Blending the Best of CPG and Retail to Achieve Store Brands Innovation

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August 2, 2011

By Maureen Azzato

A Store Brands Decisions' Exclusive

Safeway’s new store brands business model is a merger of the best that consumer packaged goods and retail have to offer, according to Joe Ennen, the grocer’s senior vice president of consumer brands.

“We have no intention and we’re not aspiring to create a CPG company within a retailer. We’re trying to bring the best of two worlds together,” Ennen said during his keynote address at the Store Brands Decisions Innovation & Marketing Summit. “What does that mean? People, systems, processes, thinking, org structure, etc., that works well in CPG and then figuring out how to dovetail that and make it work inside a retailer.”

A self professed “CPG guy,” prior to joining Safeway in 2009, Ennen worked a decade in brand management, marketing and product development for Kellogg Company, Con Agra Foods and Frito Lay. Ennen’s professional path through CPG gives him a unique perspective about the possibilities of store brands exceeding the quality of national brands, however the store brands industry is not properly aligned to realize its true potential, he said.

It’s easy for the industry to allow the staggering growth rate of store brands over the past decade to go to its head. While it means the industry is doing a lot of things right, there is an incredible opportunity to eclipse past successes, and the consumer is the key, according to Ennnen. In looking at store brands research, 70 percent of shoppers believe store brands are as good or better than national brands, yet the industry’s unit market share versus national brands is only 23 percent, which Ennen refers to as the shopper “say-do dichotomy, where they say one thing and do another.”

Closing the “Say-Do” Gap
During his tenure at Kellogg, Ennen worked in the U.K. for three years and garnered first hand experience working with some exemplary retailers, noting that there are great store brands strategies and tactics U.S. retailers can replicate from their European counterparts. In Ennen’s view, there are three things European retailers do extremely well when it comes to stores brands -- consistency, product quality and a commitment to innovation.

The commitment to quality in Europe “is fundamentally why U.S. retailers operate off of about a 2 percent margin and European retailers operate off of about an 8 [percent] margin,” Ennen said. “It is embedded in the understanding that [store brands] can be an absolute profit driver for the industry.”

And the reason European retailers are so far ahead in product quality and innovation is they “decided that following wasn’t good enough,” Ennen said. “They charted their own course, they did their own product development, and they went out and built products and tried to understand what their shoppers wanted.”

These are the fundamentals that the U.S. market has to master to achieve similar success, and it will have to “shake loose this idea of followership and really focus on shoppers,” Ennen said. “It’s about great products. It’s about leading. It’s not about following.”

Great lessons on innovation also come from CPG companies, whose primary strength is derived from their consumer centricity and consumer intimacy, which admittedly is easier when focused on a single category or several related categories, Ennen said. CPGs typically focus on 50 SKUs or so, while retailers are working on thousands. But CPG companies are outstanding at consumer insights “and we all need to learn from that,” he said, noting “consistency and quality are non-negotiable standards.”

Brand passion is another characteristic CPG companies share. “There is an intensity to running a brand and there is an intensity to loving a brand that is magical, powerful, and at times frightening,” Ennen said. “I would tell you to love your brand. You’ll be amazed at just how liberating and how far that can take an organization.”

Industry Alignment
While there is a lot retailers can learn from CPG companies, there are limitations to what can work in a retail environment. CPG companies live and breathe brand share and category share, and the performance of Brand A versus Brand B, where retailers are focused on overall category growth, increasing foot traffic and store growth. For retailers “it’s about picking my store over the store across the street,” Ennen said, noting that “followership” or national brand equivalents are not going to influence shoppers one way or the other.

“Your innovation strategies need to fit your retail business system, not the CPG business system,” Ennen warned. The true source of retailer strength and the advantage over CPG is in-store execution. We have “huge capacity and capabilities as retailers and we don’t even necessarily appreciate the ability to launch a new initiative into twenty categories across five different go-to-market systems in six months,” Ennen said, referring to Safeway recent Open Nature launch.

And although retailers have distinct banners and positioning in their respective markets, there is a lot they have in common that can be leveraged. In Ennen’s view retailers and manufacturers must be better aligned for their mutual advantage, especially in the areas of product quality, packaging innovation (particularly structure and functionality), and nutritional improvements.

“If we just got in the business of asking for [quality], I think we’d make huge progress,” Ennnen said, who described packaging as a “very rigid part of the manufacturing process” that if made more flexible could drive innovation. And when it comes to nutrition “we collectively have a responsibility to improve the nutrition in the products that we sell if we take our mission seriously”.

SBD Views: Joe Ennen’s brilliant opening keynote was the best possible way to kick off the inaugural Store Brands Decisions Innovation & Marketing Summit. The insights that Ennen offered on the business during his presentation was invaluable. His challenge to Summit attendees to embrace a consumer centric approach committed to delivering superior quality and leadership was truly inspirational. -- John Failla for Store Brands Decisions

Read These Related Articles:

• From the Summit: A Roadmap to Store Brands Success
• Live Blog Day 1 from the Innovation & Marketing Summit
• From the Summit: Building Shopper Centric Store Brands Models
• Live Blog Day 2 from the Innovation & Marketing Summit
• Social Media to Expand Reach of the Innovation & Marketing Summit

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