Resist the Temptation of Easy Money for Long-Term Store Brand Growth

SHARE:

Email

Print

LinkedIn

Facebook

Twitter

September 30, 2009

By Maureen Azzato

Thought Leadership: Andres Siefken, Daymon Worldwide

Consumer packaged goods companies are cutting back on innovation, reducing prices and throwing money at retailers and consumers with increased promotions and store coupons to compete more forcefully with store brands –– all strong indicators that store brands are gaining sustainable growth in the marketplace.

In fact, CPG companies are so concerned about the incursions of store brands on their sales and earnings that some are beginning to refer to and/or compare their brands to private brands in advertisements, according to Andres Siefken, vice president of brand strategy and marketing for private brands broker Daymon Worldwide Inc., based in Stamford, Conn.

“These ads are positive for private brands. When you are playing against these giant brands and suddenly you are on the radar screen, you know you are in the big league,” Siefken told Store Brands Decision during an exclusive interview. “They are creating more buzz about private brands with those types of ads.”

And CPG companies aren’t only courting cash-strapped consumers with ads and large-value coupons; they are tempting retailers with even more lucrative promotional dollars and display allowances. “CPG companies are throwing a lot of money at retailers to try to minimize the impact of private brands,” Siefken said.

The temptation of easy money from manufacturers can sometimes distract retailers from maintaining strategic focus on their store brands. To thwart the appeal of this temptation, the savviest retailers are offering category managers goals and incentives tied to store brand growth as well as overall category growth, according to Siefken.

“Best-in-class retailers have buyers with very well defined goals and incentives on private brand growth, which allows those companies to really grow their brands,” Siefken said. “This also limits the action of national brands coming in with a lot of money and throwing that money at buyers to help them make their goals.”

Despite the allure of increased promotional dollars and intense competition from CPG companies, which will continue to mount, Daymon’s forecast for store brands remains strong in the short term and long term. Over the next two years as the recession winds down and the economy normalizes, retailers will have differentiated themselves and built consumer brand loyalty, creating sustainable share growth post-recession, according to Siefken.

“I see tremendous growth as retailers get better at managing their brands. I also see a lot of competition from national brands, but the value alternative will consistently be with the private brands,” Siefken said. “A lot of retailers, if not the vast majority of retailers, are paying more attention to packaging design and how their brands are positioned, and focusing on what their brands mean to consumers.”

As CPG companies scale back new product development, it is incumbent on store brands to pick up the pace and continue innovating new items and brands.

“The speed to market for an innovative product for a private brand is way shorter than a national brand [from a CPG company],” Siefken said. “That’s a competitive advantage retailers need to maximize.”

Post-Recession Shifts

Without question, consumer behavior will shift post-recession, but the key is to educate consumers now about how to buy smarter while it is top of mind, Siefken added. While many speculate – and no one knows for sure -- how consumer behavior will alter after the recession, Daymon and its research partners, including Datamonitor, are studying the impact a post-recession economy will have on store brands. The impact the recession is having on the younger generations is also vital for future store brand growth.

“I will be very interested to see what happens to Generation X and Generation Y because this is the first time they have experienced a recession,” Siefken said. “Younger consumers are changing how they spend because they have less money right now, but they also are becoming more sophisticated and will be demanding different products. When you look at how they use social media, you realize very quickly that they can build or destroy a brand with their blogs. The way they communicate is going to change everything.”

The next two years are vital for retailers to gain a strong foothold and grow their store brands, but they need to be more strategic to reap the rewards long term, according to Siefken.

“Retailers need to treat their private brands as a strategic pillar of their companies” just like CPG companies do, said Siefken, who prior to joining Daymon three years ago spent his entire career at companies such as Procter & Gamble, InBev and Allied Domecq. “For many retailers, private brands were not a strategic pillar, but a tactical play. Now retailers realize they can actually deliver to the consumer -- and to their profitability -- by becoming more strategic about their private brands.”

This requires retailers to activate and manage their private brands in “a more traditional brand management style,” Siefken added. “Right now, I don’t believe we are even half way to where we should be. The consumer is the boss right now and we need to think differently. We need to pay attention to how these brands are communicating to consumers and how they are going to connect with them. These brands and products need to be completely aligned with consumer needs.”

SBD View: This interview illuminates the single greatest challenge and obstacle to store brands growth. Can retailers “take the needle out of their arm” from CPG promotional money in order to give store brands the marketing and merchandising support they deserve? What will it take for this to happen? Do quarterly reporting requirements of publicly held and highly leveraged retailers put them at a disadvantage to privately held regional retailers? What’s your view? Let us know what you think by posting a comment below or sending an email to jfailla@storebrandsdecisions.com.

Read These Related Articles:

• Nutrition Claims on Store Brand Products Rise
• Product and Process Innovation Lead the Charge at PLMA Show Opening
• Store-Brand-Centric Super Dollar Discount Foods Opens Its 12th Store
• Study: Regional Grocers Can Compete With Walmart
• Meijer Launches Specialty Store Brand Foods

Most Read

Guest Columns

How to Develop a Private Label Expression Aligned with Retail Brand Strategy

By creating private label as a marketing tool rather than just a price alternative, retailers gain the opportunity to tell a complete brand story while simultaneously boosting customer loyalty.

Source: CBX

Using the Store Banner to Endorse Private Label Architecture

Although the economic downturn accelerated private label growth in Europe, there was another key driver -- retailers started to brand their stores.

Source: IPLC

Linking Your Empowered Customer into Your Store Brand Management Process

The formula for success is for retailers to take a holistic store brands management approach by collaborating with customers to maximize store brands potential.

Source: Austin Clark Group

See All Guest Columns »

Press Releases