Managing the Growth of Store Brands

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October 22, 2009

By Maureen Azzato

Most retailers want to increase share of wallet, customer loyalty, and sales and profits of their store brands. But how can they get inside consumers' head? How do they know when products please or displease them?

Brand new research tools through Gfk Custom Research North America and its partner EmSense, for the first time enable retailers to measure consumers' emotional responses to products, merchandising and total store environments.

"Basically we wire up shoppers with a headband, which works much like an EEG that measures brain wave activity for cognitive awareness," said Lewis Paine, V.P. of Gfk's Retail & Consumer Sector. "Add to that special glasses with a laser and we can track what they are looking at and how long they look at something. We can also measure if they're thinking about it a lot and if they have a positive or negative emotional response to what they are looking at."

In several retail chains it has been demonstrated that having the right combination and number of SKUs in a category can increase not only sales and return on investment, "but customer pleasure in terms of making it easier to find things in a section and making the shopping experience more time efficient," Paine said.

Other tools measure how quickly it takes a consumer to find certain items through online tests and most recently through virtual store testing.

Lewis Paine, Gfk

"We've done research for retail clients to evaluate categories and how consumers perceive brands and where they perceive white spaces [need]," Paine said. "Retailers are no longer reliant on manufacturers to tell them what consumers think and need. There's been a real power shift to the retailer that knows so much about the customer and are now using research to understand the whys."

Trying to turn customers into loyalists and even evangelists, some retailers such as Wal-Mart are using social media and web panels to help them evaluate the quality of their brands "hoping at the same time, in a very transparent way, to create a positive buzz for their products," Paine added. "We see a whole new next generation of software and technology that will expedite the creation and management of these types of consumer panels." (For more on this see "Wal-Mart Uses Social Media to Build Consumer Panel for Great Value Brand.")

Store Optimization

So, as some retail executives work on consumer insights to drive the store brands business, others focus on store and shelf optimization. Organizing the store correctly, right sizing categories and product assortment can result in high single-digit to low double-digit profit improvement as well as 25 to 40 percent reductions in out-of-stocks and inventory levels, according to Vaughn Roller, founder and chairman of Retail Optimization Inc., whose clients include Kroger, Supervalu, Safeway, Ahold and Rite Aid.

"This has resulted in retailers turning away from heavy reliance on national brand manufacturers to support their optimization activities," Roller said. "Retailers are now taking this initiative on and funding it internally. As a result they are doing a much better job competitively and for their shoppers."

On several occasions, Roller and his team have discovered a number of failed internal initiatives that involved national brand manufacturers. "It seems that this ingredient detracted from the ability of our retail partners to maximize the performance of their businesses," he added.

And when it comes to rationalizing SKUs, retail clients have been just as aggressive about cutting or fixing store brands as they have national brands. "We're taking no prisoners, if you will, as we focus on where the performance really is and where it can be improved," Roller said. "Store brands are equally vulnerable to reduction initiatives if the products aren't cutting it." 

Packaging Management

While reducing inventory and out-of-stocks yield retailers considerable savings and boost profit, improvement in other less obvious business processes, such as packaging management and new product introductions, can yield considerable savings and accelerate item speed to shelf .

Does this sound familiar? Eight out of 10 store brand product packages that go through the creative process have to be reworked because they were missing some critical labeling information, certification or quality assurance sign off.

Delays such as these are the norm rather than the exception, and ultimately deprive retailers of revenue, as well as wasted resources and dollars redoing and correcting work on a continual basis. In fact, the most common pain points for retailers, manufacturers and distributors alike are new item introductions and package management, according to research conducted by Logix3 LLC, an outsourced and web-enabled workflow solutions company.

That was the case at Sysco Corp., a $40 billion foodservice marketer and distributor with more than 20,000 corporate brand items. Sysco's internal process for collecting and storing package management data was grossly inefficient and costly. Within 90 days of implementing a Package Artwork Collaboration system through Logix3 in 2004, the distributor increased speed to market by more than seven weeks. After four years of using the streamlined process, average turn times decreased from more than 100 days to 2.5 days, more than a 97 percent improvement.

"So what's that worth to get a product to the shelf that much faster?" asked Bruce Kern, president of Logix3. "Sysco estimates it will contribute $50 million in incremental revenue to their business every year."

More than 40 percent of Sysco's business in tonnage is derived form corporate brands. "The moving parts of packaging management are the same for a retailer or manufacturers as they are for a distributor like Sysco. The only difference is the end-user."

So why are these disciplines so challenging for so many retailers and manufacturers? It comes down to lack of data integration and collaboration and misaligned workflow processes, according to Kern, who started his career at Procter & Gamble and then spent decades working in the private label industry before launching Logix3 with partners in 2001.

"The first thing you have to do is collect the company's data in one place and then be able to organize disparate silos of data so the company can make business decisions off of one collaborated version of the truth," Kern said. "The second step is aligning that data to a workflow process that is more efficient and has built in accountability.

"In many cases the accountability side in this dysfunctional environment is a big point of pain because nobody can clearly go back and say why certain information was inaccurate or missing so that it can be improved or corrected in the future."

Kern estimates that 20 percent of retailers and manufacturers currently use manual processes to manage new products and packaging; 70 percent use internally built applications that likely sit on a Microsoft Access platform; and 10 percent (typically very large companies with in-house research and development capabilities) use Product Lifecycle Management systems that are purchased and placed inside a company's data center.

On average, 20 percent of a company's products and packaging are in flux, which means that a company with 2,000 SKUs is likely managing 400 projects at any given time. That figure will likely increase as Food & Drug Administration labeling requirements continue to increase and companies voluntarily rework packaging to be more sustainable and earth friendly, according to Kern.

Read These Related Articles:

• Wal-Mart Installs New Store Brand Packaging Design Software
• Retailers Seek Innovation Tools to Take Store Brands to New Heights
• Meijer Launches Specialty Store Brand Foods
• Wal-Mart Edges Out Fry's in Tucson Store Brand Pricing Survey
• Wal-Mart Follows Kroger Lead in Private-Label

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