Tom Pirovano, Director, Industry Insights
For the past several months, we've seen sales for U.S. store brands grow at unprecedented rates with annual sales of $85.5 billion, up by $13.6 billion (+19%) vs. just two years ago. (Nielsen Grocery/Drug/Mass including Walmart). At first, this growth was driven by higher prices for milk and other commodities. Then the economy got even worse, and many just assumed that shoppers were switching from national brands to store brands to save money.
But what about the other factor we sometimes forget to mention? Could it be that retailers are making significant improvements in the quality of their own store brands? Is it possible that some National Brand Equivalents (NBEs) have really become every bit as good as the national brands? Note: Several years ago, I coined the acronym, "AAGATNB" (Almost As Good As the National Brand), but it never really caught on the way I hoped.
I recently had the opportunity to visit the East View Innovation Center in Eden Prairie, Minnesota, where the folks at SUPERVALU develop brands like Culinary Circle and Wild Harvest. I had been hearing a lot about this state-of-the-art facility with its sensory labs, test kitchens, mock-up store, and army of Daymon associates fully integrated into the organization. Needless to say, I jumped at the opportunity to check it out for myself.
It was clear from the start that the facility itself is just part of the story. SUPERVALU has assembled a dream team of experienced product development specialists from across the industry. Many of the top managers moved to Minnesota from out of state, betting their careers on the success of the "Our Own Brands" program. Every person I talked to that day seemed convinced that they were working on something special. One even commented, "I didn't come here for the weather."
The Our Own Brands program at SUPERVALU is an unmistakable source of pride for those working in the East View Innovation Center. When I began discussing recent trends in private label, I was politely corrected by Group VP, Mike Witynski: "This isn't about labels. We're building brands here." He was right. Nowhere did I get the sense that this was simply about making cheap substitutes for national brands. A sense of pride seemed to permeate the building. While touring one of the test kitchens, one associate described a recent blind comparison with a popular national brand: "They'd kill to have our taste test scores!"
I was also impressed by how they view their competition. Many store brands target CPG category leaders. SUPERVALU, however, has broadened its competition to restaurants with several premium "restaurant-quality" products. I was lucky enough to sample some Culinary Circle frozen desserts that could rival the best ice cream parlors. The trick will be getting shoppers to try these products. Although higher price points may present sales challenges, the quality and exclusivity of brands like Culinary Circle have the potential of becoming destination products for consumers who can appreciate the difference.
National brands need to be on their toes. There are no clear signs that shoppers will turn away from store brands as the economy improves. Retailers like SUPERVALU and others are poised to succeed with their own premium brands as consumers continue to adjust their mix of needs between quality, value and convenience. SUPERVALU has set aggressive growth targets for its Own Brands program with an unblinking eye on the consumer. This consumer focus is something new for most store brands. Understanding the shopping experience from a consumer perspective isn't just for CPG manufacturers anymore.