How Major Mergers Are Changing Your Favorite Private Brands

Bryan Pearson

February 26, 2018

Blog-HowMajorMergersAreChanging
What a difference a day makes. Or, in the case of Amazon and Whole Foods, what a difference a day can make for 365 Everyday Value.

The popular Whole Foods brand is subject to a range of changes now that Amazon owns its parent company. In addition to an endless-aisle presence via Amazon.com, 365 could benefit from new innovations thanks to Amazon’s shopper data, financial resources and talent.

It’s one of hundreds, maybe thousands, of private label brands that are rapidly becoming the stars of supermarket shelves in an estimated $166 billion market. From Trader Joe’s portfolio of in-store labels to Kroger’s Simple Truth, private brands have gained the power, and trust, to influence a shopper’s store choice. But when a retail chain is acquired, what is to become of that brand?

In the case of Whole Foods’ 365 Everyday Value, the outlook for brand loyalists is bullish. By January, it ranked as Amazon’s second bestselling private-label brand after AmazonBasics. But the fate of other private labels in a merger, especially smaller brands, really comes down to their fit and performance in the newly combined product portfolio.

Which could lead to a good deal of infighting among mixed-brand families. A good 85% of consumers said they trust private brand products at least as much as national brands, according to the 2018 Private Brand Intelligence Report by the retail services company Daymon. The bonus for retailers is private labels generate better margins.
 

Private Matters

However, when shelf space is limited, choices are forced, and opting to stock one brand over another entails the risk of alienating shoppers. Replacing a national brand of milk with private label may be okay, but unshelving a national detergent brand may not sit so well with many shoppers.

Hence, more innovation has enabled private brands to better compete. Here are three key areas where retail mergers are causing major changes in private label, and therefore the shopping basket:

  1. They can change shopping destinations. An acquisition can sharply broaden access to a once hard-to-find private label, as in the case of 365 Everyday Value. The result is more people try these brands and grow to trust them. And then they seek them out — 53% of shoppers would choose a store specifically for its private label, the Daymon study reports. So more retail segments, including discounters and dollar stores, are getting in on the act. Family Dollar recently announced plans for a new line of private label brands, as well as new packaging. And Walmart-owned Jet.com in the fall released its first private label line, geared toward millennial shoppers, called Uniquely J.
  2. They encourage more innovation. Competition leads to improvements as well as category expansions. Private label lines that are slower performers but show promise will likely be enhanced through innovation, while strong performers will be expanded to explore new territories. For example, shoppers are generally more likely to choose private label foods over private label household items. Kroger is addressing this deficiency by expanding its Simple Truth brand into household categories and relying on its shopper insights to penetrate the market. Specialty merchants, too, use technology to create highly specialized private label goods that help them stand apart. The confectionary chain Dylan’s Candy Bar, for example, uses 3D printers so shoppers can make customized, private-label candies in real time.
  3. Better prices, without compromising: If merged retailers do invest more of their combined cash flow into private label innovations, chances are big-brand products that for generations were seen as untouchable — such as laundry detergent — may soon be competing with in-house labels. The major brands can also innovate, but if the shopper has already been won over by a private label, the national brands will likely be pressured to compete on price — and some already are. Kimberly-Clark, maker of Huggies, Kleenex and other household items, reported its selling prices fell more than 1% in 2017 due in part to competition. But leading manufacturers will need to act fast — 84% of shoppers already believe the quality of private labels is at least as good as national brands, the Daymon report finds.

These perception shifts indicate the days of big brands dominating the shopping cart are under watch, but they also usher in more choice and value for the shopper. Consider that according to the Daymon report, the growth of private labels outpaced that of national brands in the past year, by 4% to 0.5%.

Merger or no merger, retailers are learning to excel at product development, and shoppers are the victors.

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Retail

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About the author

Bryan Pearson

Bryan Pearson

President and CEO, LoyaltyOne

"As President and Chief Executive Officer of LoyaltyOne, Co. Bryan leads a global set of enterprises organized by Alliance Data under the LoyaltyOne umbrella: The AIR MILES Reward Program in Canada, BrandLoyalty, Precima, and LoyaltyOne Global Solutions.

Joining the organization soon after its founding in 1992, Bryan moved through a series of progressively senior roles, becoming President of the AIR MILES business in 1999 and assuming his current position as President and CEO of LoyaltyOne, Co. in 2006.

A highly regarded expert on enterprise loyalty, retail marketing, coalition marketing and customer relationship management, Bryan has spoken at industry events around the globe, with his views on loyalty, data analytics and privacy widely quoted in national and international publications.

The author of the bestselling book The Loyalty Leap: Turning Customer Information into Customer Intimacy as well as The Loyalty Leap for B2B, Bryan regularly contributes to the Forbes retail column, among others.

Bryan supports a number of community and charitable groups including the CHUM Christmas Wish Foundation and Kids Help Phone. Bryan has an MBA and a BScH (Microbiology and Biochemistry) from Queen’s University.

How Major Mergers Are Changing Your Favorite Private Brands

Jul 4, 2018, 11:06 AM
What a difference a day makes. Or, in the case of Amazon and Whole Foods, what a difference a day can make for 365 Everyday Value...
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Publication date : Feb 26, 2018, 00:00 AM
What a difference a day makes. Or, in the case of Amazon and Whole Foods, what a difference a day can make for 365 Everyday Value.

The popular Whole Foods brand is subject to a range of changes now that Amazon owns its parent company. In addition to an endless-aisle presence via Amazon.com, 365 could benefit from new innovations thanks to Amazon’s shopper data, financial resources and talent.

It’s one of hundreds, maybe thousands, of private label brands that are rapidly becoming the stars of supermarket shelves in an estimated $166 billion market. From Trader Joe’s portfolio of in-store labels to Kroger’s Simple Truth, private brands have gained the power, and trust, to influence a shopper’s store choice. But when a retail chain is acquired, what is to become of that brand?

In the case of Whole Foods’ 365 Everyday Value, the outlook for brand loyalists is bullish. By January, it ranked as Amazon’s second bestselling private-label brand after AmazonBasics. But the fate of other private labels in a merger, especially smaller brands, really comes down to their fit and performance in the newly combined product portfolio.

Which could lead to a good deal of infighting among mixed-brand families. A good 85% of consumers said they trust private brand products at least as much as national brands, according to the 2018 Private Brand Intelligence Report by the retail services company Daymon. The bonus for retailers is private labels generate better margins.
 

Private Matters

However, when shelf space is limited, choices are forced, and opting to stock one brand over another entails the risk of alienating shoppers. Replacing a national brand of milk with private label may be okay, but unshelving a national detergent brand may not sit so well with many shoppers.

Hence, more innovation has enabled private brands to better compete. Here are three key areas where retail mergers are causing major changes in private label, and therefore the shopping basket:

  1. They can change shopping destinations. An acquisition can sharply broaden access to a once hard-to-find private label, as in the case of 365 Everyday Value. The result is more people try these brands and grow to trust them. And then they seek them out — 53% of shoppers would choose a store specifically for its private label, the Daymon study reports. So more retail segments, including discounters and dollar stores, are getting in on the act. Family Dollar recently announced plans for a new line of private label brands, as well as new packaging. And Walmart-owned Jet.com in the fall released its first private label line, geared toward millennial shoppers, called Uniquely J.
  2. They encourage more innovation. Competition leads to improvements as well as category expansions. Private label lines that are slower performers but show promise will likely be enhanced through innovation, while strong performers will be expanded to explore new territories. For example, shoppers are generally more likely to choose private label foods over private label household items. Kroger is addressing this deficiency by expanding its Simple Truth brand into household categories and relying on its shopper insights to penetrate the market. Specialty merchants, too, use technology to create highly specialized private label goods that help them stand apart. The confectionary chain Dylan’s Candy Bar, for example, uses 3D printers so shoppers can make customized, private-label candies in real time.
  3. Better prices, without compromising: If merged retailers do invest more of their combined cash flow into private label innovations, chances are big-brand products that for generations were seen as untouchable — such as laundry detergent — may soon be competing with in-house labels. The major brands can also innovate, but if the shopper has already been won over by a private label, the national brands will likely be pressured to compete on price — and some already are. Kimberly-Clark, maker of Huggies, Kleenex and other household items, reported its selling prices fell more than 1% in 2017 due in part to competition. But leading manufacturers will need to act fast — 84% of shoppers already believe the quality of private labels is at least as good as national brands, the Daymon report finds.

These perception shifts indicate the days of big brands dominating the shopping cart are under watch, but they also usher in more choice and value for the shopper. Consider that according to the Daymon report, the growth of private labels outpaced that of national brands in the past year, by 4% to 0.5%.

Merger or no merger, retailers are learning to excel at product development, and shoppers are the victors.

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