15 minute read
Private Label in an
BY GEORGE PURO, PRESIDENT , PURO RESEARCH GROUP
Private Label in an Era of Uncertainty
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Private brands have seen a lot of ups and downs in recent months. In this column, we look back at recent private label trends and what we might expect in the future.
WILD RIDE
Private label has had a wild ride since the beginning of the pandemic, perhaps best exemplified by the picture of a rollercoaster the PLMA used on its most recent state of the industry report. In the early parts of the pandemic, private label sales saw a huge bump. In March 2020, according to IRI data published by the PLMA, private label dollar sales jumped 37% in the U.S.. In May 2020, sales jumped 21%. In fact, 2020 as a whole was a banner year for private label, with store brands (12.3%) outpacing national brands (10.2%).
With pandemic restrictions easing in 2021, at least for parts of the year when there wasn’t a new variant to deal with, retail gains were much smaller than the year before, but more in line with historical trends. Store brands were up just 1% for the year, compared to 2.7% for national brands in 2021, according to IRI data. The story was even worse though in terms of unit sales in 2021. Store brands declined 4.5% for the year, a steeper decline than national brands’ loss of 1.8%.
Private label has continued its growth in the early weeks of 2022, per data from PLMA/IRI. As of February 20, 2022, private label dollar sales increased its share of total store sales in the U.S. to 18.1% Private brands had ended 2021 with a 17.7% share. In terms of unit share, private label increased its share to 20.1%, up from 19.6% at the end of 2021. Both trends bode well for a strong year for private label. And retailers continue to focus on their own brands. Target, for example, debuted a home organization brand called Brightroom in January 2022 with over 450 items at launch. The company grew its owned brand sales 18% in 2021 to more than $30 billion.
WHEN PRICES RISE
In times of inflation or an unstable economy, consumers have historically leaned more heavily on private label.
Data from the U.S. Bureau of Labor Statistics showed that inflation in 2021 was the worst it has been since 1982. The Consumer Price Index (CPI), which measures the average price change over time of a market basket of consumer goods and services, was up 7.5% in 2021 compared to the year before. January 2022 numbers were no better, with the CPI rising 0.6%, beating Dow Jones expectations of 0.4%.
Europe has also seen high inflation, with inflation reaching 4.6% in the fourth quarter of 2021 and expected to reach 4.8% in the first quarter of 2022, according to data released in early February by the European Commission.
Times of high inflation or economic distress – such as the 1970s or 2008 – have often benefited private label, as consumers have looked for ways to cut costs.
But today’s private brands are different than they were historically. Store brands are often of equal or better quality than national brands. While consumers might consider trading down on price, they won’t necessarily be trading down on quality.
GETTING OUT OF THE HOUSE
As consumers emerge from the pandemic further, at-home consumption is bound to soften, as it began to do in 2021. Consumers are venturing out of the house, spending more of their food budget in restaurants and more of their disposable income on travel and entertainment.
In 2019, the National Restaurant Association reported that restaurant and foodservice sales in the U.S. were $864 billion. This plummeted almost 22% in 2020 to $678 billion, before rebounding to $799 billion in 2021. The NRA predicts that the industry will finally exceed pre-pandemic levels in 2022, projected to hit $898 billion.
But this doesn’t tell the whole story. Some of the restaurant industry’s recovery can be attributed to menu price increases. Restaurant traffic, on the other hand, is still down 4% in the US and 12% in Canada compared to 2019, according to data from NPD. In Europe, the story is even worse, with visit counts down 29% in 2021 compared to 2019. Still, NPD predicts the restaurant industry will come close to a full recovery in 2022. In the U.S., NPD expects that the industry will reclaim 98% of its pre-pandemic visits in the U.S. by the end of 2022.
An almost full return of consumers to eating outside of the home will just be another added pressure for store brands. That said, NPD is already seeing trends that consumers are eating more outside of the home, but to keep costs down, they’re bringing the food from their pantry more often than not.
BREAKING SUPPLY CHAIN WOES
One of the biggest issues facing retailers today has been keeping the shelves stocked. Supply chain issues was one of the biggest stories of the last two years, and with the need for more truckers, more warehouses, more ships and less gridlock at ports, most supply chain analysts predict that supply chain problems will not go away anytime soon.
Some retailers with big own brand portfolios are taking matters into their own hands. Kroger, for example, considers its own brands “a competitive moat” and an “incredibly important part of our strategic strategy,” according to Kroger Chairman and CEO Rodney McMullen. The company has invested heavily in extra warehouse space during the pandemic, which allows it to keep shelves full.
Still, supply chain issues persist. And the war in Ukraine will exacerbate problems. The New York Times noted that Ukraine and Russia are key producers of sunflower oil, used in potato chips and cosmetics. Another concern is the summer wheat harvest, used in pasta, bread and other food throughout Europe. About a quarter of the world’s wheat comes from Ukraine and Russia.
Please Contact George at george@puroresearch.com
George Puro is President of the Puro Research Group, a market intelligence firm specializing in consumer insights, competitive/market intelligence and analysis. Puro’s services are designed to keep you abreast of the latest trends, make you look smart in presentations and help guide decision-making. The company has provided organizations and companies, ranging from Fortune 100 companies to startups, with aha! insights about competitors, customers and industries in a variety of topics and industries, including consumer products; retail; transportation, travel and hospitality; healthcare and health insurance; financial services and investment banking; traditional marketing, as well as digital and social media marketing.
The Path Forward for Sustainability
Last month’s PLMA Online Roundtable conference taught us that retailers as well as suppliers agree on the fact that sustainability is no longer a choice but a must! In view of climate change, water shortage and human rights, the sustainable approach has to go faster and legislation is the key for quicker change. In addition, more openness and collaboration between decision makers can accelerate finding sustainable solutions. What became clear is that consumers want to do good, but they do not always know how, thus better information on packaging and storytelling for consumers will facilitate making more conscious choices. For retailers and suppliers to adopt the move towards a better world, training, incentives and clear KPI’s are eminent!
“PLMA’s annual Roundtable Conference always covers important topics for the private label industry and right now sustainability is on top of the list of all stakeholders. The past two days proved that a sustainable strategy is an absolute necessity for manufacturers and retailers, going forward towards a greener planet,” said Melanie Paijmans, Director International Council - Programmes at PLMA. The Roundtable Conference was held. Feb. 22 and 23.
DAY 1
The morning sessions of the first day started with Denise Klug, Editor at Lebensmittel Zeitung, who discussed the topic called “Online Retail Landscape.” Klug stated that 73% of European consumers have become E-shoppers due to Covid-19. Initially, the service quick delivery companies offer are based on fulfilling a shopper demand. To follow the trend for ultra-fast delivery many retailers step into alliances and strategic partnerships with local players for the last mile delivery, but making a profit is still a challenge. Although global investments have never been that high, due to economical situations, the investors are getting nervous while stock price go down, which results in the returned focus on profit and lower costs. In that respect the delivery costs are very high, and robot delivery for the last mile, which is still in its infancy phase, could be the answer to lower the costs.
Further Denise sees huge opportunities for private label which gives a competitive edge and can turn a profit: “As online companies have plenty of data, they know what you buy and what you need and want, thus they use the info to shape the assortment in line with the shopper’s needs,” said Klug.
In view of the sustainable concept, the sustainable advantage of online shopping is marketed through bike delivery, reduce carbon footprint by less shopping trips from the consumer and food waste by highlighting products that are close to the expiration dates.
For a deeper dive into sustainable products, Marjan de Bock, Co-CEO of ImpactBuying, gave an inspiring presentation on “The Opportunities of Sustainable Products.” According to de Bock, “consumers speak with their heart but buy with their wallet.” What consumers want and finally buy are not always in sync and price is still important for purchase, de Bock said. The question is what options do we give the consumer to buy with their heart? Sustainability becomes the key brand value, but although the importance is clear, the practice is more challenging to realise.
According to Marjan, the first mile, being e.g. the farmers, in the supply chain is at the bottom of the whole sustainable value chain. Boots on the ground is better than nice vision statements showed the case study of coffee supplier Sucafina and Dutch supermarket chain Jumbo. Full transparency of the coffee chain and all individual farmers involved, making sure the retailers’ investment was used for what farmers need and regular analysis and monitoring of the processes leads to verified story telling for the consumer.
Retailers are the ones that should take the lead in a sustainable world, and it is important that the private label buyer translates the retailer’s sustainability policy in the negotiations with suppliers and that he is incentivized to buy sustainable. Manufacturers should be willing and able to deliver the requested verified transparency data and their salesmen should truly understand the sustainability issues, be pro-active with sustainable projects and offer their products with a consumer story.
Kevin Vyse, Packaging Expert and Head of Technical at
ProAmpac, believes that in the approach to sustainability, one should think about packaging as an ingredient of the product instead of just a necessity to hold and protect the content as he stated in his presentation, called “Net Zero and the Circular Route to better Packaging.” Designers of packaging should become more aware of the end of the chain, i.e. what happens to the packaging after the product has been consumed. Can it easily be separated in waste, is it recyclable, etc. In the end it is about making packaging part of the solution instead of the problem.
Boris Planer, Head of Consumer and Market Insight at WGSN
and discussing “Consumer Attitudes toward Sustainable Purchasing” says that 86 % of consumers want to see more sustainable and ethical products after the pandemic. He says that the change speeds up because of a sense of urgency from the consumer, something needs to be done right now as climate change is so obvious. The consumer is more conscious to contribute to a better planet while buying sustainable. Retailers and manufacturers need to prepare for the new world otherwise they will be left behind. The company shared that their sustainable strategy encompasses among other fully recyclable and renewable packaging in 2025, fossilfree transport, cutting food waste in half with data driven analyses. To achieve these goals all suppliers must have adopted science-based target climate goals. ICA surveys revealed that consumers want to make more sustainable choices but need the help from the retailer through clear communication. In order to be proactive in the market, the retailer collaborates with innovative suppliers and helps them in the development of concepts. Being super transparent, test concepts with consumers early-on and continue to monitor and work on the product after the launch is a way to make NPD successful. The concluding panel, moderated by Edgar Elzerman (Retail Consultant), included Michael Pilgaard (Dragsbaek A/S); Stefan van Rompaey (RetailDetail); Emelie Hansson (ICA Sverige); and Philippe Weiler (Sustainability Expert). They agreed that legislation, transparency and information, telling a clear story, is key in every sustainable strategy. We all need to work together as together we are strong. In the eyes of the panel, sustainability shouldn’t be presented as a niche product. If it is placed next to the regular product, it will truly give an alternative choice to consumers. The expectations for the future are that stronger legislation will speed up the sustainability process, retailers will need to take the lead, innovate and differentiate and, last but not least, inspire and educate consumers.
DAY 2
The morning of day 2 of the conference started with the Futurist and Author, Peter Hinssen, who as a technician is looking to the world through a lens of technology which he says is accelerating. Rather than be afraid of it, you can see it as a huge opportunity to change things for the better.
The so-called ‘never normal’, which goes beyond the ‘new normal’, is a constantly and rapidly changing world through technological and ecological seismic shocks. To formulate your strategy for the day after tomorrow, broader skills, bold vision and ultraflexibility on details are needed so you can reinvent your business and stay relevant in the future.
For a case study on best practise
Emelie Hansson, Sustainability Strategist, and Maria Gustavsson, Innovation
Manager at ICA Sverige AB, the biggest retailer in Sweden who received an UN award for its Climate Right Project, gave an insight in the company’s sustainable strategy.
X5 Group, a leading Russian food retailer, has teamed up with the accelerator Plug and Play to scout for sustainable development innovations. The two companies look to focus on projects related to reducing waste and GHG emissions as well as sustainable packaging.
X5 is set to kick off the partnership by analysing the key needs of its formats and the accelerator’s existing innovations that may be useful in its business. Startup scouting will begin in the summer of 2022 together with pitch sessions arranged for Russian and international projects to present their solutions.
The retailer is also expanding its programme to identify and promote employee projects, X5 Idea Challenge, with a dedicated track to discover solutions within the Company. Previously, X5 mainly scouted for innovations in store operations, logistics, back-office processes, HR, IT, marketing and other areas. Now, employees are welcome to suggest solutions to help advance the Company’s Sustainable Development Strategy. “We are always on the lookout for new projects and ideas to support our sustainable development efforts and make our stores and facilities more sustainable and eco-friendly. Together with Plug and Play, X5 will certainly be able to find new technology-intensive projects and solutions for integration into its processes,” said Maria Podkopaeva, X5’s acting Sustainable Development Director.
“We are proud to partner with X5 to help solve some of our most important challenges of our generation. The potential impact X5 can have on topics like food waste, climate, and packaging is enormous and they are showing leadership by taking action through innovation. As a partner of Plug and Play Sustainability, X5 will combine their scale and knowledge with the most promising sustainability startups to build a more sustainable future. We are excited to continue this journey together with X5 and develop innovations that can drive business, societal, and environmental value,” said Nicolas Chow, Director of Plug and Play Sustainability EMEA.
In December 2019, X5 adopted a sustainable development strategy based on the four UN Sustainable Development Goals (SDGs) where the Company can make the biggest difference. X5’s strategy focuses on projects aimed at promoting a healthy lifestyle and the availability of quality and wholesome foods, ensuring decent working conditions and equal opportunities for employees, advancing responsible consumption and use of resources, and supporting local communities through the development of charity.
X5 was the first Russian company to become an anchor partner of Plug and Play. In December 2019, the parties signed an agreement to jointly scout for technologies all over the world. The accelerator arranges sessions with startups to help X5 improve operating processes at Pyaterochka, Perekrestok, the corporate Transport Department and elsewhere.
X5 Retail Group N.V. (LSE and MOEX: FIVE; Fitch, BB+; Moody’s, Ba1; S&P, BB+; RAEX, ruAA+) is is Russia’s largest food retailer. The Company operates proximity stores under the Pyaterochka brand, Perekrestok supermarkets and Chizhik hard discounters. X5 provides an omnichannel experience to its customers, integrating retail stores and e commerce through its businesses Vprok.ru Perekrestok, 5Post and Mnogo Lososya.
As of 31 December 2021, X5 had 19,121 Company operated stores. It has the leading market position in both Moscow and St Petersburg and a significant presence in the European part of Russia. Its store base includes 17,972 Pyaterochka proximity stores, 990 Perekrestok supermarkets and 72 Chizhik hard discounters. The Company operates 47 distribution centres and 4,480 Company owned trucks across Russia.
X5 is one of the largest employers in Russia. The Company employs more than 335,000 people.
PHOTO CREDIT: X5 GROUP
For more information: esg.x5.ru/en/
Plug and Play is the leading innovation platform, connecting startups, corporations, venture capital firms, universities, and government agencies. Headquartered in Silicon Valley, Plug and Play is present in 35+ locations across five continents. They offer corporate innovation programs and help their corporate partners in every stage of their innovation journey, from education to execution.
They also organize startup acceleration programs and have built an in house VC to drive innovation across multiple industries where they've invested in hundreds of successful companies including Dropbox, Guardant Health, Honey, Lending Club, N26, PayPal, and Rappi.
