Is Private Label Pricing the Way to Go? By: W. Frank Dell II, CMC Private Label sales are growing every year. There are a couple of reasons for this growth. First, Private Label products have a higher gross margin and retailers believe this means they’re making more money. The more important reason for this growth has been the significant improvement in product quality and packaging. Additionally, retailers are starting to understand that Private Label products are unique in that consumers can not buy these products in their competition’s store. This supports retaining customers, which is every retailer’s objective. Historically, Private Label products were imitations of leading national brands. Product qualityclaims were that they were equal to the national brand, but this was rarely so. Packaging for Private Label was poor andleft much to be desired. Private Label products are priced anywhere from 20 to 70 percent lower than the nationalbrand. Even with larger discounts, Private Label products achieve a higher gross margin percent than the brandedcompetition. The retail food industry is infatuated with low prices. This is illustrated by the following chart from one of ourstudies. This chart is proof positive that Private Label’s low prices do not equate to or increase sales. Neither does itincrease market share. In all of these examples the Private Label product has been discounted by more than 50 percentversus the national brand. Yet, these products have not achieved significant market share. This confirms price is not thesole factor consumer use in selecting products. The world of Private Label has changed greatly in recent years and so should the pricing for these products.Today, the standard Private Label product must be truly equal to or better than the national brand in quality. Quality isjudged by the consumer’s perception of the product’s performance. If the consumer determines the product performs intheir household in an equivalent or acceptable fashion the quality is the perceived as equal. The second factor ispackaging for Private Label. Products must be competitive and current in design. In addition to the standard Private Label products, there have been a number of new developments. Gourmet orunique products have entered the marketplace. These are products for which there is no national brand equivalent. Agood example of a retailer offering gourmet or unique Private Label products is Trader Joe’s. In recent years we’ve alsoseen growth in the super premium segment. These are Private Label products with quality that exceeds the nationalbrands. An illustration of this point is the difference between Ben and Jerry’s ice cream and the leading national brand.Another group of Private Label products achieving growth are organics. These are products grown without the use of pesticides. In many cases these products are equivalent in quality tothe national brand but, the national brand is not organic. Our last group of Private Label products is the second tier. Inmany cases these would be the Private Label products of years before and true commodity products. Examples hereinclude flour, sugar and canned vegetables. In summary there are standard, gourmet, super premium, organic andcommodity Private Label product groups.