With Lidl’s recent launch in the United States, Aldi’s expansion and the growth of consumables at dollar stores, the competition for Americans’ grocery dollars continues to heat up — especially in the value market. This naturally raises the question: How can traditional grocery retailers keep up without slashing prices across the board? The answer may lie in private brands.
Creating a value tier brand can be an effective way for a retailer to provide cost savings to consumers, while also expanding its reach to shopper segments that might not normally consider the retailer’s offering. However, it’s not simply a matter of adding low-priced SKUs to the shelf.
There are a host of considerations, strategies and executional guidelines a retailer should follow to ensure success. For starters, retailers must be sure a private brand value tier is right for its stores and shoppers. It means understanding who the shoppers are, what they buy and what their motivations and attitudes are. It’s also important to understand that it’s no longer just paycheck-to-paycheck shoppers who seek out value brands for the lowest prices. Savvy shoppers are also looking for the best values and are, therefore, shopping multiple tiers and even channels to find them.
A grocer must also evaluate its private brand strategy in regard to its banner mission. For example, offering a value tier might do more harm than good to overall banner equity if the retailer’s core strategy is to promote its private brands as being national brand equivalents. Finding the right balance between quality and price is critical as well. If retailers sacrifice quality to get a low price, it could erode the quality perception of its other brands and even its banner.
When it comes to execution, a retailer needs to be mindful of clearly defining its value tier and differentiating it from its national brand equivalent tier. Retailers should consider the following:
- Product: The quality of a value brand product must be easily distinguished from that of an NBE. In categories where quality is homogeneous, such as commodities, the value brand could be the sole offering competing on price. In categories where multiple quality tiers are applicable, such as ice cream and pasta sauce, a value brand offering must be noticeably different when compared with the NBE tier.
- Packaging: Value tier packaging should be differentiated through design, formats (such as fewer colors or less sophisticated sealing mechanisms) or both to convey value and reduce cost.
- Price: The value product must always be the lowest price on the shelf, even with NBE discounting.
- Placement: Value items should be given less prominence on shelves.
Kroger is a best-in-class example of executing a consumer-centric value tier strategy. The retailer offers approximately 200 value tier brand items — versus approximately 4,000 items in its NBE brand — and uses different branding, ingredients and packaging to distinguish the tiers from each other. Opening price points typically set 45% to 60% below national brands grab shoppers’ attention, while cheerful branding and colorful, playful package designs offer a stark contrast to uninspired, generic packaging typically associated with a value tier. This helps reduce any potential stigma associated with purchasing a value brand.
Finally, retailers shouldn’t rely solely on a value tier to compete with discounters. Stores such as Aldi and Lidl offer great prices on NBE products, not just value tier products, so while value tier prices might help draw shoppers in, retailers must realize it’s just one link in the chain. Retailers also have to back that up better services, better engagement and better assortment to keep shoppers coming back.
Katie Burkhardt is a brand and marketing strategy manager at Daymon. Prior to joining Daymon, she held positions at Burberry and Parthenon-EY. She holds a BSBA in marketing from Washington University in St. Louis and an MBA from the Wharton School of the University of Pennsylvania.