Steve Fay interview with Grocery Headquarter:

GH: How does private label merchandise differ from national brands?

Fay: I could be cute and say they are better but I will resist the temptation. Factually, in most product groups there is a virtual equity between most store brand offerings and the national brand. In some rare instances there are patent or proprietary ingredient differences but those truly are rare. The last fifteen to twenty years have seen store brands evolve from poorly packaged inferior generic products to true national brand product. The premiere retailers such as Wal-Mart, Kroger, Safeway, Albertson’s and many others have set the bar high for their store brands. The product development phase on most store brand products subjects it to a gauntlet of exacting specifications, sensory paneling and other development hoops to jump through. After a product is actually on the shelf the better retailers have quality assurance regimens that keep quality standards high. Other organizations like the Private Label Manufacturers Association led by Brian Sharoff have goaded private label manufacturers to be much more than second-rate manufacturers with second-rate goods. The standards and expectations have been set high for us as private label/store brand manufacturers. The real difference is in the value equation. Store brands simply deliver greater value for consumers and greater profit for retailers.

GH: Why do these items work within retailer assortments, especially among established recognized brands?

Fay: Store brands are gathering momentum. The secret regarding their parity with national brands becomes less a secret year by year. Because the industry has set a course of demanding excellence in their store brands most consumer experiences with store brands is one in which the consumer receives more than they anticipated at a price less than they had anticipated. That is a good combination for building and retaining purchasers of your product. If retailers and store brand manufacturers keep focus on the value equation of delighting customers with more for less; the inevitable outcome can be nothing less than a robust, growing and successful store brand sales environment.

GH: How do they work on shelves and impact sales compared to national brands?

Fay: Although it varies by product category, store brands generally will take 15 to 25 % of category sales. The daily merchandising battle is that store brand people want to be set adjacent to the brand where consumers can make direct value comparisons while the brands are constantly seeking opportunities to distance themselves from that direct comparison. I believe in some ways the old tale of the tortoise and the hare applies to how store brands and national brands battle on the shelves. The national brands like the hare are very dynamic in the short term. They have the potential to affect things through huge marketing spends that simply don’t exist for store brands. Meanwhile the store brands like the tortoise keep steadily marching forward offering parity in quality at a lower price and year after year they grow and erode the share of the national brands. In the end like all issues in any business it is about bottom line. Store brands simply deliver a multiply higher net profit than do the national brands and because of that the retailers emphasize them. Things look increasingly bright for store brand products.

GH: Private label as a differentiator in the marketplace.

Fay: The concept of branding the store has become a vogue term of late. The retailers that have risen above their competitors and succeeded in the midst of very tough market circumstances are those that have had a clear sense of ethos and identity. They know who they are and they know who their target customer is. In other words branding the store is nothing new. Most successful retailers have been branding their store identities for decades. It has become more intense and sophisticated recently but it is not new. Store brands can be and should be a powerful tool in that process. Store brands should shout with the aura of the stores they are sold in. If you want to build an image of quality and dependability then products that bear your name should have quality and should deliver it every time. If you want to be more that Old Joe’s food Store down the street then high end better than national brand or even gourmet store brand offerings might be the ticket. If eclectic is what you want to be then your store brands should be marching to a different drummer and so on and so on. I believe we, as store brand manufacturers should allow ourselves to be inculcated with our customer’s cultures and seek to create products in support of them.

GH: How do retailers maintain a healthy balance between store brands and national brands?

Fay: Again, I could be cute and say give the entire shelf to the store brands. The reality is that an odd symbiosis exists between retailer, national brand manufacturer and store brand manufacturer. The power of brands to market and bring activity to the product category is at least in the present a necessity. For now we need healthy brands to bring consumers to the shelf. As retailers have grown in scale so has their access to the marketing power and sophistication that can rival the brands. The retailers that view consumer products marketers as well can do awesome things with store brands. We are seeing the emergence of some super retailers who are positioning to be the complete package, store operator, logisticians and marketers. Heretofore, most retailers simply piggybacked the brands direction and money; I believe that is in the process of change and thus my earlier point of national brands being a present necessity. The battle of the future will be interesting as store brands and national brands move increasingly toward category share equity. Who then will drive the category?

GH: What are challenges for retailers who feature private label?

Fay: They are many. They may have to staff with expertise that may not exist in their present organization. They may have to go through a painful weaning process of addiction to national brands monies. They may have to let go of decades of paradigms. Again, I could try for cute and say they would need more accounting people to count the additional profit.

GH: What challenges do they cause, if any for CPG companies with recognized brands?

Fay: Much. Obviously, additional profit. In terms of net numbers in many categories it offers three to five times the net profit. In terms of store branding and identity, private label offers a valuable tool controlled by the retailer that can shape his consumers view of who he is. In terms of share of category, realistically 30-35% of most product categories but much higher in some. In terms of ultimate outcomes perhaps survival in the age of the mega retailer.

GH: What is the future of private label for mass retail?

Fay: It is very bright. It is one of the most powerful tools retailers have to level the playing field with the huge consumer products companies. It is a necessary part of succeeding in today’s retail environment. Certainly, the future will shape and reshape our paradigms but store brands will be in that future. They will be there in increasingly larger shares of category. They will be there with additional profit. They will be there with opportunities to shape consumers perceptions of retailers.