Connect with us

News

Why Private Label Brands Are Having Their Moment

Published

on

Profit-driven price inflation and supply chain issues are impacting consumer buying patterns at grocery stores. Over 87% of consumers are opting for private label items or shopping at different stores for those items, particularly to save money. These proprietary brands form the core of food retailer pricing and assortment strategy, and based on current inflationary trends, are getting ever more popular.

According to SPINS, private label products have been on a growth tear for the past 52 weeks, pole vaulting from 3.8% 52 week YOY growth to 10.7% 4 week YOY growth in April. Indeed, store brand growth is outpacing total category sales by 14% in Frozen appetizers, by 10% in eggs, water and cooking oils, over 20% in refrigerated pastas and by over 40% in shelf stable functional beverages. Dan Buckstaff, CMO of SPINS, notes that, “There’s tremendous growth going on in private label right now, but it’s not uniform across categories. Some categories, there seems to be more price sensitivity than others.”

Dollar sales of private label brands were almost $ 200 billion dollars across all U.S. retail channels, or about 17.7% dollars share and 19.6% unit share of all groceries sold. Over 45% of customers buy private brands because of pricing, followed by availability, quality and taste. And more than 41% of customers bought more private label brands recently than before the pandemic. Walmart and KrogerKR -1.4% have each indicated that private brand sales have increased lately as customers reevaluate what they can afford due to stagnant wage growth and high gas, housing and food costs. While this strategy puts pressure on the big CPG brands with deep pockets, they make competing for shelf space even tougher for innovative emerging brands trying to get established while surviving sky-high failure rates and shifting consumer trends.

So why and how are store brands priced cheaper than the household name brands that we’re so familiar with? Let’s go through the math. By definition, private label brands are wholly owned by the retailers or their wholesale partners. And what this means is that the brands themselves, including the packaging, the supply chain, the ingredients, the nutritional information, everything that makes up the product itself, is proprietary and developed by the retailer or wholesaler. This doesn’t mean that name brand companies make them either; there is a whole industry for private label products out there with vast capabilities and expertise, and they sometimes even make the name brands too.

Category managers are highly skilled retail workers who decide what to merchandise and are responsible for the financial performance of their categories. As part of their regular category review processes, retail category managers may take a look at a given category and see what is selling well, what isn’t and what may be needed to improve various performance metrics, including sales, gross margins, customer retention and basket sizes. They will then work with an in-house or outsourced store brands team to determine what items need to be developed. For example, they may want to make sure that they have a value-priced option for the best-selling items in a category or that they are on trend with popular items, like veggie burgers, grain-

free tortillas or oat milk. They may need multiple price tiers in a category to fulfill varying customer needs, including value priced and more premium products. Or they may want to use the store brand as a competitive lever against some of the key name brand items that are being sold for less at competitors.

Then the private label brand team will work with a co-manufacturer who can actually formulate and produce these items at scale, either through an RFP process or based on a pre-existing supply relationship. This team looks at the formula, ingredients, the taste and organoleptic qualities of the name brand items they have identified as the most compelling equivalents. They essentially dissect the product down to its core components so that when they are formulating the private label products, they can get as close as possible to what’s on shelf. Imitation isn’t just flattery, it’s a key retailer strategy under capitalism.

So the store brand will instead be at dead net pricing, which means the lowest possible cost with all the trade and marketing dollars pulled out. This is also known as EDLP, or everyday low price. In addition, the retailer will forecasts large quantities of private label inventory so that the logistics and handling charges are lower per item. This also means the retailer must push high volumes of these value items to justify the inventory exposure. The retailer owns it all and the category manager is typically responsible for this inventory. This merchandising strategy is one of the reasons why Trader Joe’s or Aldi is so cheap; despite the quirky marketing, they each have highly centralized logistics and supply chains that support a much smaller number of SKUs than their competitors.

And then in terms of the retail price equation itself, the store brand team will assess the regular price point and gross margin and promotional price points and gross margins of the national brand equivalent. The goal here is to make the retail price as sharp as possible while trying to preserve as much of the item’s penny profit. Because if they’re going to supplement or replace the national brand equivalent with the store brand, they have to make sure that it doesn’t hemorrhage gross margin. And that’s why sometimes you’ll see that a store brand item may have slightly different ingredients, slightly different nutritionals, because such adjustments all feed into the cost savings. If the purpose of capitalism is to create products for profit and then continually lower costs to achieve the best value, then that also summarizes the role of private label products at retail to a tee.

However, many store brand items have also won plenty of quality and innovation awards, particularly due to the efforts of category managers and store brand teams at retailers like Thrive Market, Natural Grocers, and Trader Joe’s, as well Kroger with their Simple Truth line and Whole Foods’ 365 label. Such products compete on par or better in quality and taste with many national brand equivalents, particularly when they are higher attribute items such as organic or allergen friendly.

Dan Buckstaff of SPINS articulates how retailers navigate this contradiction. “For so much of the natural innovation and wellness channel, it comes down to the products themselves. So the ingredients, how they’re sourced, how they’re positioned, creates a complicated set of things to get right to speak to the consumer. As a store brand, you want to make sure that you’re doing the diligence to get the right ingredients sourced and you’re speaking to the right benefits the consumers care about. There’s a lot of things you have to get right in that innovation to be able to connect with the consumer preference.”

One final thing to remember with store brand items is that their financial performance still hinges on whether the gross margins on an item level basis match up or exceed what the gross margin targets are for that particular category. And this can vary by retailer. So a retailer like Kroger or WalmartWMT +2% will have category gross margins in the 20-30% range. While at Whole Foods, Fresh Market or Sprouts, the gross margins by category will be in the 35-45% range. And when they launch a private label item, they’re all trying to sell it for about the same price depending on the market, whether that is cereals or cookies or milk or yogurt. However, their gross margins may vary based on their scale, their supply chains, their prices of raw materials and ingredients and their leverage with suppliers, something the Robinson-Patman Act is meant to regulate.

And mass market retailers are hence typically able to achieve higher gross margins in store brands than in their categories and even overall enterprise. But smaller retailers with a higher cost operating model, such as specialty and regional grocers, natural food stores or independents/convenience stores, may have lower gross margins on private label items than their overall category because they are chasing low priced competition with much bigger purchasing power and lower operational expenses. They will then have to price all other items effectively to offset this, putting more margin pressure on incumbent brands and emerging innovations to subsidize their value items. Ironic.

The most important aspect of private label brands is that the whole formulation and pricing model is geared towards providing the shopper with the best bang for their buck, so they keep coming back for more. And based on consumer trends, that seems to be working.

Continue Reading
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

News

The Best Recommended Resorts in Nusa Dua Bali

Published

on

The Best Recommended Resorts in Nusa Dua Bali

Nusa Dua is one of Bali’s areas built specifically for tourism in the 1970s. Since then, many luxury hotels and resorts were built everywhere in the Nusa Dua area. For those who want an exciting vacation with family or friends, there are many choices for the bali resort nusa dua .

These accommodations have luxurious facilities ranging from spas, private swimming pools, restaurants, and many more. All resorts in Nusa Dua also have sparkling white sand and calm waves as their view. What are the recommendations for the best resorts in Nusa Dua?

Best Resort Recommendations in Nusa Dua Bali

1. Laguna Resort & Spa

Staying at Laguna Resort & Spa will make you feel very comfortable. When entering the resort, you will be greeted with the sound of a gong and dancers in traditional costumes showing off their artistic talents. Laguna Resort & Spa also provides spacious rooms with large beds and luxurious bathrooms. 

Each room has a tropical garden interspersed with a lagoon pool. This resort also has gym facilities, a spa, and a sumptuous breakfast. There is also a beach bar if you want a cocktail. If you want to stay in a place that offers luxurious facilities and emphasizes local culture, pay a visit to Laguna Resort & Spa. The lodging at this resort is also not so expensive compared to other luxury hotels in Nusa Dua.

2. Resort St. Regis Bali

Located on the sand of Nusa Dua beach, St Regis is the next choice of resort for accommodation options. This resort has a traditional Balinese concept with olive green furnishings. Interestingly, you can swim in a vast lagoon from Resort St. Regis Bali, the size is three times the size of the Olympic swimming pool. 

Furthermore, this resort is also equipped with a thalassotherapy spa. Resort St. Regis Bali also provides a ‘Children’s Learning Center’ facility so parents who bring their children can leave them there. The Children’s Learning Center offers a curriculum to stimulate and entertain children while their parents enjoy the holidays.

3. Hilton Bali Resort

Hilton Bali Resort is perched on a cliff overlooking the beautiful Indian Ocean. You can see Nusa Lembongan clearly from this resort because of its location on a cliff. Hilton Bali Resort is facilitated with a family swimming pool with water slides, an outdoor playground that will make the kids happy, a spa, and a kids club. There are also gazebos and loungers on the private beach. At sunset, there is an observation tower that you and your family can visit to see the fantastic sunset views.

You can visit the lodging recommendations above for those traveling with their family and looking for the best resorts in Nusa Dua, Bali. All of them have extraordinary views with complete and luxurious facilities!

Continue Reading

News

4 Important Tips for Having a Vacation Abroad

Published

on

4 Important Tips for Having a Vacation Abroad

Are you planning to go abroad but still don’t know what to prepare? People dream of going abroad, especially to countries like America and Europe. If this is your first time going abroad, you should check the following tips!

Prepare All Important Documents

The first thing you need to do is prepare important documents. For example, passports, ID cards, visas, and international driving licenses if you are going to drive abroad. Make sure you know whether the country you are going to visit is visa-free or not. For Southeast Asian countries, the Maldives and Turkey are visa-free, so you only have to have a passport. But a visa is still needed if you want to go to South Korea, Europe, or America. Make sure to scan your document and save it in the cloud like Google Drive or iCloud. Oh, yes, remember to check your vaccination status. Because every country needs your health information.

Make Itineraries

Itinerary is important for those who want to travel abroad. The reason is holidays abroad cost a lot of money, so when you can, take advantage of it with a well-planned schedule. Research in detail the tourist destinations you want to visit. For example, what is unique in it, ticket prices, transportation to get there, to the distance from the inn you’re staying. Remember to include places to eat that you want to try. Make sure the place to eat is according to your preferences, such as halal or free of certain food allergies.

Book Tickets in Advance

When you know how long you will be on vacation with the itinerary that has been prepared, it’s time to book plane tickets and lodging. Find cheap tickets by:

  1. Using promos and discounts on travel agent applications.
  2. Comparing which price is lower and what kind of facilities you will get.
  3. Choosing accommodation that fits your budget but is still comfortable.

Oh yes, also remember to check how the pandemic situation is in the country you are going to visit. Do you have to quarantine or not? Because it will affect your itinerary and accommodation. Due to the pandemic conditions that have not fully recovered, check whether there is still Indonesia quarantine after returning from vacation.

Exchange Money and Check Your ATM Cards

Exchange your currency into the destination country’s currency, for example, yen, euros, dollars, won, and others. But remember, don’t carry too much cash because it’s also prone to theft, besides being wasteful. For the rest, you can do cashless transactions. Check your bank’s ATM card to see if it has Visa, MasterCard, or Cirrus logos. This row of stamps indicates that your bank is working with banks abroad. Or you can also use a credit card to make your transaction easier.

Continue Reading

News

Down 43%, Is This Tech Stock Worth Buying Right Now?

Published

on

Down 43%, Is This Tech Stock Worth Buying Right Now?

Skyworks Solutions (NASDAQ: SWKS) announced its fiscal 2022 fourth-quarter results (for the three months ended September 30) on November 3, and the supplier Apple’s stock price has risen 11% since then.

Skyworks beat expectations and showed solid growth at a time when smartphone sales were declining, but forecasts show the chipmaker is about to hit a bump. With that said, let’s take a closer look at the latest results from the chipmaker. Let’s take a closer look at whether the stock can sustain new momentum after losing 43% of its value in 2022.

Skyworks solutions deliver reliable results for non-mobile businesses
Skyworks’ fourth-quarter revenue increased 7% year-over-year to a record $1.4 billion. The company also reported non-GAAP (adjusted) earnings of $3.02 per share, up 15% year-over-year. Skyworks easily justified analyst estimates of $2.91 per share. For the year, the company’s revenue increased 7% to $5.5 billion and earnings rose similarly to $11.24 per share.

The strong growth of chipmakers in the fourth quarter was the result of successful diversification into new markets such as Internet of Things (IoT) and automotive, as well as relationships with major smartphone original equipment manufacturers (OEMs). Yes, it helped make up for it. Weakness in the smartphone market. space. However, it was the non-mobile business that put a lot of effort into Skyworks last quarter.
As CFO Chris Sennesael noted in the report, the company generated $500 million in revenue from broad market segments (counting chip sales for non-mobile applications like IoT), up 30% from the previous year. Last earnings conference call. Broad market companies contributed 36% of Skyworks’ revenue last quarter, up from 29% in the same period last year.

It’s also worth noting that Skyworks earned $2 billion in revenue from this segment for the entire fiscal year. That’s almost 43% more than the $1.4 billion in revenue last fiscal year. The good news is that the company’s business in a wide range of markets can maintain its momentum. This is because, as Skyworks showed in its earnings report, it is attracting new customers in high-growth niches like IoT.

“In IoT, we continue to win new customers and expand our content. We have partnered with Vodafone to launch the UK’s first WiFi 6E platform. We have launched a solution for Fi 6 hotspots.”

Skyworks also enables the deployment of O-RAN (Open Radio Access Network) and delivers record quarterly results in the high-growth automotive business niche. For example, the O-RAN market is expected to grow at an annual rate of 42% until 2030. Meanwhile, according to Mordor Intelligence, the demand for connected cars will grow by 19% per year until 2027.

These catalysts explain why Skyworks expects its broad commercial segment of the market “to be a major driver in FY23 and beyond.”

The mobile business was not in its best last quarter
Skyworks’ mobile business generated approximately $907 million in revenue last quarter (this is total revenue minus $500 million from the broader market business). By comparison, 71% of Skyworks’ $1.31 billion in revenue last year came from its mobile business, worth nearly $931 million.

Thus, the company’s mobile business, which generates most of its revenue, declined year-over-year in the most recent quarter. This is not surprising given that smartphone sales have been declining for the past five quarters. Skyworks considers Apple its biggest client, with the smartphone giant generating 58% of its revenue last year.

Last quarter, Apple shipped 48.5 million smartphones, 6.4% more than last year. However, the overall smartphone market was down 9% year-over-year. And now things could get even worse for Skyworks.

All of this explains why Skyworks management is targeting a sharp drop in sales and profits. The chipmaker expects revenue of $1.3 billion to $1.35 billion and adjusted earnings of $2.59 per share in the first quarter of fiscal 2023. These numbers show double-digit declines in both revenue and earnings compared to the last year.

Continue Reading

Trending