November 02, 2015
From Private Label To Private Equity
The terminology we use in daily life can have a subliminal effect on the way we look at things, from advertising to packaging. Why? Because terminology shapes our thinking, and our thinking shapes our actions. As a case in point, contemplate the usual connotations around the word “private.” Typically, it’s a term that connotes something special and elevated: If you work for a top private equity firm, you’re a big shot. If your kids go to a private school, and your family belongs to a private country club, those are good things, too, right?
And yet when it comes to use of the term “private label,” it is hard not to notice an undercurrent of discomfort in certain quarters. This is understandable: Consciously or unconsciously, many people still link private label with cheap knockoffs. In all likelihood, this is why so many retail executives bend over backward to use an alternate term like “own brands.”
This ambivalence around terminology might actually be a wise, almost instinctive, understanding that older approaches to private label are now thoroughly outmoded. The oldest approach literally was brand-less: In the 1970s, a generic bag of potato chips on U.S. grocery shelves offered little more than the words “One Pound, Potato Chips.” There was no imagery, no color. You could easily imagine this type of packaging on store shelves in Khrushchev-era Russia.
But what came next — knockoff-style packaging in which you tried to pull off an empty imitation of an established national brand — should also stir some discomfort. Sadly, many packaging design agencies continue to reflexively employ this intermediate step in the development of private label brands. It’s a bid to stake out the value proposition, nothing more.
While the alternate term “own brand” is certainly a bit awkward — it doesn’t exactly roll off the tongue — in the best-case scenarios it reflects a shift in understanding. The retailer is saying, “Hey, let’s own this thing. Let’s invest in this brand, redefine the category norm and increase perceived value.” Instead of knocking off Lay’s Potato Chips, for instance, Safeway created Spud Naked Kettle-Cooked Classic Potato Chips. The look and feel of the package was Safeway’s own. A brand came to life.
Ultimately, of course, it’s fine to use whatever terminology you like. The key, as I see it, is to pay attention to how language affects the way you think about and approach package design and branding.
The good private equity firms of the world, for example, are likely to talk about the private label brands they acquire as assets worth investing in. When retailers can be persuaded to think of private label brands in the same way, they are much more likely to make solid, brand-building moves. The story of New York City pharmacy chain Duane Reade helps illustrate the potential upside of an investment-oriented approach. Private equity firm Oak Hill Capital Partners sank millions of dollars into Duane Reade after acquiring the chain and eventually launched a major redesign of the customer experience inside the retailer’s New York City stores. The effort entailed new store designs with wider aisles and more appealing décor and signage; shopper-friendly changes to the pharmacy; the introduction of store-within-store beauty; the launch of a host of high-quality private label brands such as DR Delish, Prevail and the DR brand; and the creation of growler, frozen yogurt and sushi counters. The packaging here was all about redefining the retailer and being a leader, not a follower. The lesson? It’s necessary to invest in order to get a return on investment.
In this example, private label brands were seen as an asset to build, rather than something to marginally improve and offer as a national brand alternative. And as further evidence of the power of those brands, Walgreen Co. (which acquired Duane Reade in 2010) CEO Gregory Wasson said, “Duane Reade’s recent initiatives in urban retailing, customer loyalty and private brand products support and accelerate Walgreens’ strategy to enhance the customer experience in our network of more than 7,100 stores across the country.” With more stories like this, pejorative connotations around the private label term will fade into a distant memory.
And in fact, there are many reasons to be both proud of private label’s evolution and optimistic about its future. For starters, the United States is currently in the middle of a major consumer shift toward Millennials, who see no shame whatsoever in snapping up private label brands. Millennials represent a huge and increasingly important target market. Their openness is like a blank canvass. Retailers have every reason to take advantage of this trend — now!
Changing shopping patterns also bode well for private label brands. Historically, private label sales would improve when times were bad and fall when times were good. But in recent years, the trend has been for private label not to merely ride the economic wave but stay level even as the economy rebounds (Arguably, there was a missed growth opportunity here, but that’s another story …). Millions of people are now in the habit of buying private label products. Let’s give them more of what they’re looking for and want.
Meanwhile, our increasingly foodie-oriented culture happens to play right into private label’s strengths — so long as retailers seize the opportunity. Food is hot, and retailers should capitalize on general human interest when they can. With its cornucopia of private label brands, Trader Joe’s has smartly capitalized on the shift toward all things foodie. Now Whole Foods is doing the same with its smaller-format, private label-focused Whole Foods 365 stores, which will offer high-quality products while banking on the 365’s brand’s well-known value proposition. Capture this captive audience!
Lastly, private brands represent a medium of mass communication, with a targeted reach that can be as impressive, if not more so, than any TV program, blog or billboard. Media is all about consumer impressions. Along the same lines, every private label purchase carries with it distinct consumer impressions: When the consumer sees the product on the shelf, when the shopper buys the product and, finally, when the person actually consumes or uses the item.
If you sell 50 million units of a particular private label product in a given year, this will translate into a whopping 150 million consumer impressions. That’s more powerful than a Super Bowl ad. These impressions can powerfully shape customer loyalty and build the brand in ways that many retailers have yet to fully explore. Treat private label like a marketing tool — it will provide great returns.
By shedding the old connotations and embracing brand-led private label strategies, retailers can tell more compelling stories to a wide range of people. In this approach, every part of the process — the packaging, merchandising, product type (organic, natural, premium, etc.) — is seen as an opportunity to create a favorable impression with target consumers. Chains such as Safeway, Trader Joe’s and Kroger understand these dynamics. They have been using private label to connect with core consumers and new consumers alike and, with the benefit of higher profit margin in a variety of categories, to also build stronger loyalty to their stores. So powerful are these impressions that private label stalwart Trader Joe’s doesn’t even bother with traditional media. Its customer newsletter, The Fearless Flyer, isn’t the company’s primary ad vehicle. That role is played by the private label brands in its stores.
If you ask me, all of this speaks in favor of the true value of private label as a worthwhile marketing tool. Indeed, research shows that higher private label brand penetration also equates to higher store loyalty.
Let’s be proud of the term, treat it better, and continually refine our strategic thinking around it.
Originally posted in Brand Packaging.
Photo courtesy of Brand Packaging.
