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At the recent Private Label Manufacturers Association (PLMA) trade show in a Chicago suburb, somewhere between the booths of store brand olives and gigantic bags of dog chow, private label personal care and cosmetics companies continued to spread their message: We’re producing strong products, we’re competing successfully and we’re growing. As outlined in Private Label Still Generic? in the October issue of GCI, private label is standing tall next to leading brand names on store shelves worldwide—competing in formulation, packaging and labeling at a lesser cost. Private label sales are approximately US$75 billion annually (US$89.4 billion), according to a report by Citigroup Smith Barney, and are effectively mirroring branded formulas by utilizing a brand equivalency strategy.
In addition, according to PLMA, store brands continue to be an important growth factor for U.S supermarkets and drugstore chains, with private label achieving a record 13.1% market share in terms of units. Private label dollar sales were up approximately 3.5% in drugstore chains (a strong and appropriate outlet for personal care products) compared to 0.4% for national brands. McKenna Labs, Inc., a private label manufacturer, has had an average sales increase of more than 200% over the past four years, allowing it to expand its skin care capabilities.
Once limited to commodity products and simple formulas, private label is competing with the sophisticated skin care formulas of high-priced brands and spa products.
Entering the Skin Care Arena
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Perception still can be a barrier into the market for private label manufacturers, and overcoming perception is complicated when stores settle for the lowest contract bidder even if that bidder has no actual manufacturing capability, which sacrifices quality and perpetuates negative perceptions.
“The key to changing the perception is quality, packaging, marketing and today’s technology,” says Sheryl Singer, national sales manager, McKenna Labs, Inc. “Advanced raw materials allow high quality products to be created for almost every purpose. Consumer awareness is higher than ever. They know what to look for when comparing products. You won’t often see the ‘generic’ brand on today’s shelves.”
The pace of name brand restages (including packaging and formulation), product launches and line extensions with massive advertising campaigns also can be a barrier, according to Kurt Breitlander, marketing category manager, Cumberland Swan, a health and beauty private label manufacturer. “The consumer is constantly being inundated with new items, which can overshadow private label products at times,” Breitlander says.
Retailers are requesting more complex skin care products, which initially would appear to be a boon for private label, but they have tended to view private label’s growth toward sophisticated formulas as a risky proposition when up against a name brand program.
“Any adept buyer knows upscale is the future of beauty, and they are looking to transition away from heavy reliance on name brands,” says Tanja Mordeson, national sales manager, RC International, a private label manufacturer that creates sophisticated skin care products that compete with spa brands. “(But) retailers fear being the first at something truly new and innovative (even if) it offers them an advantage over competitors.”
Retailers often have a specific request for product, but there also are opportunities for private label to demonstrate the possibilities. According to Singer, some of McKenna’s customers present an idea and ask McKenna to execute.
“As we come across new trends and the latest raw materials, we work with our customers in developing the products they are looking for,” says Singer. “Each customer has different needs, and we work with them based on their requirements.”
Competition on the Shelves
Private label has to compete with brand loyalty, and loyalty for a “bargain” doesn’t last if the quality doesn’t match or exceed the name brand. In short, lower prices may win a one-time customer, but quality wins lifetime customers. High-quality store brand products benefit retailers by building both customer loyalty and higher margins.
“For the consumer, we have provided the confidence in store brand items, as they have evolved to be the same quality as their name brand counterpart at a fraction of the cost,” says Breitlander, who also says there is no hard and fast rule for how private label can strike a balance between the price, quality and the uniqueness of a product to position itself beyond price benefits. “It is helpful to consider the entire mix and range of products involved in order to capitalize on the overall program and maximize benefits for the specific retailer,” he says.
“We tend to focus on department store formula matches rather than the common retail name brand equivalents,” says Mordeson. “For a new skin care program, we looked at Lancôme, Elizabeth Arden, Clinique and Estée Lauder products to come up with the best possible formulas for our line. It’s much easier to match a (department store or salon brand) product and stay 65–70% below the national brand. Consumers want to buy the luxury formulas and they’re seeing a huge savings from the national brand.”
Private label also has been able to take advantage of the loss of brand identity as line extensions distort the original brand. “Private label has taken advantage by raising the quality bar and grown to include sub-branding,” states Mordeson. “Walgreens’ brand works great for selling private label ibuprofen. However, it would fall flat for a color cosmetic line. Sub-branded lines are performing and taking private label to a new level in the United States. Consumers no longer realize that it’s a store brand. Walgreens is even advertising the brand’s exclusivity in full page ads in top fashion magazines.”
Meeting Trends Head On
The short and simple answer to what’s driving the trends in skin care is that consumers want more. Expectations have been set for what store-bought products can accomplish—from antiaging benefits to the glow of spa treatments—and those expectations have to be met, if not surpassed, for private label to succeed in skin care. The first step in providing a successful product is paying attention to what demographic categories want.
“The Baby Boomers are aging and want an alternative to surgery, and men are taking better care of their skin and becoming more aware of the benefits of skin care,” says Singer in summation of two key demographic groups.
“Lifestyles and economics drive the trends,” says Mordeson. “Women do not have the time or money to spend on a weekend getaway at a spa. It’s much more convenient to purchase higher-end products to take home and achieve the same results at a fraction of the cost of a spa visit.”
Cumberland Swan has seen strong growth in nontraditional skin care subsegments, specifically in acne and facial care items, while traditional hand and body lotions have remained relatively flat. “Cosmeceutical items in acne/facial care as well as antiaging products are providing the most growth currently,” says Breitlander. “Therapeutic items that address specific needs continue to be important in the private label mix.”
RC International has been able to move away from basic private label offerings over the past few years to focus on upscale salon and spa products. “We take what’s hot in professional beauty today to the retailers now,” says Mordeson. “With skin care specifically, at-home microdermabrasion and the salon-type facial peel saw several national brand launches in 2005. Now retailers want private label systems available too.”
By investing in the ability to offer sophisticated products, Cumberland Swan sees numerous and continued growth opportunities, and now is fielding name brand inquiries to help launch new products and technology. McKenna also cites the advances in raw materials, spurring, in turn, the creation of new technologies in order to utilize these materials.
Opportunity, though, requires looking beyond numbers and larger trends. Understanding the convergence of various indicators and refining the focus is essential in serving retailers and, in turn, their customers. “The data and analysis does not always support what is happening at individual retailers,” says Breitlander. “The objective is marrying up the trends with what’s happening in the stores.”