Hummus Market Is Humming

Hummus is having its turn in the marketing spotlight. Above, only part of the hummus display at a Wegmans supermarket in Virginia. In addition to the store's private-label hummus (at top right), other national and regional brands are featured.

One of the featured brands is Ithaca, named for a city in upstate New York, where Wegmans got its start. Smart marketing move to give Ithaca chainwide distribution on the East Coast rather than confining it to New York. Variety-seeking consumers and dedicated hummus-lovers outside of NY will see this unfamiliar brand, check out its unique attributes, and give it a try.

In the overall U.S. market, Sabra is the dominant brand, a market-leading position it's held for years. It's growing rapidly and expanding its R&D and manufacturing to keep up with high demand.

Wegmans carries Sabra, of course. But the diverse brands in each of its stores help to differentiate Wegmans from national supermarket chains, encouraging shoppers to return for unique and interesting choices. For the hummus brands, the marketing objective in this competitive marketplace is to secure distribution, raise brand awareness, and reinforce brand loyalty.

Note: This is post #1200 for my Marketing Handbook Blog.

Marketing Private Brands

Private brands--also known as private-label--are created or owned by retailers and other channel intermediaries.

Supermarkets are heavily into private brands, as are many general merchandise retailers like JC Penney (which owns Arizona, shown at right). Why? Because these are exclusive to the store and, just as important, they have higher profit margins.

Twenty years ago, an article in the Harvard Business Review said:

... private-label strength generally varies with economic conditions. That is, private-label market share generally goes up when the economy is suffering and down in stronger economic periods.

Today, however, the economy is strengthening and so are private brands. For example:

• Kohl's is seeking a turnaround based on private brands such as Sonoma, Croft & Barrow, and others that are or have been mainstays of its revenue base. However, how will this resonate with shoppers seeking well-known national brands?
• JC Penney is also putting more emphasis on private brands such as St. John's Bay and Arizona as it seeks a turnaround. In 2015, private brands accounted for 52% of Penney's sales--but by 2019, the marketing goal is to have private brands contribute 70% of Penney's sales.
• Target wants shoppers to prefer its private-label food products, marketed under brands such as Market Pantry and Simply Balanced.

Private brands are here to stay. The question is, how much emphasis is too much emphasis?

Costco's Value Equation and Metrics

The December Consumer Reports has a one-page interview with W. Craig Jelinek, CEO of Costco. With 664+ warehouse stores worldwide, and annual revenues of $110 billion, Costco has earned high marks for providing good quality at great prices (not to mention paying its employees a living wage and providing benefits). The newest Costco will open near South Bend, Indiana, this week--just in time for the holiday shopping season.

The CEO interview confirmed details that Costco has released over the years. First, it limits its merchandise markups. The average is "in the 11% range," Jelinek told Consumer Reports. I've seen estimates of the markup as high as an average of 15% but that's still quite reasonable. Costco understands that members who pay for the privilege of shopping expect tangible value--meaning real cost savings reflected in the price tag. So one of the metrics it holds dear is markup, aiming for an average that fits with the target market's value equation.

Another part of the value equation is quality. Jelinek explained that its leading private label, Kirkland Signature, must have quality equal to or better than a comparable manufacturer's brand--at a price that's 20% or more below the competing item--more metrics. Today, roughly one-fifth of the products sold at Costco are Kirkland Signature. So while customers are happy to find top global brands like Sharp and Michelin, they're also pleased by the value equation of Kirkland Signature.

One more point Jelinek makes in his interview: New products get about 9 to 12 months to prove themselves. If they don't attract a solid following in the product adoption phase--if after introduction, weekly metrics show they don't meet sales projections set in the marketing plan--they're gone.

Will Private Labels Continue Strong After This Recession Recedes?

Many--many!--people have shifted at least some of their buying to private-label brands during the recession. In fact, one recent study found that fewer than 1 in 5 consumers believe that national brands are worth paying a premium for, compared with private label goods.

The Private Label Manufacturers Association notes that sales of private-label foods have risen by 34% and sales of private-label drug-store items have risen by 45% annually over the past five years.

No wonder the national brands are fighting back with lower-priced "basic" versions of their products and other strategies to defend sales and share.

Meanwhile, savvy private-label marketers are staying the course and even heating up the competition by improving their products and adding more of the bells and whistles typically associated with national brands. Walmart, for example, just announced it will improve the nutritional quality of its Great Value foods (and it's not alone). According to recent research, Great Value is the most widely recognized of the private label brands--and nearly three-quarters of those surveyed knew it was from Walmart. 

Macy's has an impressive array of private-label brands (above) that have become known for quality and value in their own right. These include: Charter Club, Club Room, International Concepts, Style & Co., Tools of the Trade, and The Cellar.

As the recession recedes and economic growth gives consumers more buying power, will private labels grow as quickly? My take: The "hourglass" consumption pattern will continue, with consumers seeking high-end products for categories where they are most involved in the purchase (due to status, for instance, or for gift-giving). At the lower end, consumers will keep saving money with private labels for household products where they perceive minimal differences with national brands. The middle will be the major marketing headache for brands that have no clearly defined competitive edge over private or national rivals.

Private Label Is Booming

Brandweek reports that Amazon is expanding its private label offerings. Its newest: Tom Douglas by Pinzon, brand of kitchen utensils from the celeb chef (see above). This isn't one of those generic private label excursions--it's more like Target's deals with designers, an attractive combination of style and value.

Best Buy is also adding private label goods, to help with market share and (of course) to boost profit margins. Its brands include Insignia, Dynex, Geek Squad, Init, and Rocketfish.

In short, it's no surprise that private label is booming. People are trading down, period. Even after the economy finally recovers, buyers are not going to go back to manufacturers' brands in every category. At least some of the new buying patterns will become long-term habits. In some circles, frugality is the new status symbol, which is just fine for private label manufacturers and retailers.

According to a survey just released by the Private Label Manufacturers' Association and GfK Custom Research:

• 91% of respondents plan to keep buying store brand products after the recession ends;
• 8% said they will stop buying these products once the economy rebounds;
• 90% of respondents said private label items are as good as, or better than, national brand products.

Nonetheless, some big-brand fans will remain loyal no matter what, and some will still make a show of buying certain brands when others can see the purchase or when the purchase has particular meaning (given as a gift, for instance). Next year at this time, let's see how many people really keep buying those store brands and how well the big brands are doing.