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The PLMA (Private Label Manufacturers Association) hosted their Private Label Trade Show from November 17-19 this year in Rosemont, Illinois. Exhibitors from the alcoholic drinks, beauty and personal care, consumer health, home care, hot drinks, packaged food, packaging, pet care, soft drinks, and tissue and hygiene industries were present to discuss latest private label brands.
Doug Rauch, former president of Trader Joe’s and founder of The Daily Table, was the keynote speaker on 18 November. He spoke about the need for innovation, clear sense of purpose, and sense of focus to succeed in business. Speaking about private brands, he told the audience that private brands allow retailers to innovate through the product’s characteristics and its story.
Storytelling has been an important element of Trader Joe’s success in the US as the company shares stories about its products and how they are made in its Fearless Flyer newsletter. Doug said, “Narrative is really critical. “ He said that Trader Joe’s took a risk in the late 1970s and early 1980s by reducing its sku count from 5,000 to 1,500 by reviewing its product focus. During this time the focus was, “If a product doesn’t have a story, a reason to exist? It got dropped.”
Private label is an important part of the packaged foods market. At the global level, private label holds a 12% value share of the US$2.3 trillion packaged foods market in 2013. Private label is especially strong in Western Europe, where it holds a 26% value share of the packaged foods market. In contrast, private label holds a lower 17% value share of the US packaged foods market, due to a more fragmented retail landscape. US retailers want to boost sales of their private label offerings because they offer retailers higher profits and the ability to increase consumer loyalty since products are only available at that store.
Trader Joe’s has been able to grow sales by focusing on private label, storytelling, and consumer loyalty. The speciality supermarket chain owned by Aldi Nord since 1979 has been one of the best performers in US grocery retailing despite stocking a very limited range of goods – about 4,000 skus vs 50,000 skus in a typical grocery store. And, over 80% of the 4,000 stockkeeping units are private label. Euromonitor International estimates that Trader Joe’s revenue grew by 13% in 2012 to reach US$10 billion. By offering a carefully curated mix of unique foods with interesting stories, basic staples like cereal and milk, and cheap wine along with friendly employees dressed in Hawaiian shirts, Trader Joe’s has been able to win over a sophisticated, yet bargain hunting clientele.
Trader Joe’s is an innovator who creates private label products that are special and unusual instead of merely mimicking a national brand. The retailer knows that consumers are unlikely to develop a loyalty to private label milk, but may form an emotional attachment to their peanut butter-filled pretzels and chocolate covered potato chips. Trader Joe’s buyers take note of food and restaurant trends and seek to introduce foods before they are launched by national brands. The company saw the rising interest in Korean food and introduced Korean Napa Cabbage Kimchi in summer 2013.
Other retailers have taken notice of Trader Joe’s success in the US as well as that of Western European retailers such as Aldi, Marks & Spencer, and Tesco. In the US, private label products began as “generic” products with no branding, plain packaging, and lower quality. Private label then evolved into national brand equivalents, products that copy a popular brand such as Cheerios breakfast cereal but at about 30% lower price. Then beginning around 2006, retailers such as Safeway and Target began investing in private label brands to create products and packaging with a premium positioning. The retailers hired away brand management folks from companies like Kraft and Procter & Gamble and began to look for “white spaces”. Safeway saw that there were no national brands offering a prepared salad with both organic chicken and organic vegetables so they introduced Safeway’s O Organics Southwest Style Salad bowl with organic chicken in 2013. Similarly, Target’s Archer Farms steam-in-bag barley & red rice quinoa blend with sea salt & olive oil is unique and does not compete directly against a national brand.
To grow their private label sales, retailers will want to offer products that offer great taste, convenience, and/or health benefits. Key trends in packaged foods at the PLMA Show included wet cooking sauces and Greek yoghurt. Busy consumers in developed markets are looking for easy meal solutions beyond dining out and ready meals. Wet cooking sauces offer shoppers a way to quickly prepare meals with minimal effort – brown meat or tofu in skillet, add cooking sauce, and heat through. The producers of these wet cooking sauces (often called simmer sauces or skillet sauces) are aiming their products at consumers interested in exploring ethnic cuisines to make dishes such as Mexican peanut mole chicken and chicken tikka masala in under 30 minutes and without having to shop for unfamiliar ingredients in ethnic food stores. Additionally, wet cooking sauces appeal to consumers because they can control what type of protein to put in the dish and can cook a vegetarian meal. Campbell Soup has invested heavily in its new Campbell’s Skillet Sauces and Slow Cooker Sauces lines in a pouch format to appeal to younger consumers who desire ethnic flavours such as marsala chicken and toasted sesame but do not want to spend hours creating a sauce from scratch. Retailers located in urban centres may find success with ethnic simmer sauces by investing in food samplings.
Greek yoghurt continues to drive yoghurt sales in the US as consumers like its thick, creamy texture and its high protein content. Marketing efforts by leaders Agro Farma’s Chobani and Danone’s Dannon Oikos Greek yoghurts have familiarised many consumers with Greek yoghurt. To capitalise on this success, manufacturers at the show introduced more spoonable and frozen Greek yoghurts as well as dips that contain Greek yoghurt. While retailers are unlikely to achieve big share gains in spoonable Greek yoghurt due to heavy advertising efforts from national brands, they are likely to gain success in dips made with Greek yoghurt. Greek yoghurt-based dips offer delicious taste with less fat than sour cream-based dips. This is a new category where the leaders have yet to be determined. Danone and Heluva Good recently launched dips with Greek yoghurt in 2013.