Opportunities for retailers and suppliers
As the market evolves and private label continues to grow, there’s a multibillion-dollar opportunity for retailers and private-label suppliers. But taking advantage of the opportunity will take effort, resources and a sound strategy. Here are some steps to consider.
Amp up your strategic sourcing. Look for suppliers that innovate in step with consumer trends (think product transparency or supply chain traceability). While you’re doing that, continue to consolidate volume among scale providers who can, in return, deliver lower prices.
Take a tiered approach to offerings. Aldi and Kroger, to name two, have created premium, all-natural private-label brands that are a tier above commodity knockoffs. Best-in-class private label can meet or exceed national brands at the premium tier while also offering a value tier that’s well below national-brand prices.
Expand your web presence. That’s what Whole Foods did following its 2017 acquisition by Amazon. Now the grocer’s 365 Everyday Value is available on the ecommerce giant’s website. Focus private-label ecommerce efforts on click-and-collect service instead of delivery. This can help keep store footprints relevant and keep the cost of last-mile delivery with the consumer.
Fine-tune experience to improve customer stickiness. Best-in-class private label is a basket driver that lets grocers build loyalty and differentiate themselves by offering something not found anywhere else. So invest in the in-store shopping experience and service levels. Consumers increasingly expect personalized solutions and value-add capabilities.
Focus on value and premium. No-frills commodity knockoffs have been played off. The next wave of conversion is in the hourglass economy. Focus on insights and the consumer experience to deliver more premium and fresh-to-go offerings, with innovation to meet evolving consumer needs. At the same time, hit the value end of the spectrum with low-cost production and no trade or marketing to keep costs low for consumers.
Simplify to grow. Breadth brings complexity, making it harder to turn a strong profit. A key reason is that salespeople need to be intimately familiar with operations to give customers either a quick “no” or appropriate pricing for complexity (special flavor, count, size, etc.). Private-label producers that span too many categories lose this link between sales and operations. The most profitable private-label companies tend to focus on one to three categories only.
Sync up commercial and operations teams. A common pitfall in the industry is a disconnect between sales and operations teams. Sales teams tend to be motivated by customer asks and may not fully understand the complexities of the plant and the implications on cost. Many private-label players can improve efficiency and synergy within manufacturing plants by having all teams work toward the same operations-first goal.
Be selective with customers and contracts. Instead of agreeing to everything just to win the account, reward the sales team based on deal profitability. Sales teams must ensure they’re getting the right price for requests like changeovers or formulations that are complex or customized. Prioritize customers who view you as a partner and co-develop a private-label program focused on innovation. Ensure you have appropriate pricing mechanisms in contracts that appropriately pass on additional incurred costs in a timely manner (especially in this inflationary environment).
Between a strong track record and favorable market conditions, private label is positioned for continued growth — especially for retailers and suppliers willing to up their game. The math speaks for itself: A modest 5% increase in private-label penetration would yield more than $60 billion in market growth. That alone should give market participants something to chew on.