by Cindy Sorensen/founder, The Grocery Group
I just returned from a visit to a local grocery store. What I found to be most interesting as I reviewed the milk and plant-based beverage department is this retailer, like most others, has responded with a private label selection that matches national and local brand milk and plant-based products, item for item on the shelf.
I understand this distribution strategy, which hopes to capitalize on a consumer desire, trend or fad by offering a private label SKU that is exactly like the branded offering.
Private label margins are certainly better for a retailer, and it helps to establish the grocer with a quality brand presence through its private label offerings.
But matching item for item to national and regional brands takes away from the overall category dollar sales a retailer may realize. This really is only a strategy that offers duplication of SKUs and not variety.
Variety in SKUs is what will increase a shopper’s basket size. I would suggest a more defined private label strategy, one that will increase sales to the category by bringing new users to the category through offerings not currently available. This also would increase sales of current category shoppers to buy more because of the unique SKUs available.
This means private label manufacturers need to be a leader – not a follower – in the introduction of new products. I previously wrote about this in “Private Label Milk – Be Uncommon,” which appeared in the November 2019 print editions of The Shelby Report.
This year, there are two segments I wish to look at within this part of the dairy department – value-added cow’s milk and plant-based beverages.
Organic cow’s milk is one example of a value-added milk. With their purchase behavior, consumers have indicated they are willing to pay a premium, non-promoted price for this product and its perceived value-added benefits.
Value-added milk represents less than 10 percent of all milk and plant-based combined beverage category sales. By having the same private label offerings available from national or regional brands, there is the potential to trade shoppers down to the lower-priced item.
An opportunity to increase dollar sales would be to offer items that will be incremental to the regular organic milk purchase. I would suggest the regular organic milk offering should be branded and the incremental offering should be private label.
Perhaps a flavored organic milk or a smaller or larger size not currently available in a brand offering would bring new users to the segment and would also increase the consumption of current users.
Plant-based beverages represent 6 to 8 percent of the total milk and plant-based beverage combined sales and have about 30 percent household penetration.
The same opportunity exists here as it does with organic milk. What flavors or sizes could bring variety and incremental sales to this segment? Currently, there are at least four to five brands, – plus private label – of almond beverage on most retailers’ shelves. This is duplication and is not growing the category in consumption or dollar sales.
Consumers have indicated with their purchasing behavior they are willing to pay a higher price for both value-added and plant-based beverages. Let’s not be quick to trade that consumer down to a lower-priced private label offering when there’s a higher-priced national brand.
Consider the examples
Organic cow’s milk was $4.99 for branded versus $3.99 for private label at the retailer I visited. Without a private label offering of organic milk, shoppers will default to the brand. That’s an incremental $1 for every sale.
Almond beverage is the largest segment of plant-based beverages, with about 80 percent of the total segment sales. A per-ounce price comparison at the retailer indicated private label was 46 cents per ounce. The two leading national brands were 97 cents and 75 cents per ounce.
The shopper profile for both organic milk and plant-based beverages skews to higher income households. They are willing to pay for the perceived health and sustainability benefits of these products.
In addition, these products can command a premium pricing and promotion strategy. They do not need frequent or deep promotions. Reduce duplication and build variety through unique flavors and sizes in the private label segment to grow the margins and total category dollar sales.