Many of the world’s most successful retailers are using their private labels to differentiate themselves from competitors, create unique and attractive propositions, and foster customer loyalty, suggests the latest report from the consulting firm Dunnhumby, ‘Winning with Private Brands, the Customer First Way’.
Take, for example, the American online food specialist H-E-B, which lost its position to Amazon in Dunnhumby’s RPI 2022 report. This year, H-E-B has regained the top spot, “largely thanks to its private label proposition, which has been very well received by consumers,” says the consultancy.
It is not the only case. In Spain, France, Germany, the United Kingdom, and Italy, all the brands that scored above average also had positive ratings in aspects such as price, quality, and variety of their private label products.
In the United States, brands that have managed to build a beloved private label grow much faster than their rivals; this is the case with Costco, Trader Joe’s, and H-E-B, among others (see graph below).
“It is not mere coincidence,” warn Dunnhumby. Behind the success of many of these brands is a progressive approach that has led them from ‘generic brands’ to developing genuine private labels recognized by consumers.
These consumers consider factors such as price, quality, and variety in each product and category when choosing one retailer over another, but having a strong private label can itself sway their purchasing decisions.
SIX KEY ASPECTS IN PRIVATE LABEL DEVELOPMENT Based on their own RPI studies and surveys of various retailers worldwide, the consultancy has identified six major innovation factors in private label.
- Value. This is one of the most considered aspects by consumers worldwide, which has forced retailers to design their pricing and assortment strategies very well. “Private label represents an opportunity to reinforce the perception of value,” emphasize Dunnhumby.
A good example of this is Smart Way, one of the brands of the American retailer Kroger, which combines 16 of its previous brands and has allowed it to be more recognizable and increase its perceived value.
- Health. Consumer concern for health has not stopped increasing since the pandemic, even during the inflationary situation of recent years. For this reason, many retailers have designed healthier and more affordable private label options, including vegetarian, vegan, natural, and organic products.
This strategy is increasingly common among discounters, who use it to improve their market position and attract higher-income consumers.
An example of this is Lidl’s introduction of vegan and organic products in its private label, which has allowed it to differentiate itself from other discounters and competitors.
- Sustainability. Like health, it is one of the issues that increasingly concerns consumers. From a private label perspective, packaging is particularly relevant in this aspect, and more initiatives are being seen incorporating recycled materials and bulk products.
A good example of this is Mercadona, which has promoted a general review of its private label packaging and assortments to ensure they meet their sustainability goals.
- Quality. Private label has traditionally been associated with lower quality products, but this has begun to change thanks to the good work of retailers. In this sense, boosting the image of private label is only a first step.
A good example of this is Tesco’s Finest line, which consists of high-quality ready meals with very extensive details about ingredients and recipes.
- Breadth of Categories. Food is not the only field where private label can be applied, as demonstrated by the growing investment of retailers in their own brands of clothing, shoes, or homeware.
For example, the Portuguese retailer Continente has private labels in pet food, health and beauty, frozen foods, and fish, among others.
- Brand Activation. Retail media has become one of the big topics in the sector over the past decade. Its use is no longer exclusive to manufacturer brands; private label also makes use of them to boost, for example, seasonal sales.
The best example of this is Lidl, which has continually increased in-store signage to improve the visibility of its brand.
Source: Financial Food