Does Private Label Size Matter?

Kim Greenfeld September 15th, 2009

I often get asked by retailers, “Are we big enough to have a private label program?”

The answer is always the same: A resounding “Yes!”

Recently, I attended a function with dozens of retailers in attendance. At my table there were several small scale operators (less than twenty stores each) who were anxious to start private label programs, but didn’t know how to go about it and were afraid that their volumes would not be significant enough to offer a full fledged, appropriately valued program to their customers.

After some cajoling, deep-breathing exercises and hand holding, I was able to persuade them that, in this case, size was fairly insignificant. We have created a customer who understands that modern day in-house brands are generally the same as, if not better than, national brands. This customer has come to trust what our store’s banner offers. If they trust us, then they’ll tend to trust our private label.

Once we have our own brand to put on the shelf, customers will trade down to save money and walk away satisfied that they aren’t trading down in terms of quality.

Manufacturers understand how private label works. It’s the basic (quoting from the movie Field of Dreams) “If you build it, they will come” theory. They’re usually willing to take a leap of faith with a retailer starting off with relatively small volumes and building the business year over year. They appreciate the additional production volume and take into consideration the life of the business, not just the annual forecasts.

My advice to those of you thinking about a private label program: Start off with a few basic commodity items, items customers purchase each time they visit your store. This will give your brand instant recognition and permit you to branch out into other categories as your program builds momentum.

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Related Topics: Private Label, Marketing & Outreach

3 Comments to “Does Private Label Size Matter?”

Michael Gold Says:

September 16th, 2009 at 9:33 am

Great article Kim. My firm’s experience developing private label brands for a small regional operator has given me the same perspective. That’s right, we would argue that it’s possible for a small chain to profit not just from a private label, but from MORE THAN ONE private label brand.

It’s important that each brand have a viable strategy. For the client mentioned above, we created a premium brand, intended to compete directly with nationally branded products, as well as a store label brand for fresh products like salads, dressings, cut fruit and juices. There are also dedicated brands for candy, meat, etc.

If we had put the same brand on all of these products, that brand would not have made sense to the customer. By separating them into meaningful families (by category, price/quality relationship, closeness to the store’s brand image), we could help customers better understand the unique promise of each brand label.

I have been gratified to see the generally very good job that manufacturers and co-packers do in supporting this client, in spite of its limited number of stores. And in many cases this means customizing formulations to meet our client’s tastes.

So yes, I would agree with you that there are great opportunities for smaller chains of supermarkets to take advantage of the benefits of private label. The key is to go in with your thinking cap on, have a clear set of objectives for each brand, and develop the product line in a considered, well-managed process.
Bob Vosburgh Says:

September 19th, 2009 at 12:57 pm

Kim responds…

Michael, your comments about brand management are spot on. I agree that the most successful private label programs use a tiered brand strategy to get a clear message to their customer as to what the products are all about and how they fit into the overall category. The good, better, best format really hits home with the message that customers connect with.
Boreal Water Says:

January 29th, 2010 at 11:59 am

This IS the time for Private Labels! Size does not matter.

Private Label market research usage patterns has found that 97 percent of Americans buy private label products, making up nearly a quarter (44 percent) of all foods and beverages served in US homes. Although Private Label has received a boost from the weakened economy, consumers are also looking for quality products. It shows that 73 percent of consumers consider the quality of private label brands to be better quality than name brand products. In the 2001-2003 recession, private label’s unit market share climbed from 20 percent to 21.8 percent, according to the Private Label Manufacturers Association. And in the 1990-1991 recession, unit share for retailer brands moved up from 17.6 percent to 20 percent.