Pundit’s Mailbag — Branding, Private Label and TANSTAAFL
Jim Prevor’s Perishable Pundit, May 12, 2015
Our piece, What Is In A Brand? Will Marketing Boost Sales Of Inconsistent Produce? Industry issue vs. Individual Opportunity, brought many thoughtful comments, including one from a person who has worked in both branded and non-branded segments of the industry.
Eric Schwartz has shared his thoughts in pieces such as these:
Pundit’s Pulse Of The Industry: Dole Vegetables’ Eric Schwartz
Dole’s Schwartz Sheds More Light On Recent Recall
Pundit’s Mailbag — Dole’s Schwartz Comments On Silent Buyers
Pundit’s Mailbag — How About Subsidy Money For GTIN Conversion?
Pundit’s Mailbag — More Questions About Leafy Greens Board
Pundit’s Mailbag — The Deadline Approaches
Pundit’s Mailbag — Organic Industry’s ‘Situational’ Standard
Single Step Award Winner — Eric Schwartz Of Dole Vegetables
Bottom Line On Local: Geography Does Not Determine Taste
Pundit’s Mailbag — PMA’s Opportunity To Learn From Friends And Foes
Pundit’s Mailbag — Lesson From Avocadogate: You Get What You Tolerate
Dole Hit With Another Recall
Arizona Marketing Agreement One Step Closer To National Leafy Green Standard
Why The Secrecy On Inspection Agency Lab Results?
Now he points to the connection between branding, private label and efforts to increase produce consumption:
TANSTAAFL — is the acronym for “there ain’t no such thing as a free lunch.” The concept is the thematic center of Robert Heinlein’s 1966 science fiction novel, The Moon Is a Harsh Mistress, and Nobel Prize winning economist Milton Friedman used a version of the term as the title of his 1975 classic book.
The basic idea is that life is a series of trade-offs, and even if the cost of something is hidden, it is still there.
So it is with private label.
Retailers caught on to the idea that consumer packaged goods prices included a margin to cover advertising and other forms of marketing as well as research and development to create the next generation of products. By creating private labels, the retailer could avoid these costs and thus underprice the branded product.
In the short run it works.
The problem, though, is that marketing and R&D are the underpinnings of the growth of the category in the future.
If retailers drive out that margin, who is going to be developing the new products that will drive growth in the category in years to come? If retailers drive out the margin, who will pay for the advertising and marketing that persuades the next generation of consumers to love that category – be it soup or sandwiches or bagged salads?
In effect, what private label does is lead to underinvestment in category development.
Although chains could theoretically invest in these matters, that would add back in costs — getting rid of which was the reason d’etre of private label.
It is a classic free-lunch problem. Retailers viewed the money spent on marketing and R & D as a honeypot to increase margins while giving consumers a discount — but they forgot about TANSTAAFL — and the result is slow growth categories lacking in innovation and consumer enthusiasm.
Many thanks to Eric Schwartz for adding the benefit of his experience to this industry conversation.