Private Label Keeps Growing

In the midst of the current economic climate, it comes as no surprise that private label offerings continue to grow. According to A.C. Nielsen.U.S. private-label sales have increased from $64.9 billion in 2005 to $88.5 billion in 2010. Nielsen also notes that the fastest-growing consumer segment buying private label are those with $100,000 plus annual incomes.

Private label also dominates CPG headlines. Not only are retailers such as Target and Wal-Mart offering private label, even high-end retailers such as Saks (which is expanding its women’s private label line based on the succes it has had in the men’s department).

A recent article in the Chicago Tribune details Walgreens expanded offering of its house brand — Nice!. According to the article, “The Nice! brand name, two years in the making, began to appear on Walgreens store shelves last month on food products from soup to nuts. The rollout of more than 400 items, mostly grocery and paper products, is scheduled to accelerate this month and wind up at all 7,742 Walgreens and Duane Reade drugstores nationwide by January.” Apparently Walgreens is upping the ante by presenting their private label much like they would a national brand — rather than simply a product.

Currently, private label brands are deemed a differentiator that boosts a retailer’s profit margins and builds a loyal fan base. So how are your brands faring? Does private label cannibalize your sales — or bring more eyeballs to your brand? Do consumers feel they are sacrificing quality when they purchase private label? In other words, all prices being equal — would a consumer choose private label over your brand? Price optimization has always been critical — but when consumers are increasingly choosing the low-price private label option, it becomes even more important.

Further, as Paula Rosenblum, managing partner at Retail Systems Research asks in the article, "The reason [for private label] is simple. It's better gross margins. The challenge has become, can you create a strategy of it not being cheap?" It’s an important question. If retailers manage their private label marketing in a manner that ensures consumers connect the house brand with quality at a reasonable price, how can suppliers continue to provide quality branded products at a higher price?

With all that said, what data should suppliers be looking at?

You want to start by creating custom item groups that include all of your private label items. Dice those groups up in manners that make it easy for you to identify trends from all different angles — by category, by private label brand name, by type. You choose.

Next, compare your private lab groups to your equivalent national brand groups to determine whether private lable sales are cannibalizing your national brand. To get a more detailed view of a single item (a “hot” sales item or a sales “loser”) compare item-to-item sales. Based on these findings, you can be proactive and adjust forecasted inventory based on past performance. If your new private label item is cannibalizing sales from your national brand, you want to adjust your inventories accordingly.

Also, take a close look at promotions. When you advertise your national brand are you seeing a lift for your private label items as well? And vice versa.

Last, but not least, determine the optimal regular and promotional price for your private label item based on past performance of your corresponding national brand item or a similar private label item.

Dig deep and you’ll be rewarded with optimal private label and national brand sales.