you understand the importance of the term or perhaps even a specific meaning in our industry. We are going to share some food and beverage industry terms and explain how they can benefit or impact your business.
Private label are products developed and controlled by the retailer. Sometimes called house brands or control label they are only available at the retailer’s stores and usually they are priced lower than comparable national brands. The theory is these products do not require the significant investments in trade spend and marketing spend to drive their sales.
There are a number of reasons retailers like private label
The most powerful benefit of a great private label program is consumers can only get the products at their stores. For example, if a shopper loves President’s Choice (PC) Szechuan Peanut Sauce, they can only buy the product at Loblaw’s stores. Often the draw of these items can be more powerful than a hot price on Heinz Ketchup or Tide.
Retailers also believe they make higher margins on these products. Cost negotiations are tough on these products too and retailers push suppliers to strip out all of the investments they would make in sales and marketing. In some categories these can be significant amounts.
With a dead net cost retailers can decide when they want to promote the products. They are not dependent on suppliers to offer discounts or support ads.
The costing on private label tells retailers a lot about what should be happening with national brand costing. If they see the price of their private label products increasing by 8% they are not surprised to see the comparable national brand increasing at that rate. They also get upset when they see their private label increase by 8% and a national brand supplier in the same category looking for a 12% increase.
Private label products provide many opportunities for themes. Loblaw has produced the Insider’s Report almost every year since 1983. This program introduces new PC products and reinforces some old favourites. For many years this program was in place in the summer and for the holidays. Entire stores would be ‘decked out’ in PC point of sale (POS) material. Sobeys has also invested in their Panache program and Compliments with holiday flyers and booklets.
Many retailers have adopted multi-tiered private label programs. There will be a low-end offering like No Name at Loblaw, Great Value at Walmart or Signal at Sobeys. These products are priced below national brands and they are more basic in ingredients and style. Most retailers will have a line of products comparable to national brands, which would be Compliments at Sobeys or President’s Choice at Loblaw. Recently we have seen more high end or foodie inspired programs. President’s Choice introduced a PC Black label line and there are a lot of Sobeys Panache products throughout their stores. Within these lines there are also subsets such as organic, green or sustainable products and many more.
Why suppliers should be interested in private label
These products represent significant proportions of category sales. The brand is already established and consumers have a perception of how the product will perform.
Retailers will put them on the shelf first and often give them the best profile space. They are also in the ads frequently to fill space and reduce investment on national brands.
They are often used to generate margin beside low margin ad items. This is called mixing back and an example would be Compliments fabric softener merchandised beside the Tide advertised on the front page. The idea is to bring consumers in the store with the cheap Tide and sell them both products. The profit on the Tide might only be .20 but if Sobeys can sell them the fabric softener with a profit of $1.25 the two items together are a win.
Suppliers who produce private label are perceived to be a bit different by retailers. You are more part of their ‘team’ as opposed to off building your own brand.
It is possible to produce private label and your own branded products. There are many examples of where this happens. Retailers do not expect suppliers to be exclusive to them with private label. This can be an opportunity to use excess production capacity.
Suppliers who produce unique private label products will work with retailer’s product developers. These people have some great insights into food processing and what is happening in the industry. Suppliers can learn a lot working with them.
Private label does have some drawbacks too. Packaging can become a problem if it is excess because you only have one customer. Retailer’s expectations for food safety are usually high so it is important to understand these requirements in advance.
There is no right or wrong answer to the question “Would you be interested in doing this in private label?” You just need an answer!
If you have any questions or require help with private label, you can always send me an email peter@skufood.com or call me at (902) 489-2900.
Peter
Sustainability can help with hiring
As we have discussed previous weeks sustainability continues to be very important in the food and beverage industry. It is apparent this is an area young people want to work. This could be a great opportunity to bring new people into your business to work on something they are interested in. When they see all of the possibilities in food and beverage they just might stay!
Top 250 list of retailers from Deloitte
Success in this industry requires satisfying consumers and customers. You need to learn about your customers all the time. The attached report about global retailing from Deloitte is very interesting. You can see how Canadian retailers line up to their global competitors.
Did you know Walmart is almost 15x larger than Loblaw and 26x larger than Sobeys?
Did you know the annual sales increase at Amazon is greater than Loblaw Companies annual sales?
You can also compare the bottom line.
When is Peter speaking?
Newfoundland and Labrador
Food industry opportunities panel- Mar 29
Learnsphere Supply chain 1-2-3
Sell successfully to retail-Mar-Apr
Food and Beverage Atlantic
Sobeys pitch planning- Apr 5
Association of Municipal Administrators of NS- Jun 16
With the Kilted Chef
