National grocery chains, club stores, mass merchandise outlets and even convenience stores are reviewing every section of their operations to find products to challenge with private label brands, and CPG companies should be getting ready, according to Reid Swanson, VP, Americas Grocery & Retail, Centric Software.
That requires a sharpened focus on product innovation across the retail spectrum, he explained in a recent interview.
Private label portfolios have become more than just a vehicle for value – these days, they’re driving profit for the store and building brand loyalty, according to Swanson, and that trend is projected to grow in the coming years.
“We’re seeing some of the market leaders like Trader Joe’s, Whole Foods and Fresh Market expanding into almost every category,” he said.
Even in his own company, which offers product lifecycle management (PLM) software and market intelligence tools, the food and beverage, cosmetic, formulated product area, has become the fastest growing sector for Centric over the last few years.
“In Europe, the average grocery retailer has a 44% private label assortment in their stores. America is still at 21%,” he said. “It’s been slow to grow, but now the consumer is realizing there’s a lot of value to be had.”
CPG rising to the challenge
Seeing their distribution networks become their greatest competitors is among the biggest challenges facing food and beverage manufacturers today, requiring them to “streamline their own innovation pipelines,” Swanson said.
“How can they make sure that they’re capitalizing on trends quickly with established consumers where they had brand loyalty, but now they haven’t really had new products in a long time?” Swanson said.
CPG companies should be asking the question: Where are competitors seeing growth, whether that’s in grocery, convenience, warehouse or some other retail format, he advised.
He explained that consumers are looking for alternatives to traditional products and prices, so CPG companies should pay close attention to private label and competitor innovations. “Do you see certain sections of the grocery store or the convenience store … growing more rapidly within private label?” he asked.
Private label expansion
The nature of private label portfolios has changed over the last several years, most notably outgrowing its historic value proposition for consumers, Swanson said.
“In the beginning, for most grocery stores it was just the low-hanging fruit of just low-price alternatives,” he explained. “Now, a lot of grocery companies have been expanding across all portfolios trying to find the white spaces, the areas that they believe that their consumers are willing to make a change.”
That includes the typical low-price options along with rapidly growing mid-tier and premium private label product lineups.
CPG companies still have an advantage over their grocery competitors, though, with the knowledge of brand building, packaging and other nuances of product sales and promotion, according to Swanson.
“Grocery retailers will have to become more or less like a CPG company,” he said. “They will need people internally that can build up that expertise that will understand the regulation and the compliance aspects of bringing a food product to market.”
That includes other nuances of the CPG industry, such as sourcing raw materials, understanding ingredient claims and packaging, he said.
The best product wins
Whether it’s an established brand or a new private label brand, the best product will win market share, Swanson said.
“It’s really important, regardless of what side you’re on, to make sure you’re innovating, you are close to the market, capitalizing on trends and making sure you’re getting the right product at the right price to the right consumer in a timely manner,” he said.
