Pundit’s Mailbag — Deli Private Labels
Also Benefit From Boar’s Head Banner
Jim Prevor’s Perishable Pundit, September 15, 2009
Our piece Dietz & Watson Takes On Boar’s Head: Is Exclusivity Anti-Consumer? Is It even Good For Retailers? brought many responses, mostly from retailers asking to whisper their own Boar’s Head stories in the ear of the Pundit.
We also received a note from a woman occupying one of the most prestigious and consequential perches in the food industry:
Interesting column today. I have a slightly different take on the following point:
5) Store Brand vs. a Manufacturer’s Brand
Most retailers that look to put any manufacturer’s name on their deli are thinking of the short term advantages that can come from such a tie-in. Long run, however, the promotion of the manufacturer brand diminishes the chance to promote the store brand or a concept that the store actually owns.
The real question is not if the retailer grants the manufacturer an exclusive; it is if the manufacturer grants the retailer an exclusive. After all, to use a store’s precious space and opportunity for consumer interaction to promote a brand that can equally be picked up down the street is very questionable marketing.
Better for a retailer to maintain flexibility to meet consumer needs by being able to sell what it wishes to sell and better to persuade consumers that the value and the quality are incumbent in the retailer, not any given vendor.
I can envision a scenario where the move to a premium brand such as Boar’s Head in the deli section can improve results for the retailer over both the short and longer terms by potentially strengthening the Private Label potential (assuming the Private Label products also stay in the case).
Boar’s Head products carry higher price points, providing a higher pricing umbrella for the private label line. Either the prices of private label products can be increased to maintain the differential — thus improving the private label margin — or private label prices can be maintained — which is likely to result in increased sales as the more price-sensitive shoppers are willing to try (given ease of sampling) and buy the private label equivalent.
— Mary Shelman
Director, Agribusiness Program
Harvard Business School
When she is not organizing Harvard’s world-renowned Agribusiness Seminar, Mary is busy writing case studies for the same; she is one smart cookie.
She is, of course, correct that the decision to carry a premium-priced line creates an opportunity to increase sales and profits of a private label line either, as she explains, by increasing margins on the private label product or by increasing private label sales.
Our critique is not so much with the sale of the high-end product but with the question of the branding of the deli operations. If the service deli, as is often the case, is so bannered and branded that consumer loyalties go to Boar’s Head, well what does the retailer have to sell if another area retailer also has a branded Boar’s Head concept or if, one day, Boar’s Head refuses to sell that retailer?
In effect, the retailer is losing a chance to build up its own brand equity by bannering the deli with its own name or the name of a concept it owns the right to.
Mary Shelman’s point is well taken and a good lesson for producers: Profit at retail is complex. In the produce industry, where producers often feel aggrieved at retail margins or the fact that retail prices often don’t track down with FOBs, the fact that Mary brings up — that the decision to handle one line can be dictated but its effect on the profitability of another line — is incisive.
We suppose we ought to stop now. You know the old saying: You can always tell a Harvard man, but you can’t tell him much. That goes double for Harvard women!
Many thanks to Mary Shelman for weighing in with such a thoughtful comment.