Insight Series
May 13, 2010
How to Compete in the Private Label Universe
Private label isn't going anywhere. It's a successful differentiator that brings value to the consumer and better margins for the retailer. When you add a private label brand to the shelf, another brand is losing that shelf space. Further, retailers are looking to simplify shelf assortment in order to simplify the shopping experience - that means less brand variety. Will your brand make the cut? How do you capture the consumer's attention if you can't compete on price? How do you differentiate your brand? How do you grow brand loyalty? And can you afford to innovate?
If you're one of the national brands providing private label, the good news is you are doubling your shelf space with both the private label and national brand. The bad news is - it could be lowering your margins if your other SKUs are adversely affected to a large degree. And your national SKUs could be at risk - as private label loyalty grows, your brand loyalty may wither.
If you're not providing private label goods, your SKUs are also at risk in a CPG climate that currently favors simplified shelf assortments. Retailers have taken greater steps to sort the wheat from the chaff - eliminating underperformers in order to enhance the shopping experience. If you don't offer value, innovation or have a strong brand presence you will lose shelf space.
Demand data is key to assessing SKU, segment, brand and category performance. At the most basic level, when the private label brand is first introduced, you can look at sales before and after that introduction to assess its effect on your brand. Once private label is an established presence on the shelf, you need to examine sales volume when private label is promoted to identify which brand gets a negative lift or is cannibalized.
But that's not enough. Retail teams need to stay ahead of potential SKU reductions so that you can either turn that SKU's performance around, or - if the SKU is an underperformer you'd be better without - scale back production and present your retailer with a new SKU to replace the underperformer. Be sure to examine SKU rankings by performance within the segment. Look at store count, sales per store per week and share of category to see how each item contributes to the sales of that segment.
Category managers have another challenge- balancing the retailer's desire to simplify the assortment with the consumer's desire for variety. Walmart, which took significant steps to simplify shelf assortment, had to recently backtrack - and bring back some brands - when they started to lose consumer share. Be certain to assess the performance for each segment within a category - and track that performance over a variety of specific, or extended, time frames. Examine dollar share by category, growth drivers by category, comparative sales, and item exceptions across a variety of time frames.
Demand data will help you identify which segments are the growth drivers for the category and which subtract from total growth due to declining sales. With this data you can clearly see which SKUs are important to the growth of the category and those that may be candidates for discontinuation.
Ultimately, you want to know if the presence of private label is helping or hurting the category and especially your brand. With demand data in hand you can alert other members of the retail team - from marketing to supply chain - of potential challenges and opportunities that keep you on the shelf and relevant to the consumer.
If you're one of the national brands providing private label, the good news is you are doubling your shelf space with both the private label and national brand. The bad news is - it could be lowering your margins if your other SKUs are adversely affected to a large degree. And your national SKUs could be at risk - as private label loyalty grows, your brand loyalty may wither.
If you're not providing private label goods, your SKUs are also at risk in a CPG climate that currently favors simplified shelf assortments. Retailers have taken greater steps to sort the wheat from the chaff - eliminating underperformers in order to enhance the shopping experience. If you don't offer value, innovation or have a strong brand presence you will lose shelf space.
Demand data is key to assessing SKU, segment, brand and category performance. At the most basic level, when the private label brand is first introduced, you can look at sales before and after that introduction to assess its effect on your brand. Once private label is an established presence on the shelf, you need to examine sales volume when private label is promoted to identify which brand gets a negative lift or is cannibalized.
But that's not enough. Retail teams need to stay ahead of potential SKU reductions so that you can either turn that SKU's performance around, or - if the SKU is an underperformer you'd be better without - scale back production and present your retailer with a new SKU to replace the underperformer. Be sure to examine SKU rankings by performance within the segment. Look at store count, sales per store per week and share of category to see how each item contributes to the sales of that segment.
Category managers have another challenge- balancing the retailer's desire to simplify the assortment with the consumer's desire for variety. Walmart, which took significant steps to simplify shelf assortment, had to recently backtrack - and bring back some brands - when they started to lose consumer share. Be certain to assess the performance for each segment within a category - and track that performance over a variety of specific, or extended, time frames. Examine dollar share by category, growth drivers by category, comparative sales, and item exceptions across a variety of time frames.
Demand data will help you identify which segments are the growth drivers for the category and which subtract from total growth due to declining sales. With this data you can clearly see which SKUs are important to the growth of the category and those that may be candidates for discontinuation.
Ultimately, you want to know if the presence of private label is helping or hurting the category and especially your brand. With demand data in hand you can alert other members of the retail team - from marketing to supply chain - of potential challenges and opportunities that keep you on the shelf and relevant to the consumer.
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