Private label is on the shelf for a number of reasons. Improving category margin is one of those reasons. Retailers expect comparable costs to be lower on private label. The margin required for consumer-packaged goods companies to invest and build the brand is not built into the cost. This can be a 30-40% difference. Private label almost always delivers more margin than comparable branded products.
Shielding is planning to merchandise private label products beside the leading national brand. The intent is to get consumers to switch to the higher margin private label product.
Shielding is done on the regular shelf and built into many category plan o grams. Shielding is also planned to reduce the hit from low margin ad items in over and above displays.
Private label is integral to retailer’s strategy
Every major food and beverage retailer has a private label program. We even see it in specialty stores with lower volumes. Retailers like private label for several reasons:
1) Products usually deliver a higher margin
2) If consumers like the products, they can only get them at this specific store so they act like a loyalty program. They have to go back to Costco for Kirkland Trail Mix with M&M’s.
3) Private label costing gives retailers insights into what the cost of branded products should be
4) Strong private label products can reduce the margin investment from ad items when shielding is executed properly
5) Retailers can use these products as leverage against strong national brands. If private label penetration in the category is high, branded products need to invest more to drive sales
6) Tiered programs like President’s Choice Black label, President’s Choice and No Name allow Loblaw to appeal to different consumer segments. Most North American food retailers have a tiered private label program
7) Entire merchandising events can be created around private label. Having one brand like Compliments at Sobeys allows them to merchandise several products together.
Private label penetration varies from retailer to retailer but it is as high as 30% at some stores. In other words, 1/3 items going through the front end is a brand owned by the retailer. You do not have to produce private label but it is a consideration.
opportunities for suppliers.
Shielding is an integral component of retailer’s strategy.
Often when you look at a plan o gram you will find retailer’s comparable private label beside the leading national brand. This is done on purpose and it is called shielding. If the leading ketchup is Heinz that is where the highest number of consumers go in the condiments category. You will probably find the President’s Choice, Compliments or Great Value ketchup right there in the respective retailer’s store.
The strategy is to convert as many consumers as possible from the leading brand to the higher margin private label. Retailers do not like to admit brands have power but they do. Many people look for Heinz ketchup. Some consumers will see the Heinz ketchup for 4.99 and the private label right there beside it for 3.99 or even less. Some will switch. Chances are, even with the 1.00 lower retail, the margin percentage is higher on the private label.
Shielding is important when trying to reduce the margin hit from discounted items. If we continue with our Heinz ketchup example, that product might be advertised on the front page for 2.99. No doubt this is a draw and many consumers will come in looking for that product. Some retailers will reduce the price of their private label to shield against the national brand. You might find Compliments ketchup merchandised beside Heinz on the end of an aisle for 2.49. In this example the Heinz might be delivering 0-5% margin and the private label 15%. Every time a consumer buys the private label the retailer feels they win.
Shielding impacts supplier’s volume
Obviously if you produce private label, shielding can have a positive impact on your volume. Be ready with volume and make sure you get as much visibility as possible when your items are planned in off shelf displays.
If retailers use products you produce to shield. Learn as much as you can about volume the weeks the items are merchandised in over and above displays.
For suppliers who produce branded products in categories where your customers are shielding ad items this can impact your volume as well. When consumers pantry load on the ad items and/or the private label it takes them out of the category for a period of time. This will impact volume of other items in the category. You can consider options like in-store specials or participating in loyalty programs to offset some of the challenges with sales.
If you have any questions or require help understanding shielding, you can always send me an email peter@skufood.com or call me at (902) 489-2900.
Peter
NL implements new tax on sugar sweetened beverages
This week consumers in Newfoundland and Labrador started to pay .20 per litre more on beverages with added sugar. Products such as pop, energy drinks, fountain pop and slushies are now more expensive.
The province expects to generate $9,000,000 in tax revenue from this new initiative. Based on the population of 522,000 the average person in the province is consuming 1.66L per week.
Food Works facility under construction
There are many considerations for processors who want to grow their business. Finding a suitable space is one challenge in any marketplace. In a number of markets, buildings are being re-purposed into food processing operations. There are some costs that can be shared and it can be a benefit to work in an environment where others are facing similar obstacles.
Food Works is under construction in Borden PEI. The facility should be in operation in the coming months. Different sized units are available and the building is very close to the bridge for PEI businesses looking to ship products to other provinces.
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FCC Peer groups in fall of 2022
It has been a real privilege to work with FCC in 2021/22 to launch the pilot program for their food and beverage industry peer groups. We had some incredible discussions with processors about our industry and they really did learn some very valuable insights from each other. We discussed so many topics from customers to ecommerce to distributors to co-packers and so much more.
We are excited to let you know FCC plan to continue with the program and if you are interested this could be a great program for you in the fall of 2022. Check out the details and if you have any questions just let me know!
