Private Label is in the Public Eye

The Brandless Company Model

Calling itself the “Procter & Gamble for Millennials,” San Francisco e-commerce company Brandless™ made its U.S. debut this past July eager to disrupt the CPG industry. The startup, which has secured over $50 million in funding, sells a variety of organic food and home goods all for an everyday low price of $3.

Brandless™ says it’s able to keep its prices low by eliminating the BrandTax, a moniker the company hopes to trademark and defines as the “hidden costs you pay for a national brand.”


Aldi's Award Winning RoséAt the 33rd annual International Wine Competition in United Kingdom, The Exquisite Collection Cotes de Provence Rosé 2016 won a silver medal. Judges gave the wine top honors after two weeks of blind taste testing, describing its flavor as “ripe summer stone fruits with a generous acid palate and crisp bright finish.”

But what surprised judges–and wine spectators–the most wasn’t its $8 price point or French origin. It was that the wine belonged to Aldi’s.


WHY IT’S HAPPENING

In its August 2017 Private Label Report, IRI reports that 49% of consumers say they are making sacrifices to make ends meet, with 29% reporting difficulties in affording groceries.

Consumers in all income and generation groups report buying private label

Consumers are embracing a variety of money-saving strategies to cut down on household costs, but opting for private labels is common across all generations and income brackets.

The cause is twofold:

  1. Despite the creation of two million jobs in 2016, which brought unemployment to 4.5%, wage growth has been stuck at 2.5%[1] for the past two years. It’s hitting younger consumers the hardest. On average, full-time, year-round working millennials are earning nearly $12,000 less per year than the national average for workers age 35–65.[2]
  2. Private label has, in many instances, managed to bridge the quality gap with national brands. With a focus on premium and even super-premium tiered items (all natural, organic, non-GMO, etc.) private labels are delivering a better product experience to customers.

WHAT WE THINK

The value proposition of national brands vs. private label is being aggressively questioned by today’s savvy consumer.

As private label brands have improved their quality and consumers are finding themselves with less discretionary income, shoppers are questioning if national brands are really worth the extra cost.

WHAT’S NEXT

To stave off private label encroachment, national brands must do a better job of demonstrating why their products are worth the extra investment.

Deliver on both sides of the equation

The majority of national brands built their reputation–and consumer preference–on signature product formulations that taste great, perform reliably and consistently deliver a high-quality experience again and again. And that used to be enough. But today’s consumer also wants more transparency with shorter, cleaner ingredient statements. Private labels often struggle to successfully deliver on both sides of this value equation. If national brands can consistently deliver an exceptional product experience while making it with cleaner ingredients, consumers will pay the extra cost.

Focus on customer engagement

Younger customers, particularly millennials, want more from brands than just a high-quality, good-tasting product. It’s about what else that brand brings to the table to enrich their lives. Advertising, event activation and social media strategies can bring the value-beyond-product story to life through personal connections.

Be purposeful with price promotions

While strategic price promotions are important in driving incremental purchases, long-term discounts undermine the value of a brand. They also position your brand as competing directly with a retailer’s own brand.

Invest in strategic retailer programs

Unlike private labels, which traditionally have very low marketing funds, national brands possess highly coveted marketing and advertising dollars. As traditional retailers face ever-increasing competition from non-traditional players like Amazon and Brandless™, national brands investing in ad campaigns—that drive customer visits and higher basket rings—are incredibly valuable.

 

[1] “Why Wage Growth is Too Slow and What To Do About It.” Washington Post. September 1, 2017.
[2] “Here’s How Much Millennials Are Making in One Chart.” Fortune Magazine. March 29, 2017.

The Rising Cost of College Dining

“Like many college students, I have a full bookcase and an empty fridge.”

In a March 2017 Op Ed, Olivia Ellison–a senior at University of Colorado majoring in Exercise Science–shares her experience and thoughts on an alarming C&U student trend: food insecurity.

Ten years ago, Georgia State University officials became worried about the impact of pricier student housing on the ability to afford earning a degree. Research was commissioned to examine the connection and the results were sobering: for every $5,000 in unmet financial need, a student was 12 percent less likely to graduate[1].

As the higher education industry faces declining undergraduate enrollment and falling numbers of high school graduates, basic and affordable amenity options are quickly becoming top priority with C&U leadership looking to attract increasingly cash-strapped students and their families.

WHY IT’S HAPPENING

Consider the following statistics regarding the costs of higher education:

100% increase in college tuition since 2000; 28% increase in room and board in last decade; 50% increase in student meal plan costs since 2006.

It shouldn’t be a big surprise that 83% of Americans say they can’t afford a college degree for themselves or a family member.

With tuition, class materials and student fees being inflexible fixed costs, students are opting out of meal plans–or buying the bare minimum–to save money. In addition to declining meal plan revenue, campuses are now also battling double-digit levels of food insecurity* among students.

According to a recent food insecurity study of college students[4]:

  • 47% of students enrolled at four-year colleges say they experienced food insecurity in the last 30 days.
  • 43% of students at four-year colleges and enrolled in a campus meal plan say they experienced food insecurity in the last 30 days.

*Food insecurity is defined as the state of being without reliable access to a sufficient quantity of affordable, nutritious food.

WHAT WE THINK

The projected financial reality of future C&U students and their families makes changes to dining services inevitable.

The desire for quality, nutritious and delicious food is universal among students. But the average college and university charges about $18.75 per day, for a three-meal-a-day dining contract, compared to the less than $11 a day a single person spends for food[5]. As the number of financially stressed students who see cost as a barrier to selecting a meal plan that fits both their budget and hunger state increases, so do the risks to current C&U dining services models.

WHAT’S NEXT

It’s important to proactively anticipate these conversations and be prepared with both product and business solutions to help foodservice directors navigate this next evolution in C&U dining.

Consider the case of Jerry Rackliffe, Georgia State University’s vice president for finance administration:

After seeing the research on financial need and graduation rates, he convinced the housing department to open a “tiny-dorm” option that would include smaller rooms, more basic amenities and an unlimited meal plan that would collectively cost less than a room alone at other upperclassmen units. When Patton Hall opened in the fall of 2009, it filled up faster than any other campus housing option. It was so popular, the school converted two local hotels to the same concept in 2011.

A basic-tier plan that provides unlimited meals could be a mutually beneficial solution: increasing meal plan participation among financially at-risk students and relieving pressure from stop-gap hunger solutions like food banks and student meal donations.

Just some Thought for Food™

 

[1] “Why Universities Are Phasing Out Luxury Dorms.” The Atlantic. August 21, 2017.
[2] “Tuition and Fees and Room and Board Over Time.” The College Board. 2016
[3] U.S. Department of Education. 2017.
[4] “Hunger on Campus: The Challenge of Food Insecurity for College Students.” Dubick, Matthews and Cady. October 2016.
[5] The Hechinger Report. 2016.

Questions, comments or want to learn more? Let's connect! akile@jtmega.com

Want to receive more Thought For Food Insights?
Subscribe Now »

Recent Posts

Don’t Just Cook. Cook Different.
Don’t Just Cook. Cook Different.

In his September 2017 Harvard Business Review article, author Eddie Yoon grabbed the food industry’s attention with the headline “The Grocery Industry Confronts a New Problem: Only 10% of Americans Love Cooking.” In the opening paragraph, he asserts: “Although many people don’t realize it yet, grocery shopping and cooking are in a long-term decline. They […]

Read More »

As Local As It Gets
Indigenous Cuisine: As Local As It Gets

This past month, I made my way to Southeast Minneapolis for a cookbook launch party featuring a type of cuisine few of us in the food industry have heard of: indigenous. Using ingredients that are strictly native to the United States–particularly the Midwest–guests feasted on fare featured in Chef Sean Sherman’s new cookbook, The Sioux […]

Read More »