One of the biggest issues today is how we market. When I first entered the industry over twenty years ago, it was not unusual for a retailer to carry multiple brands. Produce companies had to work hard every day to build their brand and compete with the other guys next to you on the shelf.

The day you weren’t hungry anymore was the day your competitors were right there to clean your clock. The progressive retailers and branded companies figured out how to manage shrink in that environment.

Today, it seems that some key components of that model are gone. I’ve heard many say that the advent of private label has had a significant negative impact on the industry.

I would suggest that it is not so much private label but how it is marketed.

The dollars that brands allocated for innovation and the consumer are now discretionary and have to be significantly reduced or even removed altogether in some cases to get to the lowest possible dead net pricing.

At the same time, it is rare to see a store brand put the same resources against the consumer as the brands did when they were competing against each other on the shelf.

When you combine that dynamic with the supply side focusing on aesthetics and shelf life often times over taste, the end result is lost opportunity for everyone.

Anything the industry spends toward building more awareness is a good thing. However, we need to get back to focusing on the basics of affordability, availability, but, above all, taste.

I should add that some retailers are doing it right from an overall shopper experience standpoint (Kroger, Wegman’s, Costco, etc.). I am focusing more on the benefits to a retailer from national brands focusing on all of the marketing channels, not just using produce FSI’s or a price leader on a produce item to get people into the store.

National brands can bring an expertise and marketing machine to the markets that most retailers canot afford to have on staff.

— Eric Schwartz
CEO
United Vegetable Growers Cooperative
Salinas, California

TANSTAAFL — is the acronym for “there ain’t no such thing as a free lunch.” The concept is the thematic center of Robert Heinlein’s 1966 science fiction novel, The Moon Is a Harsh Mistress, and Nobel Prize winning economist Milton Friedman used a version of the term as the title of his 1975 classic book.

The basic idea is that life is a series of trade-offs, and even if the cost of something is hidden, it is still there.

So it is with private label.

Retailers caught on to the idea that consumer packaged goods prices included a margin to cover advertising and other forms of marketing as well as research and development to create the next generation of products. By creating private labels, the retailer could avoid these costs and thus underprice the branded product.

In the short run it works.

The problem, though, is that marketing and R&D are the underpinnings of the growth of the category in the future.

If retailers drive out that margin, who is going to be developing the new products that will drive growth in the category in years to come? If retailers drive out the margin, who will pay for the advertising and marketing that persuades the next generation of consumers to love that category – be it soup or sandwiches or bagged salads?

In effect, what private label does is lead to underinvestment in category development.

Although chains could theoretically invest in these matters, that would add back in costs — getting rid of which was the reason d’etre of private label.

It is a classic free-lunch problem. Retailers viewed the money spent on marketing and R & D as a honeypot to increase margins while giving consumers a discount — but they forgot about TANSTAAFL — and the result is slow growth categories lacking in innovation and consumer enthusiasm.

Many thanks to Eric Schwartz for adding the benefit of his experience to this industry conversation.