Leading with Private Label
Private Label Leadership: Foundational Strategies
Recent innovation trends and private label trends, design chain processes, leadership strategies and much more were discussed in a recent Prepared Foods’ R&D Seminars-East presentation titled, “Private Label Leadership: Foundational Strategies for the Long Haul,” by Greg Nutter, vice president, LASCOM Solutions Inc.
Some innovation trends outlined by Nutter include the trend to reformulate or redesign a product to reduce costs and what he terms “issue-centric” product innovation (i.e., green, ethics, organic, healthy or local sourcing). Co-branded offerings and a wider range of private label products also add to the picture for private label’s future.
Some of the trends in private label include accelerated growth; expansion beyond commodities; more sophisticated and higher quality products; increasing involvement by retailers in innovation and production processes; licensed labeling; and market bifurcation. Nutter went on to explain market bifurcation, saying: “The private label market is splitting into two--one focused on ‘best price,’ while the other is focused on quality and uniqueness. Best price products are sold in volume, while the quality/unique products drive high margins.”
Private label penetration has increased in the U.S. between 2007-2008, with some major players, such as Aldi (a European retailer), remaining the same, with a 94% rate of total sales. Nutter noted, “Most of the heavy penetration in private labels is in Western Europe, although the U.S. is catching up.” (See chart “Top 20 Retailers: Private Label Penetration.”)
Drivers in growth of private label include manufacturers (economies of scale, reduced risks/costs, access to “high barrier” markets and faster growth); consumers (growing trust, selected pampering, economic times and more informed, educated consumers); and retailers (product margins, customer loyalty, differentiation, increased bargaining power and greater product control).
Private label challenges, explained Nutter, are shared by both retailers and manufacturers. Retailers’ challenges include managing the total process; good information management; oversight and control; liability concerns; having a bandwidth available to launch new products; quality control; and intellectual property management.
Manufacturers face different, but just as important, challenges. One is having more unique products, formulations and information to manage. They also must deal with faster cycle times and reporting, as well as being sure their innovation is refocused on lower costs.
Nutter outlines two themes for success. The first is managing complexity, in order to minimize risks, and the second is increasing efficiencies to minimize costs. He also cites two leadership strategies: effective information management and effective business process management. Effective information management should mean that information is quickly found and analyzed; it is captured, shared and protected; and information assets should be “leveraged and reused.”
Effective business process management requires automated, predefined steps to minimize errors and risks. It also makes use of good tracking and escalation, and management visibility and “audit-ability,” according to Nutter.
An “Information Management Strategy” was provided, in which Nutter advises to create and manage all product information centrally. Capturing outputs from all business decisions is also important. Knowledge should be “viewed” based on the task or project, type of information and which version/state/date is being reviewed.
The management strategy also tells of the importance of providing analysis capabilities across all information bases, including advanced searches, comparisons, impact analysis and “where used.” Nutter stressed that information should be accessible to all--manufacturer, retailer, suppliers, labs and package designers.
Because private label requires strong cross-organizational business process coordination and collaboration, Nutter recommends all organizations (retailers, manufacturers, suppliers, testing labs, packaging design) be coordinated with all functions (R&D, marketing, procurement, manufacturing, packaging, regulatory, quality control). Some obstacles to that coordination could come up, and they include things like geography, communication delays, skill sets, knowledge access and/or loss, technology, security and control, management visibility and cultural differences. pf
“Private Label Leadership: Foundational Strategies for the Long Haul,” Greg Nutter, vice president, LASCOM Solutions, 858-452-1300, ext. 604, Greg.Nutter@LascomSolutions.com, www.LascomSolutions.com