10Steps
to Innovate
Private Labels
A guide to becoming a leader
in private label development
A.T. Kearney category management and buying framework
For resale categories
Category management
Food
and
near- or
non-­
food
A
brands
Private
Label
Category Profit
Improvement
(CPI)
Category
strategy
10Steps
to improve Category Profit
Buying
Fact Based
Negotiations (FBN)
Private Label
Development (PLD)
A guide to achieving excellence in category management
10Steps
Fresh food
Winning in Fresh (WIF)
to Win in Fresh
A guide to improving Fresh Category performance
10 Steps to Innovate Private Labels
2
Context
Private labels have become strategically important to retailers. They are no longer just used to
attract value-conscious customers or protect category margins. Instead, private labels are being
used to differentiate a retailer’s product range and overall positioning. In fact, due to a stronger
focus on quality and marketing efforts, private labels have lost their notoriety for being “just
cheap.” In a recent A.T. Kearney study, more than 80 percent of all respondents said that private
labels are as good as or even better than branded products.
Retail consolidation has driven private labels and will continue to do so. In concentrated
markets, private labels have comparatively high shares, but show limited overall growth. If a
certain saturation level is reached, private labels can only achieve further growth through
innovation. As a result, retailers in mature markets increasingly take into consideration the latest
private label trends, such as covering entire price ranges, addressing customer-relevant topics
(fair trade, energy efficiency, perfume-free cosmetics), creating stronger branding, leveraging
technology to engage with customers, and vertically integrating to extend influence throughout
the entire value chain. Although these efforts have all proven to be successful, they will not reach
their full potential if carried out as separate steps.
Developed by A.T. Kearney during projects with retailers and manufacturers representing various
product categories, the concept behind the 10 steps to innovate private labels takes a holistic
approach and reflects the latest thinking in this area. It covers the entire private label lifecycle and typically yields results reflecting significant sales increases (for example, private label
shares that double in three years) and cost reductions (for example, 18 percent of the total cost of
manufacturing).
10 Steps to Innovate Private Labels
3
10Steps
Strategic foundation
1
Define private label vision and role
2
Shape private label brand architecture
3
Determine focus of private label product range
4 Transform private labels into real brands
10 Steps to Innovate Private Labels
4
Product configuration
5
Develop and launch private label products
6 Optimize value chain collaboration
7
Apply advanced sourcing techniques
Organizational empowerment
8
Leverage analytical capabilities and tools
9 Manage the complete private label life-cycle
10 Establish an effective private label organization
10 Steps to Innovate Private Labels
5
We have supported leading companies
on private label topics
Examples
German private label
manufacturer
Northern European
retailer
European private label
buying organization
Complete operational turnaround
program for a leading nonalcoholic beverage company. Key
improvement levers include:
Client was underperforming in
private label share and margins.
Key improvement levers include:
Client
wasprivate
underperforming
in
European
label buying
private
label share
margins.
organization
lackedand
common
Key
improvement
levers included:
approach
and language.
Key
improvement levers include:
• New private label vision and
strategy
• Seven-step
private label
sourcing process adapted to
• Growth
program with new
buying organization‘s setup
price fighter, mainstream and
organic
private label
ranges
• Various category
sourcing
•
Project
focus
Results
Complexity reduction by
discontinuing unprofitable
articles and closing
a production plant
•
Lean manufacturing
•
Procurement cost reduction
including adaptation of specifications (preforms and bottle
weights) and tendering
•
Distribution cost reduction
•
Selected growth initiatives
(new segments)
18% cost reduction
•
New private label vision and
strategy
•
Growth program with new
price fighter, mainstream and
organic private label ranges
•
End-to-end private label
processes—from design to
sourcing
•
Setup and training of new
private label organization
Doubling of private label
share over three years
5% – 10% margin
improvement
•
•
•
•
projects
End-to-end private label
processes – from design to
Harmonization and
sourcing
spec adjustment
Setup and training of new
Implementation
private label organization
and rollout support
6% – 15% cost reduction
in private label
categories
Source: A.T. Kearney
10 Steps to Innovate Private Labels
26
10 Steps to Innovate Private
Labels: optimized categories
Selection
Near- and non-food
Packaged food
Other
• Personal care
• Drinks
• Home electronics
• Cosmetics
• Frozen food
• Sanitary products
• Household products
• Canned food
• Construction materials
• Office supplies
• Breakfast
• Do-it-yourself
• Apparel (men, women)
• Nutritional supplements
• Heating equipment
• Paper
• Meat
• Tooling
• Toys
• Fruits
• Building chemicals
• Kitchen appliances
• Biscuits
• Furniture
• Leisure
• Pet food
• Telecommunication
• Textiles
• Convenience
• Dye
10 Steps to Innovate Private Labels
27
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Authors
Mirko Warschun, partner, Munich
[email protected]
Geir Olsen, partner, Oslo
[email protected]
Petra Helfferich, principal, Copenhagen
[email protected]
Matthias Rucker, consultant, Munich
[email protected]
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©2013, A.T. Kearney, Inc. All rights
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