Two international models for retailers’ “own brand” sales

As the own brand growth train rumbles on within retailer land I thought it worth hearing some of the “fringe stuff” that is happening in and around this ever-growing space. Stuff that’s quite different to the mainstream, and that perhaps may become the mainstream if it works with the shopper.

The move to own brands with retailers has taken the share of shelf in some grocery stores around the world to over 20%. That’s 20% less space for the manufacturers of “branded” or “national” products, depending on what descriptor you attach to Kelloggs, Nestle or Kraft’s portfolio of packaged goods brands.

This at a time when new food manufacturers are emerging and looking for distribution and shelf space in order to be able to talk to shoppers in store. Big space squeeze, and huge competition as some retailer brands, like Costco’s own brand being ranked as “equal to/or better than” the quality of an international branded product.

These retailer brands are becoming destination items in the minds – and mouths – of many shoppers. Mrs Moore recently trialled some chocolate biscuits from ALDI and Master Moore, a six foot surfer, found them and consumed the packet in one post-surf snack. So, Mrs Moore now goes to ALDI just to buy their chocolate biscuits… and can’t resist the impulse purchase of other ALDI items. ALDI has become a destination.

Let’s take a look at two very powerful retailers and how these retailers are managing their “brand” and its “equity” in the same way that a manufacturer would.

Sears in the US has always traded at only an average level in clothes, toys, smaller electrical goods – the backbone of discount department store offerings. Target and Kmart have always performed better. But when it comes time to buy a big fridge or, better yet, some power tools, there is no better place for a “bloke” to go than Sears.

On any given weekend there will be bottoms peering over the back of denim jeans as far as the eye can see at Sears, as blokes lean over a whole range of very high quality, but well priced Craftsman tools. From screwdrivers to full on heavy gauge welding equipment, the Craftsman brand is the one of the most respected tool brands anywhere in the world. My own Canadian purchases from more than 15 years ago, when I lived in Canada, still reside in my tool box today.

Sears is a destination store for males buying tools because of the Craftman brand. If you want that brand you have to shop at a Sears store and have to pay the price that Sears asks for those tools. You can’t go next door and see if they are on sale or available with some other offer… until this year, that is.

After decades of building an incredible brand, the Sears management team have decided to licence the sale of Craftsman through other (albeit a small and select number) retail outlets.

So Sears, like a manufacturer such as Ryobi, will now need to manage the pricing and promotional activity of its brand without being able to control the “how and for how much” because the tools will be sold by Sears’ competitors who will undoubtedly use this amazing brand to create footfall, drawing new shoppers into their stores.

It is a hugely bold move, and is going to be a very interesting one to watch play out. Whether it grows the overall market share of Craftsman and whether it makes Sears more or less money in the long run is yet to be seen.

My feeling is that the Craftsman brand will grow significantly over the coming years, as new shoppers who have never shopped at Sears are exposed to the brand. Managing the pricing and promotional activity though? Well, Sears will merely join the world of the manufacturer in having to juggle different needs of different shoppers buying the same product in different retail environments.

Another example?

Publix is a premium US grocery chain. High-end fresh foods with wide range of brands and great service. They still pack your bags and take them to your car, run in-store cooking classes and have amazing cafes within their stores.

Publix has its own brands, but truly loves “national brands” as it calls them. Why? Because Publix shoppers comes to stores because they like the range. They like Publix brands, but they like “national brands” too.

In fact, when Publix removes a national brand its CEO often gets calls from shoppers asking what’s happened to their favourite soup or cookie brand. The CEO doesn’t try to tell them how good the Publix brand is, he just reinstates the national brand because that is what Publix shoppers want.

Publix so respects national brands that when it runs a “buy one get one free” (or BOGOF) offer, the single most successful in-store promotional mechanic for the retailer, they allow the shopper to buy a national brand and receive a Publix own brand for free.

Think about that for a minute…

I am not sure whether this is truly inspired or fraught with danger for the retailer and the manufacturer. Whose brand is better? Whose brand is more valuable? Who is the leader and who is the follower? However, the Publix team doesn’t think about that, it only asks the shopper what they think. And it does that by making the offer and watching sales. Apparently it works – big time. So Publix are one of the most profitable grocers in the US, but have one of the lowest overall proportions of retailer own brand shares.

So, these are two very different approaches that are worth watching closely going forward. Both models have their place internationally, but which will Australian retailers err towards?

In his role as CEO of CROSSMARK, Kevin Moore looks at the world of retailing from grocery to pharmacy, bottle shops to car dealers, corner store to department stores. In this insightful blog, Kevin covers retail news, ideas, companies and emerging opportunities in Australia, NZ, the US and Europe. His international career in sales and marketing has seen him responsible for business in over 40 countries, which has earned him grey hair and a wealth of expertise in international retailers and brands. CROSSMARK Asia Pacific is Australasia’s largest provider of retail marketing services, consulting to and servicing some of Australasia’s biggest retailers and manufacturers.

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