NEW YORK The growth of private-label and what it means to retailers and suppliers all depends on which side of the negotiating table you’re sitting.
For retailers, pushing PL penetration ever closer to 25% translates into more productive inventory, both in terms of turns-per-week as well as gross profit margins. It’s a boon to the bottom line that’s arguably offsetting some of the pressures in today’s downturned economy. For retailers aggressively pursuing that PL penetration, it’s also sending a value-oriented message to consumers — shop with us and we’ll save you money.
Suppliers have historically had a more contentious view around the value in store brands. As the argument goes, store brands equal market share erosion from a competitor that isn’t weighed down with marketing, merchandising or research and development costs. And it’s that marketing and merchandising expense that helps drive consumer traffic, so private-label brands cash in on the marketing investments made by branded manufacturers.
So back again to what all of this means. Growth of private-label is both a positive and a negative. It’s a positive because it helps boost those bottom line results, keeping consumers happier and retailers healthier. That’s a big positive because it keeps consumers shopping and retail boxes open, without either of which branded suppliers wouldn’t be moving much product.
It’s a negative because it places increased pressure on branded manufacturers to move product in a challenged economy, either by introducing innovation not yet available across store brands or by convincing the consumer of a brand’s value versus PL, all in light of increased PL penetration in conjunction with a SKU rationalization initiative that many retailers are pursuing in an effort to cut supply chain costs.
There’s also a concern on what consumers are learning as more and more buy PL — that the inferior quality oftentimes associated with store brands is more and more a misperception. That may very well mean that once they realize the value of PL, it’ll be a little more difficult to convince them to buy back into branded in the future, a negative for both suppliers and retailers. After all, product innovation and the consumer ad support placed behind new products help drive traffic to specific categories within the store. And without that innovation and ad support, some once-profitable categories may suffer from fewer trips and purchase opportunities.