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The rising power of private label

Grocers are making a big push on store brands to create differentiation and drive customer loyalty

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There’s a new secret weapon in the battle for shoppers: private label. Sure, store brands have been in retailers’ arsenals for decades now, helping penny-pinchers reduce the cost of their weekly shop. But private label is in the midst of a renaissance, as consumer perceptions shift and grocers create more distinctive products that hit today’s top food trends.

According to Nielsen, private label continues to win over Canadians’ wallets, reporting five years of consistent share growth. Private label wrapped up 2017 with retail sales of $14.4 billion, which translates to a dollar share of 18.6%. “But when we convert to volume, or consumption, that share jumps to 23.6%: basically almost one quarter of what we consume is a private-label product,” says Carman Allison, vice-president of consumer insights at Nielsen Canada.

Price remains the top reason why the majority of Canadians buy private label (64%), but trust and previous experience are also big reasons for many (23%). “Canadians share very positive attitudes toward private label,” says Allison. “When we asked consumers if private label is a good alternative to national brands, 70% responded positively. We also found high scores for equal quality (63%), good value (62%) and 34% of us are willing to pay more for our favourite private-label brand. This willingness to pay more has allowed retailers to take their private label up-market with more premium offerings and tiers.”

The combination of value-conscious consumers and quality offerings can bring big benefits to retailers. While higher margins remain a compelling reason to offer private label, store brands are also emerging as a powerful differentiator and a way to drive customer loyalty. “Private-label brands certainly offer our customers a reason to shop in our banners, [which is] exclusivity and a point of differentiation from our competitors,” says Seanna Rishor, vice-president of private label at Sobeys, which has more than 9,000 private label SKUs, primarily in its Compliments line. “I like to call it a point of differentiation because there are very few retailers that don’t have private label. So, you have to have the right point of differentiation.”

To ensure its portfolio continues to resonate with customers, Sobeys closely follows food and drink trends, such as the local food movement and the plant-based protein trend, says Rishor. Sobeys recently launched three varieties of frozen, plant-based burgers under Compliments: Carrot & Sweet Corn
Burger, Beet Burger, and Green Bean & Pea Burger. The company also looks for “white space” categories it needs more presence in, such as baby food. One recent example is the new Compliments Organic Baby Food pouches. “We are constantly renewing and refreshing our existing portfolio to ensure that we are delivering products that our customers want and need,” says Rishor.

Saskatoon-based Federated Co-operatives Limited (FCL) is similarly in tune with consumer and food trends. When Sav Bellissimo joined the organization four years ago, its private-label portfolio consisted of the value-oriented Centsibles; Co-op Gold, a more premium line of products; and Market Town, a line of take-home products from the deli and bakery departments. “We knew we had to start playing in the ultra-premium space, and we were missing a health and wellness line,” says Bellissimo, store brands manager, food department.

The result was Co-op Gold Pure, a line of food and cleaning products—including condiments, burgers, sauces and laundry detergent—that fall under three categories: Ingredients (products with no artificial, colours, flavours or preservatives), Clean (products with plant-derived ingredients) and Organic, as well
as sustainable seafood and fish products, and 100% Western Canadian pork and chicken raised without the use of antibiotics. FCL continues to expand Co-op Gold Pure, and recently launched Co-op Gold Pure pet nutrition, which contains no corn, soya or wheat.

“Store brands is one of the keys to driving loyal customers because there’s a whole value component and there’s a lot more product innovation going on,” says Bellissimo. “We’re seeing a big food movement out there, with a trend toward upper-end, higher-quality food, and a lot of new and different flavours. And I think it’s hard for the big national brands to stay in tune with that. We are more in tune with our local community and we know what they want more than the [big CPGs].”

With the health and wellness trend on the rise, FCL is also looking at the rise of plant-based protein. “The beauty of that product is it’s right in our backyard,” says Bellissimo. “Most of those ingredients are grown here in the Prairies, so I think that’s a big opportunity for us.”

Metro is another retailer focused on private-label products that fit with consumers’ healthy lifestyles. Last year, Metro launched Naturalia, a line of about 100 products under its premium Irresistibles store brand. (Metro also has Selections, a national-equivalent brand.) Naturalia products, which focus on simple ingredients and nothing artificial, range from all-natural peanut butter to grain-fed chicken from a Quebec producer. “With our brands, we try to make sure that we touch all types of customers, but certainly we know millennials enjoy organic, natural and local products,” says Marie-France Gibson, vice-president, private brands at Metro.

Indeed, millennials represent a big growth opportunity for private brands. A U.S. study by Cadent Consulting Group, found just over half of millennials (51%) said they have no preference between private label and national brands, compared to 39% of baby boomers who have no preference. “They didn’t grow up watching TV and seeing those traditional CPG brands advertised,” says Don Stuart, managing partner at the Wilton, Conn.-based firm. “They’re also driven by different values: transparency, simplicity and trust; which opens the door for private label.

You don’t have to be an established brand with decades of heritage. You can be a store brand with two years of transparency, trust and clean labels and that’s it.”

Aligned with consumers’ need for health and wellness is the opportunity for private label to extend to store-branded produce and fresh options, notes Nielsen’s Allison. “Private label’s share of produce is lower than average (17.3%), growing at +3% but lagging national brand players, which are growing at +7%,” he says. “Extending the positive brand trust from the centre of the store to the perimeter of the store is a natural opportunity.”

Longo’s private brands—which include a national brand equivalent and a premium tier called Longo’s Signature—are found in all departments, but are strong
in the fresh department, and bakery and deli especially, says Jenny Longo, director of private brands at Longo’s. For example, Longo’s recently won Product of the Year for its Signature Chocolate Truffle Mousse Cake. The grocer also recently launched its new “Impress” line of eight chef-inspired meal kits, which come with pre-portioned ingredients and preparation instructions in a handy box.

“Having innovative private-label introductions is a great brand builder for our private brands in our ultra-fresh departments,” says Longo.

Retailers can also create differentiation by bringing a food or ingredient trend across a variety of categories. For example, Metro worked with a research firm to identify flagship categories for its store brands. The ones that emerged were ingredients such as maple syrup and fine vinegars, as well as products such as ice cream, cookies and condiments. “We decided to cross them and work with our suppliers to see what would be the result,” says Gibson. The result was a range of new maple syrup products for the Irresistibles line, including Maplelicious ice cream, maple cream flavoured cookies, maple butter, and cider vinegar with maple syrup, as well as maple syrup with crystallized ginger and maple syrup with vanilla bean.

“That’s another advantage private brands have, because we can showcase a trend in a key category and bring it to other products and other areas of the store, where national brands are not able to do this,” says Gibson. “That is where the replication or imitation [of national brands] goes away. By bringing new trends into other categories, we create exclusivity and innovation. This is another way we’re able to offer differentiation and gain loyalty with our customers.”

One threat that looms large for store brands is Amazon, which is said to be doubling down on its private-label business. Through its acquisition of Whole Foods Market, Amazon is making its 365 private-label line available on Amazon. com. “But the biggest concern everybody should have is Amazon is ushering in what I’ve been calling the secret brand movement,” says Carol Spieckerman, retail consultant and president of Bentonville, Ark.-based Spieckerman Retail. “Amazon quietly and on a very large scale has launched piles of private brands across multiple categories over the last two or three years … Most of it is in non-food categories because ordering food on Amazon is still in the process of becoming a thing. But I expect their grocery private-label development to really accelerate as it has in other categories.”

Cadent Consulting Group’s Stuart says Amazon’s move into private label is the single biggest “sea change” in the private-label space in general. “With Amazon and Whole Foods, there is an opportunity for significant private-label acceleration,” he says. “But that starts rippling out to what other retailers do. It’s kind of a huge catalyst: it’s not just the gain Amazon experiences, it’s what other retailers do either offensively or defensively in response to that.”

Whatever challenges lie ahead, retailers see a bright future for private brands. “It’s an exciting time for private label and we’re entering into a new territory where we will have generations that will never have stepped foot inside a bricks-and-mortar store,” says Sobeys’ Rishor. “So, we have to make sure we deliver on our brand promise. But how do we connect with that customer online? I think online will become a much bigger part of retail in Canada and could change the way we approach our private-label brand promise. It’s going to be a good challenge and a good problem to solve.”

This article appeared in Canadian Grocer’s June 2018 issue.

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