Daymon: Innovation, collaboration next step in own brand evolutionAugust 16, 2017
Own Brands Now | August 16, 2017 –In light of some of the major retail splashes that have rippled across the own brand industry — the entry of store brand maven Lidl to the U.S. market and Amazon’s proposed acquisition of Whole Foods to name two — Own Brands Now recently reached out to Jim Holbrook, CEO Daymon, for some perspective on the own brand space and its continuing evolution.
How do these developments impact the overall own brand space? What can retailers and manufacturers, along with consumers, expect when they shop private label?
Holbrook addressed those points and more. This is what he had to say.
Own Brands Now: In June, store-brand-laden Lidl made its first splash in the U.S. market. What is your take on how that market entry has gone to date?
Jim Holbrook: It’s one of many shots across the bow. There is a wide variety of factors that are affecting retail today [and] Lidl definitely gets a lot of the attention, just like the Amazon acquisition of Whole Foods – that’s blown up the marketplace [as] Wall Street and the media [figure out] what that’s going to look like. There are other factors, the changing consumer and the introduction of hedge funds and lazy manufacturers without innovation, the calculus is complex. So starting with Lidl, they opened up two stores and now they have 20 and soon they’ll have 200 open, in an environment where the United States has 10 times the amount of retail space per capita as Europe. Why would a successful retailer open up more stores? It makes no sense. Well, because they see an unmet need that shifts between Aldi at the basement and Kroger/Harris Teeter in the middle. There’s a segment there that’s better than the cheapest but still great value and better value than a typical grocery store. That is slicing this thing very thin, but whether they are successful or not, it is certainly causing all of the retailers and the manufacturers to sit up and say, “What’s going on?” … The bigger question is “What do you do about it?” That’s what is fascinating. How do you compete with Lidl?
OBN: Innovation? That’s been the new calling card for own brands, correct?
Holbrook: I am a reformed brand marketing guy. I will tell you the companies that used to be innovative were the Procter & Gamble’s, Unilever and General Mills. Now the companies that are the most innovative are the start-ups and private label.
OBN: So for the private label manufacturer, innovation is important? Being small, nimble and hungry is important? Is that resonating with today’s consumer against the multi-million advertising heft of big brand?
Holbrook: This is the unsolved question for retailers and their private brand suppliers – who does the marketing? … Who tells the story? That hasn’t been solved. That’s how the private brand suppliers and retailers come together and move from a transactional annual bid relationship to a more [strategic] relationship. And by the way, that’s what Lidl and Aldi and some of the other European retailers do really well. They work very closely with the manufacturers to solve these problems together, and develop plans together, that they share in the cost and share in the upside. That’s what’s coming next.
OBN: Lidl and Aldi do a great job in telling the story. What about Amazon and Whole Foods, two other retailers that are great storytellers? What is their impact on own brands?
Holbrook: Most brick-and-mortar retailers [in the U.S.] today count on national brands. In grocery, it’s 80%-plus national brand sales v. private. In drug it’s an even higher number of national brands. Amazon and Whole foods want to sell much more private label, so will they come together and figure this out [where] Amazon sells the Whole Foods’ 365 online and Whole Foods takes Amazon’s technology into the stores? Of course they will.
The hidden value in that [deal] is that Whole Foods will learn to be as responsive and fast as Amazon. So if you look at the typical retailer, national brand, it takes 14 months to get innovation onto the shelf, and that’s moving fast from conception to on-the-shelf purchase. For private brands that number can get down to nine months. It’s all because of access to data. For Amazon, they know today what people want, what people are buying or not buying, what’s trending up, what’s happening. They can make a phone call and get a product in three months and have it available. If they bring that kind of thinking to Whole Foods, think how responsive Whole Foods will be? So much more responsive than other retailers. That’s how Whole Foods wins.
OBN: What is the bottom line? Where is the white space in the own brands industry?
Holbrook: The inevitable future will be for the retailers and private label manufacturers to collaborate on innovation and marketing. When retailers say, “I’ve got to differentiate.” They start with their category management thinking and their first question will be “My own brand needs to be front and center, then I’ll build around it. I need to own the first proposition to the consumer, not the national brand. Now that I’ve figured out what my own brand proposition is, I’ll fill those local, unique and interesting assortments and then I’ll add in the national brands, rather than national brand first and private label last.” When you do that, you’ve got to collaborate with your own brand supplier to figure that out. Then it becomes a very productive exercise and good for the consumers. I’m optimistic about the future of retailing as national brands continue to take a back seat.