Private label growth depends on quality

by Bryan Salvage
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NEW YORK, N.Y. — During challenging economic times, demand for private-labeled and store-branded retail products, including foods have spiked. In a recent edition of "PLMA Live!, Michael Kelter, Global Investment Research at Goldman Sachs, said the continued growth of this category depends on sustained quality and consistency of the products.

"If (private-label) is not going to work now (during these tough economic times), it’s not going to work," Mr. Kelter said. "Consumers are looking for value and retailers are giving shelf space to their own brands. If the quality is there and consumers are happy with the quality, they’ll stick around and share gains will build."

But if a private-label brand exhibits sub-par quality, consumers will go back to buying national brands when better economic times return, he added. "On a category-by-category basis, you’ll see some private-label programs take off... some will see a nice lift," Mr. Kelter said.

Shoppers are more confident about the quality of store brands.

"Every bit of research we’ve seen has indicated that to be the case," Mr. Kelter iterated. "Private label has come a long away from white packaging with black-block lettering. In many cases, private label is superior to national brands. You’ll see retailers embrace innovation in private label in a way they never had before. The product quality is there and now it's just a matter of getting consumers to try (private-label)," he added.

The biggest opportunity for private-label manufacturers is getting behind the brand, Mr. Kelter advised.

"If you think of yourself as a contract manufacturer for retail, you’re not going to get very far," he warned. "As a matter of fact, you’ll eventually be displaced. But if you think of yourself as a steward of a very real and growing brand, you have a great deal of potential ahead of you. You need to invest in R&D, marketing that brand and there’s only one way to do it: very clear cost controls at your company.

"If you are not the low-cost producer and you are not able to make enough money to invest in that brand, you’re not going to get very far," he continued. "The one thing for all private-label manufacturers to do to be more successful is to figure out how to be the low-cost producer. Without that, it’s going to be impossible for you to drive the brand forward."

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