In Europe, private brand accounts for 30% of grocery sales. In the U.S., the number is 19%. The gap is closing, however, and the coming shift in market share represents $100 billion in sales. The regional grocers that capture their share of private brand growth will be the ones that 1) commit to an identity; 2) develop a compelling flagship category or item; and 3) build the engine to scale. In this series, we discuss key considerations for each stage of growth.
Customer perception of a brand starts and ends with the products that bear its name. Once a grocer decides its private brand program will be customer-driven rather than margin-driven, and once it commits to a broad strategic approach, it's time to make the brand tangible. That's when the search for a flagship category or department begins.
Role of the flagship
The search for a signature offering isn't just about discovering or developing great products. Its higher purpose is to unearth the intersections between what customers already love about the grocer; the categories that matter to them; and the attributes they seek. It's about finding opportunities to prove that this grocer truly knows its customers.
In our last article, we described the three primary strategic approaches to private brand: Elevated Everyday, which delivers a more upscale look and feel at an accessible price; Purpose-Driven, which focuses on attributes that shoppers value; and Price-Led, which offers basic items at impossible-to-beat prices (making it the specialty of national players).
Once grocers select the option that best aligns with their banner brand, they can build a flagship category or department that reflects and amplifies that aspect of the banner brand.
Retailers with best-in-class private brands have defining programs that not only deliver excellent products but also reflect what's special about them and what their customers value. The famous Pub Subs acknowledge the zeal of Publix shoppers not only for delicious sandwiches but for customization, friendly service, freshness and convenience. H-E-B caters to local tastes with fresh tortillas, and Trader Joe's has built its entire business model on unique items like Speculoos Cookie Butter.
Search for the flagship
As grocers evaluate contenders for the landmark offering — the first proof point of their new or revamped private brand program — they need to consider three areas: customer, category and competition. They need to understand where they already have equity with customers, how they stack up against other retailers, the saturation level of different categories, and where gaps exist.
This process should include plenty of data — quantitative and qualitative, first-party and syndicated — but it cannot only be a desk-based exercise.
Grocers fare best in this endeavor when they get hands-on with the products of each category in contention. They bring together both their own products and those of their competitors, lay them out, study them, compare them, and taste them. The most effective category deep dives are thoroughly tactile processes, and the most effective merchants are those who deeply understand the products they buy.
Selection of the flagship
As momentum for the program builds, everyone will want a piece of the action. All buyers believe their categories deserve signature status, but the very nature of a flagship demands exclusivity. A targeted, purposeful approach is what creates impact. Spreading early private brand efforts across too many categories will dilute the whole program.
Accommodating well-intentioned ambitions — instead of standing firm on what research has found will resonate most with shoppers — might make a few more people happy internally, but it will set adrift a strategy that was designed to be anchored in the customer. Great merchants can blend art with science, so thinking creatively is by no means prohibited, but the consumer should always be consulted. Surveys, focus groups, pilots and other mechanisms are essential to validate merchant instincts.
Another common mistake grocers make in the early stages of building a private brand program is not acknowledging and owning the longer-term nature of the project. The flagship may not drive real penny profit at first, and that's okay. It's an investment; it proves the model, tests capabilities, and builds credibility both internally and externally. Only when it scales does it start to shift total contribution. The ROI happens over time.
To validate private brands as a true strategic priority, grocers need to provide a straightforward, consistent set of KPIs — penetration, repeat purchases, and gross margin contribution, for example — and adjust incentives as needed so that wins for private brands are wins for everyone.
Support of the flagship
Whichever category or department is chosen as the signature offering, its success will be proportional to the support it receives. Grocers must assemble a dedicated cross-functional team to own the development and launch, filling headcount or capability gaps — packaging, quality assurance, insights, and especially marketing — even if on an interim basis as the program is growing.
While the number of people solely focused on private brands may be small at first, grocers who want the program to move the needle long-term need to create a culture in which all employees understand and rally around the vision for an expanded role for private brands.
In a best-in-class program, team members take pride in and advocate for the company's exclusive offerings. Ensuring that will be the case with the flagship is particularly important. If the merchants don't believe in the item, if store teams aren't behind it, or if it doesn't earn a spot in the weekly ad, it won't succeed.
Growth beyond the flagship
Grocers that follow this process to select a landmark category or department should expect success, and they should be ready to take the next steps as certain milestones are hit. Lessons learned from the flagship rollout will need to be applied to the next set of private brand categories; headcount will need to be adjusted; new supplier relationships will need to be established and existing ones evolved into true partnerships; and marketing will need to be ramped up.
What has to come first, however, is a carefully crafted private brand made tangible — and memorable — through one category or department.
That's why a flagship is powerful; the key to wide-ranging success in the long term is narrow focus in the short term.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
