Optimising the private label management process

Introduction

According to a McKinsey study, the pandemic has caused up to 75% of US consumers to change their brand preferences[1]. During the COVID-19 crisis, many consumer-packaged-goods brands disappeared from store shelves due to panic buying and pantry loading. And some customers, not finding their preferred brands, instead bought private-label goods. Moreover, as many people were buying in bulk, the lower cost of private-label goods meant that their pennies could stretch further. This is the same outcome we see now with consumers striving to make their pennies stretch further in response to the current cost-of-living crisis price increases. The McKinsey study shows that 64% of UK consumers have changed their shopping habits within the past months with noticeable channel and brand shifts as they seek value for money[2] midst crisis times.

Also, in Denmark, retailers have confirmed a change in consumer buying behaviour. The shopping habits of the Danes have changed in conjunction with rising prices, which have primarily influenced the goods at the checkout. Salling Group, Rema 1000, and Dagrofa confirm that consumers increasingly purchase private label products and brands[3].

Luckily for the retailer, many benefits can be achieved when promoting a private label strategy. However, unlocking these advantages can be tricky. Not all retailers have been successful with private label brands, and while there are many contributing factors, one primary reason lies in execution.

The process of sourcing through the supply chain - product development, design, and point of sale - is far more complex than the traditional retail business of sourcing and selling products from other brands. In our experience, handling this complexity can be managed by implementing a private label management or Supplier Relationship solution where all involved internal and external stakeholders can all be engaged in the same workflow and contribute to their respective processes.

Definitions A private label management solution A technologic solution designed to manage workflows within the process of private label brands and products. The Encodify Private Label Management Solution is our private label management solution which is entirely configurable, no-code, totally compliable and can take care of workflows within the process of private label brands and products from concept to launch.

In this article, we will first and foremost explain some of the essential benefits retailers can achieve if embarking on a private label process. Furthermore, we will try to provide a lifeline to assist with the complex processes that are unavoidable travel companions on the private label journey. This is accomplished by assessing a private label solution that acts as autopilot when managing the private label process. Here are some examples:

Loyalty

The consumer landscape in private labels has changed dramatically within the last couple of years. According to IRI (Information Resources, Inc.), the proportion of private label loyalists – consumers who prefer private labels over national brands – now equals those of national brands in all key European markets. Moreover, consumers are more likely to try additional products in a retailer's portfolio once they have established trust. By building a credible, quality-focused, value-for-money range of private label products, the retailer can convey the values and essence of the retail brand every time the consumer handles the product in their home. This builds trust and loyalty in the retail brand, potentially leading to revenue growth

Higher consumer demand

McKinsey estimates that 21% of US consumers will buy private labels instead of known brands in 2022[2]. This can be explained by the fact that private labels represent better value for money when compared with the equivalent manufacturer brand. In light of the post-crisis recovery and the uncertainty of the current global changes, consumers are cautious and worried about being able to pay their bills and consider how to stretch their stretched income further. Moreover, they represent a consistent quality, providing consumers with a degree of confidence and assurance endorsed by the integrity of the retailers' brand. Both encourage consumers to opt for private labels as a brand alternative.

High margins

A huge benefit is the potential for better profit margins. The private label product costs are not subject to the manufacturers' rigid price lists, and the key component that is removed from the equation is the brands' profit aspirations.

Other cost components inflate the brand's cost, but this is the main one. Therefore, the benefit to the retailer is not only in (potential) revenue growth but also in profit growth. In a simplistic sense, the retailer could switch consumers from branded to private label products and maintain or slightly lower its revenues while increasing its profits. This is the essence of the financial equation.

Control

Private labels make retailers less dependent on global brands' supply and allow retailers to expand or edit their product assortment without involving brand owners.

Some examples of why it is preferable for retailers to be less dependent on global brands are:

1. the retailers are not required to sell the products at the brands' suggested prices.
2. the retailers do not have to match their competitors' price for the brand every time it is reduced, resulting in complex negotiations with the supplier and/or loss of margin.
3. the retailer has more control over availability and is not subject to shortages or controlled availability when the brand has supply issues.
4. the retailer has more control over the management of the category without having to offer competing brands that are well known but which offer no differentiation.
5. The retailer can develop product formulations that are more closely aligned with the needs of its customer base (according to loyalty and shopper insight data).

As such, private labels give the retailers more ownership as they gain control over the design, cost, materials, and quality of the finished goods. Retailers also have more flexibility when producing their own brands, enabling them to respond faster and more promptly to consumer trends.

Optimisation is key

Developing private label brands usually starts with a business case where the commercial team decides on strategy, pricing, product positioning, and identification of manufacturers.

After this, there are two levels: The first level is strategic and is the development of the retailer's brand. This has an identity which reflects the aspirations of its target consumers. The other level is tactical and relates to which products are developed as part of the retailer's brand portfolio. Between the two, sub-brands may reflect different niches or price levels within the brand.

Many retailers have already managed to integrate the development process into their organisations. And as private label brands usually have better margins, many retailers are increasing the number of private labels in their assortment.

This means retailers must manage more brands, handle more SKUs, and develop more marketing materials such as POS, packaging, etc. All this creates more work, increases complexity, and enhances the need to have a structured and lean process enabled by technology that will work efficiently across organisational silos.

Handling this complexity, in our experience, can be managed by implementing an intelligent technological solution configurable for private label management.

Some essential benefits of a private label management solution

Reduce time-to-market

The platform eliminates the need to send emails back and forth by streamlining the workflow and allowing stakeholders to work on the same data in real-time and on their respective parts of the workflow. This optimised workflow reduces the time to market and makes it possible for retailers to develop private label products faster.

Another advantage is that because all stakeholders have access to the same version of the real-time truth, they are not required to wait for an email (which could be delayed or overlooked). Instead, they can see what tasks have been completed and what needs to be done next via their dashboard. This leaves no room for doubt, and all eyes are focused on the critical functions that must be carried out at all times.

Enable collaboration across the value chain

Improved collaboration between the many stakeholders involved across various disciplines is key to speeding up the private label management process. The Encodify Private Label Management solution brings all stakeholders together to collaborate in a unified and consistent way and enables real-time interaction between each stakeholder.

Lower costs

It is pretty simple. Better workflows require fewer resources. In the end, this means reduced costs.

Your whole private-label lifecycle into one solution
With the help of Encodify's Private Label Solution, retailers can manage the entire process from concept to fully developed product and ensure precision and compliance. They get a unified approach, not a stack of different management systems and methods. The Encodify solution provides a unique and central place to manage all product, project, and packaging-related specifications.

Large retailers like JYSK, Salling Group, and Stark already use Encodify's solution. The solution is tailored to the retailer's unique private label development needs, and if a retailer needs a specific function, we develop it in collaboration with them. This is one of our cornerstones.

Conclusion

To summarise, private labels provide retailers with an excellent opportunity to build loyalty, increase consumer demand and increase margins. 

Moreover, they give the retailers more ownership and flexibility as they gain control over the design, cost, materials, and quality of the finished goods. This enables them to respond faster and more promptly to consumer trends.

The complexity of managing private label products and private label brands, on the other hand, increases error margins and slows time to market.

A private label solution is an essential tool for managing private labels because it gives retailers complete visibility throughout the planning and design processes while maintaining high-quality levels and minimising errors. It allows retailers to create products based on current trends and reach their target market faster.

Source

[1] mckinsey.com/industries/retail/our-insights/turning-private-labels-into-powerhouse-brands

[2] mckinsey.com/industries/retail/our-insights/turning-private-labels-into-powerhouse-brands

[3] bt.dk/forbrug/supermarkeder-bekraefter-har-bemaerket-aendret-adfaerd-hos-kunderwww.bt.dk

[4] IRI (Information Resources, Inc.) is a data analytics and market research firm based in the United States that offers clients consumer, shopper, and retail market intelligence and analysis focusing on the consumer packaged goods (CPG), retail, and healthcare industries.

[5] IRI Private Label Consumer Survey, February 2021; Private Labels: Hiding in Plain Sight. No longer cheap, generic, look-alike Substitutes. They are your biggest Competitor, 2022