Private Label Best Practices
A private label, also called a store brand, is an assortment of products offered by a retailer that matches national brand items. Some private label examples include Target’s Up&Up, Costco’s Kirkland Signature, Whole Foods’ 365 Everyday Value, and Kroger’s Simple Truth.
Lasting Shopping Trends
During an economic downturn and the years following, customers are especially sensitive to grocery retail prices. This is a time when consumers are willing to exchange their name-brand loyalties for savings, and a time when private labels can create significant opportunities for retailers. Nielsen details this effect in their global report on private labels, emphasizing how a recession influences consumer habits:
“When an economy recovers from recession, changed shopper behavior often remains, and this sentiment is favorable when it comes to continued private-label growth. When coming out of economic downturns, consumers will maintain a more cautious approach with regard to household expenses, having developed a habit of seeking and expecting value for their money.”Nielsen- The Rise and Fall of Private Label
Customers expect a retailer to have a large selection of products for relatively low prices. Meeting customer expectations on assortment and price builds trust and keeps shoppers buying from their chosen grocer.
One way to build trust and loyalty without sacrificing margin is to expand private label offerings. In recent years, we’ve seen retailers like Amazon and Target introduce products under multiple new private label lines. Ranging from electronics and housewares to lingerie, these products offer compelling value to customers at higher margins. “Carrying non-standard categories besides groceries can also maximize price image,”
Tim Ouimet, Co-Founder of Engage3, said. One example of this is Aldi’s experience in cookware and home goods.
“Carrying non-standard categories besides groceries can also maximize price image.”Tim Ouimet, Engage3 Co-Founder
Aldi Addresses a Need
For years, Aldi has sold enameled cast iron cookware for a bargain. A dutch oven, used for many roasts and holiday dishes, can cost upwards of $300 from the leading brand. Other branded competitors like Cuisinart and Lodge offer more cost-effective options, but customers frequently doubt the quality of the products. This is because even the leading brand can get chips in the enamel and scratches over time.
Aldi saw this gap in the market, and began selling a private label dutch oven under the name “Crofton.” For $29.99, customers could have a functional piece of cookware for a tenth of the cost of the leading brand. If the pot chipped or broke in some way, the consumer did not face a significant loss. The Crofton dutch oven has surged in popularity, gaining a large number of fans in the past three years due to its compelling value and favorable reviews.
Reviews on Chowhound, a home cooking forum, show that the Aldi Crofton pot is well-liked. One reviewer said, “My husband drove all over the city to 3 different Aldi stores to get me a complete set of Crofton enameled cast iron for Christmas 3 years ago… The braising pan works perfectly from stove to oven; my braised chicken never turned out so beautifully before I got this set.”
In response to Aldi, Amazon followed with an AmazonBasics dutch oven (priced at $44.99), which currently has a 4.5-star rating and over 700 customer reviews. These reviews mirror those of the Aldi Crofton cookware (priced at $29.99).
Added Benefits of Private Labels
Because of the lower cost of manufacturing private label items (minimal R&D and marketing expenses involved), they can be easily priced competitively against national brands like Heinz, Kraft, or General Mills.
Private labels not only allow higher margins, they also improve the customers’ perception of the store by keeping the store’s average prices lower than if they just carried more higher-priced national brands. “For most products, the price difference between two retailers’ private label products isn’t as important as the gap between the private label and the national brand from the perspective of the consumer, ” Ouimet added.
“For most products, the price difference between two retailers’ private label products isn’t as important as the gap between the private label and the national brand from the perspective of the consumer.”Tim Ouimet, Engage3 Co-Founder
Private labels also allow a retailer to price defensively, because it is much more difficult to detect and match pricing on private label products. In this way, retailers can undercut their competition without drawing attention.
For example, a private label natural pasta sauce at Retailer A measures 24 oz and costs $2.96 ($0.12 per ounce) while a comparable pasta sauce at Retailer B measures 25 oz and costs $2.30 ($.09 per ounce). Because of Retailer B’s various private label tiers, this item brings a lot of value to consumers while Retailer A is unable to identify and compete with its similar item.
Non-standard Private Labels
Carrying non-standard categories like apparel can also maximize price image. Dick’s Sporting Goods recently announced that they were expanding their private label assortment to reduce their reliance on large vendors. In his article for Digiday, Suman Battacharrya writes, “As larger brands like Nike switch gears to sell directly to consumers, retailers like Dick’s, Target and Walmart are beefing up their own brand selection to stay competitive. With private-label products, retailers see higher margins on products that customers can’t buy elsewhere.”
By focusing efforts on their store brand assortments, retailers can adapt to an industry that has aggressive retailers like Amazon and Aldi in new and unique ways.
A robust private label assortment places retailers at a significant advantage over their competition. To get more information on Engage3’s quarterly reports on pricing for national brands, private labels, and fresh categories, you can click here. View Nielsen’s report on global private label trends here, or read how Walmart stores adjust locally to hard discounters in our “Aldi Effect” report here.