Intense competition in the retail space has ensured that the customers are spoiled for choices and as a direct result, margins for the retailer has dropped considerably. Imagine a customer walks into the store looking ketchup and sees about 40 assorted brands on the shelves. S/He is most likely to pick the one that has the maximum brand recall, or look for something that is the cheapest or, randomly picks one and drops it in the cart – it’s just pureed, processed tomato pulp after all. Majority of shoppers can be categorized into these three buckets: Loyalist, discount shopper or the impulse shopper and if a retailer is keen on maximizing profits from these profiles, cutting the cost of procuring end products from manufacturers and middlemen would certainly help.
Enter the protagonist: Private Labels
According to a recent study by IRI, private label brand significantly outpaced the industry average growth rate (4.1% to 2.8%). Private label CPG now accounts for over 17% of multi-outlet unit sales and enjoys a nearly 22% unit share in the grocery channel. Seven out of 10 millennials prefer stores that have a wide selection of private label products, and nearly as many (66 percent) often buy private label options over name brands. The appeal isn’t limited to younger shoppers; consumers from all generations view private label as a way to save money and improve value without sacrificing quality.
If you are a retailer and looking to launch your own private label/ optimize profits of your existing label, here’s a 4-point plan to get you kickstarted:
Identify unmet customer needs – No demand, no need to supply. To identify the demand, there are several routes that one can take:
- Feedback from store operations on specific items that customers keep enquiring about frequently
- That specific item that keeps going out of stock no matter how much of it you stock
- Do a market basket analysis of all the items purchased over the last few years to identify maximum SKUs sold
- Analyze search trends and patterns on your website and app
- Feedback and survey analysis of customer sentiments
- Look at competitor labels/ talk to analysts
The foundation for identifying customer needs is, of course, the availability of data and a strong analytics platform that can help you gain insights out of that data. Once you have your analytics in place and reviewed the above items, you have a clear idea about the product line that can be the guinea pig for your private label.