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The beauty of Private Label is that it allows food retailers the freedom to develop their own offerings based on a deep understanding of their customers. It provides a point of differentiation and gives consumers greater choice. Where a national brand makes industrial-sized decisions based on driving millions of units, Private Label can deliver a more nuanced experience influenced by a specific geography or customer demographic.
A vital component of Private Label success is the quality of collaboration between suppliers. In this article, we examine how Private Label organizations can make their collaboration experience even richer.
Compared to suppliers of national brands, Private Label suppliers are small organizations. For the retailer managing a Private Label range, this could mean dealing with as many as 500 small organizations. This could be due to a very wide range of products, or because the retailer wishes to spread their risk by engaging with multiple suppliers for particularly successful ranges (i.e. Private Label cereal). This can present a communication challenge when a supplier who ‘goes deep’ on their particular product or ingredient, is working with a retailer who has to manage a breadth of relationships.
A key selling point for Private Label is the ability to create products that national brands either don’t want or don’t have the time to invest in. On the supplier side, the ideal state is to have consistency, whereas retailers want to differentiate in the market by offering innovative products that other grocery stores do not have.
A good example of this is bakery muffins.
The food and technology industries have been working hand in hand for decades. What’s evolved most recently is the emergence of an entire sector dedicated to changing the way people farm, shop and eat: FoodTech
FoodTech has the power to transform all aspects of the food supply chain – from the way crops are grown to the final mile delivery of goods to the consumer’s door.
For consumers, this heralds a wave of enhanced transparency and increased convenience. For retailers, this offers both challenges and opportunities – whether it’s the introduction of IoT sensors to indicate product freshness or the ability to make recommendations directly to customers’ smartphones via beacon technology. These in turn, offer opportunities for retailers to increase the sales of their Private Label offerings.
This article will discuss some of the ways in which FoodTech is already changing the face of grocery retail, and what can be anticipated for the future.
Go back three or four generations and food transparency was a relatively straightforward affair – people bought or grew seasonal produce and used local farmers or raised their own livestock.
The introduction of refrigerated transport and centralized distribution created a global food economy that was high on choice and convenience, but low on transparency. Aside from rising consumer demand to understand where their produce was sourced from, this presents potentially serious food safety issues – in 2017, 456 food recalls were made in the US alone1.
In recent years, the grocery industry, including store food brands, has seen many significant changes, including stronger regulations, harsher punishments for food crises, and major food recalls. Meanwhile, consumers’ increasing influence and pressure has encouraged retailers to embrace corporate social responsibility (CSR) and sustainability practices for a competitive advantage. Additionally, consumers are demanding greater transparency and visibility into the supply chain.
CSR and sustainability initiatives are no longer nice-to-have programs – they have become business requirements to help retailers compete effectively for conscious consumers’ wallets. So what exactly to consumers expect and what can retailers to do adhere to their expectations?
In response to the consumer’s demand for non-genetically modified foods (GM foods), many retailers have taken action. Nearly all supermarkets in various countries across Europe (including the UK, Ireland, Switzerland, France, Germany and Italy) ensure that they avoid GM foods and that livestock are fed on non-GM food diet. The sanction for neglecting to comply to this regulation is particularly harsh in most Italian regions, where anyone found growing GM food crops faces two years in prison or a €50,000 fine. Growing numbers of consumers expect retailers to clearly evidence the fact that a particular product has not been genetically modified before making a purchase.
The same amount of transparency is also expected for Fair Trade products, which have similarly experienced a significant increase in consumer demand over the years. This was reflected in the UK where sales of certified Fair Trade products grew by 2% in value to £1.64 billion in 2016. Fair Trade reflects a movement that aims to reduce poverty, and promote ethical and environmentally-friendly work conditions in developing countries by helping local producers earn a fair price for their products. Fair Trade products can be distinguished by the distinctive blue, green and black logo. With popular supermarkets such as Carrefour experiencing a rise in sales of their own brand Fair Trade products (up 20% from 2015), it appears that other supermarkets should and are expected to follow suit.
The results of a recent Trace One consumer survey evidenced that they showed mixed feelings for their level of trust in Private Label. Only 23% of respondents completely trust the safety of the Private Label products they consume, while 44% said the main reason for not buying Private Label brands is that they trust national brands more. These numbers clearly show that retailers and manufacturers must prioritize their efforts to improve consumer confidence in their brands and Private Label products.
To attract shoppers with a more diverse and plentiful product offering, retailers are adapting their product lines and even their store formats. In a recent Trace One study, it was identified that having access to diverse product offerings was one of the most important factors for consumers in terms of influencing their purchasing decisions amongst Private Label grocery brands. Read on to establish ways in which Private Label products can help retailers successfully diversify their product offering, thus helping them to achieve differentiation.
Examples of retailers diversifying their product offering in order to attract shoppers include German retailer Aldi who addressed consumer preferences by removing particular food ingredients (such as MSG and hydrogenated oils). With 90% of Aldi products being sold under private brands, the retailer can ensure customers have a wide selection of options free of these ingredients.
In the US, health food retailer Whole Food’s has offered new food choices and adapted their formats and business models in order to appeal to Millennials. The retailer says its modern, streamlined design with innovative technology and a carefully curated product mix offers an efficient and rewarding way to grocery shop.
Private Label products act as brand differentiators for retailers, as they drive store traffic and penetration across categories. In a recent Trace One study, investigating what consumers think about Private Label, it was established that ‘good value’ was one of the most appealing factors. According to their feedback, Private Label’s strengths include low cost, variety and quality; however, product taste and innovation need improvement. Through ongoing collaboration, retailers and manufacturers can find ways to keep costs low, continuously improve food quality and taste, and develop innovative products to create a competitive advantage.
Collaborating with Private Label partners can help to discover new ways to approach product development, packaging and visual appeal to respond to consumers’ needs and increase their willingness to buy. Innovation can also differentiate products by articulating how they are distinct from national brand.