The Supply Side: Wal-Mart, Sam’s Club focusing more on private label

Private label is an important metric of the grocery business, but getting it right is not as easy as slapping a lower price on a can of Great Value green beans placed next to 
Del Monte or Green Giant.

In fact, private label sales have been largely stagnant across the grocery industry since 2011, according to IRI. Private label sales of food and beverage accounts for about one-fifth of total market dollars, or $530 billion in 2013, the last number available, according to Nielsen market research.

A few retailers like Costco, Aldi and Wegmans have got the formula right for private label. As part of their overall effort to improve financials, top execs at Walmart U.S. and Sam’s Club told the media last week they too are focusing on their private label business.

Retail experts with Nielsen noted in a 2014 report that there are missed opportunities with private label sales. Manufacturers should adopt a collaborative mindset and help retailers win across the total store with both private label and name brands, the report noted.

“Manufacturers should consider joint promotion opportunities. For example, if one group of consumers prefers a name brand in a category while another prefers private label, consider promoting them both in the same week. In addition, manufacturers could create integrated shelf sets to help retailers lay out their store shelves. Finally, manufacturers should look for areas where private label doesn’t have a presence, and discuss placement options with retailers in categories where they don’t already have a private-label presence,” noted Todd Hale, former senior vice president and consultant, consumer and shopper insights, Nielsen.

REDUCING PRIVATE LABEL
Rosalind Brewer, CEO of Sam’s Club, told the media that her buyers are in the process of streamlining their private label offerings from 15 to 2. She said two years ago, Sam’s Club was bloated with as many as 20 different private labels.

Sam’s Club is now converting Simply Right into the Members Mark label, in the its health and wellness area.

“We are narrowing our focus in private label. You will see us do more with private label going forward. Our focus will be on better quality and value. Working toward an elite private label brand will be one of the levers you see us pull going forward,” Brewer said.

Retail expert Carol Spieckerman, CEO of newmarketbuilders, said that Sam’s decision to consolidate its private brand is a positive move.

“Costco serves as an obvious example of how creating a power brand and really getting behind it can move the needle and more importantly, drive destination shopping,” Spieckerman said. “Costco has built a tremendous amount of trust and loyalty for Kirkland over the years – it is the envy of the industry.”

She said building brand loyalty like Costco has done with the Kirkland label takes time. 

“Sam’s can’t expect Members Mark to hit Kirkland-esque proportions right away. Still, it makes sense for Sam’s to narrow its private brand portfolio and focus. One of the reasons Kirkland has been so successful is because Costco has continued to raise product quality while keeping prices stable or even lowering them. It will be important for Sam’s to maintain high standards and continue to bring on the value as it integrates more products into fewer brands,” Spieckerman said.

Clint Lazenby a supplier development consultant in Bentonville, said consolidation is a good move for Sam’s Club.

“Suppliers for private label understand these shifts will happen and they will adjust accordingly. Sam's and Walmart do a great job of partnering with their suppliers to ensure the transition is as smooth as possible and minimizes incremental cost,” Lazenby told The City Wire. “I would say the key for Sam's Club, as for any brand, is to ensure they have a clear long term strategy for the brands they are going to get behind. Creating brand equity is extremely hard and expensive, so focusing this on fewer brands should be advantageous.”

He said the challenge suppliers and Sam’s Club have to navigate is that of the consumer does not always "understand" this disruption to their lives. Consumers also must feel confident that the items and brands they want in the future are going to be there, he said.

“They see this as a commitment to them. It is important that these changes are made with clear focus and understanding of what is important to the consumer and will drive loyalty and consumption over the lifetime of the consumer,” Lazenby said.

Jason Long, CEO of Shift Marketing Group in St. Louis, said Costco’s success with Kirkland is a hard act to follow on private label.

“It’s a brand that stands for quality and value and allows Costco pricing and distribution leverage when negotiating with CPG suppliers. So anything that Sam’s can do to emulate this business model is a good start,” Long told The City Wire. “I like the idea of Sam’s focusing their efforts behind a few private brands. It gives those brands an increased likelihood of resonating with the consumer – especially if Sam’s is vigilant and focused on delivering high quality and value behind those labels.”

Long said the supplier community will likely be on notice regarding Sam’s efforts.
 
“Costco has pushed back hard on packaged goods stalwarts including Tide as its Kirkland Brand grows in strength. It will be interesting to see if Sam’s can build the same cachet around its private brands,” Long said.

WALMART STRATEGY
Walmart U.S. CEO Greg Foran was also recently asked by media to comment on efforts to tweak private label under his watch.

“You are going to see us lean into private label where it makes sense. It can be a great addition to any assortment where there is a gap in quality or price. We have not set goals toward expanding or reducing private label offering at this point. I just want buyers to make sure that our customers get the right proposition in front of them,” Foran said in a media conference June 4.

In some categories Foran said it’s a good idea to offer a value which can accomplished by a private label. 

“When I walk the store and when I do line reviews I see opportunities to tweak the types of products we’re selling, how it’s packaged or how it’s displayed and we are challenging ourselves to do better where we can,” Foran added.

SUPPLIER ADVICE
Steve Bratspies, executive president of grocery for Walmart U.S., said private label is already a big program within the company, but said there are opportunities to capture more of it as well as improve upon the brands already offered.

Bratspies recently spoke to suppliers in Bentonville about Wal-Mart’s food business. During that May 20 speech Bratspies told suppliers that Wal-Mart is serious about low cost and innovation.

He said the retailer is also serious about re-energizing the center of the store with varied product offerings that are innovative in nature or offer tangible value to cost-conscious shoppers. He said buyers are not looking for more line extensions, varied flavorings etc. But, they are instructed to seek out quality food offerings like Alaskan King Crab and sometimes private label is the best solution.

Bratspies also told suppliers to bring their most innovative food ideas to their buyer’s table. He said if capital outlay is a hurdle then let the buyer know because a purchase order might help, adding that buyers are there to buy.

He said other product areas Wal-Mart is focusing on include adult beverages, organics, gluten-free and sugar-free, and premium frozen.