Supermarket retailers have a good idea of what motivates shoppers to buy certain products rather than competing brands today. But how about over the next 10 years? Because of their investment in store brands, retailers naturally wonder about the uncertainties of consumer buying preferences and shopping habits, as well as wider industry trends that might affect sales.So how can they prepare their private-label


So how can they prepare their private-label program for the marketplace of tomorrow? One way is by using a technique called scenario planning.

This process, developed in the early 1960s, is now used by hundreds of companies in industries ranging from telecommunications and technology to marketing and retailing. It involves three steps:

Identify major long-term trends affecting companies and consumers of their products.

Weigh the key uncertainties that could alter the rate of change or the direction of the key trends.

Creating scenarios of what situations may exist in the future.

"The world is changing and there is unpredictability, but many people are not prepared," said Paul J.H. Schoemaker, chairman and chief executive officer of Decisions Strategies International, Conshohocken, Pa., and research director at the Wharton School's merging technology program, Philadelphia.

"Scenario planning is a good technique to involve people in a dialogue about how the world may change," he said. "You need a broad participation. It isn't always people at the top who have their finger [on the pulse]. It may be people in the trenches. They see what the competition is doing, why customers are buying elsewhere, and changing their purchasing habits."

To determine the private-label marketplace over the next 10 years, SN asked a half-dozen consultants and analysts to put on their scenario planning thinking caps. Here is what they had to say:

The Convenience Factor

Today's trend toward convenience in shopping and in food products themselves will accelerate over the next decade, according to Spencer Hapoienu, president, Insight Out of Chaos, New York. This will affect how retailers merchandise products as well as how manufacturers develop them.

But the economy might slow down the trend. "Most of the time, convenience costs more money," he cautioned. "The strength of the economy going forward could have an impact on the number of products and services developed that are geared towards convenience."

But assuming a stable economy, Hapoienu said supermarket retailers will benefit from the trend if they provide the right service and products.

"Private label will have a huge role," he said. "If local supermarkets can meet all the needs of the consumer as it relates to convenience, they have the best chance of taking advantage of the trend."

Hapoienu recommended that retailers focus on where the product is featured in the store, how it's merchandised, ease of use in terms of package design, Internet ordering and home delivery.

He said private-label manufacturers will have to do a good job of coming up with convenience-related aspects to their products to make it easier for the consumer to buy them. For example: how they are packed, how the assortments are built, how they fit on the shelf for better placement, the packaging itself, and the way products are developed.

"It's crucial that they [private-label manufacturers] are able to advance the whole process of eat and run," said Hapoienu, using the term "commuting foods" to label this category of products. "There will continue to be a need and a desire among consumers to have goods that are tasty and can be eaten in their car or on the bus or at their desk."

Opportunity in the Center Store

Warehouse clubs have gradually become shopping destinations for such product categories as paper goods, soft drinks and detergents. This represents a loss of sales from the Center Store of supermarkets, observed Tim Hawkes of Arc Retail.

Going forward, this change in shopping habits will present a growing challenge for retailers and an opportunity for private label, said the managing partner of the Greenwich, Conn.-based firm.

According to Hawkes, a key way to draw people into the center of the store will be proprietary brands. "It's an opportunity for private label to address the issue of shrinking categories within the Center Store. But some great private-label brands are not getting the exposure that is required to become trusted brands for the consumer."

Hawkes said this lack of attention could persist and continue to erode Center Store sales. For example, many retailers could remain overly focused on perimeter departments and forget about the contribution that Center Store makes to overall sales.

In the future, Hawkes said retailers must promote their Center Store private-label products, not just with sales promotions but also with celebrity spokesmen. "They have to begin to do what the national brands have done for all these years, which is build brand equity."

The Skinny on Obesity

Today's focus on obesity will impact supermarkets over the next 10 to 20 years, predicted consultant Chris Hoyt. This represents a huge opportunity for supermarkets and for their store brands.

"Food stores can develop lines of private label that address the issue and publicize them," said the president of Hoyt and Co., Scottsdale, Ariz. "Next, they can sponsor local athletic events and get embedded in the community. It's a huge opportunity for food stores to take positive measures to address the problem of obesity."

Hoyt doesn't agree with the principals of the government's much-hyped food pyramid. He believes there is a correlation between the rise in obesity and the publication of the pyramid in 1992.

"If the private-label manufacturers tie into what the government is saying, everybody is going to continue to get fat," he said. "I would have a selection of private labels that would allow people to eat well without consuming a lot of carbohydrates."

A major change in America's health habits would derail the program, which is unlikely, he said. So, retailers should instruct private-label suppliers to formulate products that address this issue.

"The obesity thing is massive, and we have to fix this problem. It's a great opportunity to increase profit," he said.

'Flight to Value'

Consumers today don't see a big difference between the similar brands of products in many categories, said consultant Alex Lintner. So they buy what's available at the lowest possible price at mass merchandisers and other discounters.

Such a shopping pattern will continue and private label will benefit from this "flight to value," according to the analyst with the Boston Consulting Group, San Francisco. "There's a huge volume of business that has gone in that direction," he said. "Consumers are now spending less money on the same or better quality than they have historically spent."

While he doesn't foresee any change in this trend, Lintner said it may be tempered a little. "What we can clearly see is a flight to value combined with trading up," he said. In other words, consumers will save by buying the lowest price of disposable diaper regardless of brand. Then they will take the cumulative savings and apply it to buying a luxury car.

"It's an aspirational spend," he explained. "On one end, people are saving, and on the other end they have to have a reaffirmation that the life they live is really worth it. One fading in spending fuels the other."

Lintner predicts that some retailers will do better than others in figuring out this trend. But store brands can clearly benefit.

"The private-label category clearly caters to some of those categories that are being commoditized," he said. "The retail brand will be strong enough to support the same volume sales, which will take out the margin spend that the traditional brand marketers have put behind those categories and their brands.

"Let's call that anywhere from 4% and 14%, and on average 7% and 8%. Let's take the 7% to 8% off the table and pass [the savings] to the consumer. That's the principle of private label."

Juggling the Product Portfolio

Today's margin compression created by mass merchants and clubs is likely to continue throughout the decade, said consultant Ken Harris. That will prompt more supermarket retailers to focus on their "impression items" -- the ones that really make an impact on their consumers -- as part of product portfolio management.

"The next part of the issue is how to make a price impression if you don't believe you can do it with a national brand because it's in too competitive a category," said the Cannondale Associates partner in Evanston, Ill. "So you try to establish your niche with a private brand."

This won't be as important if price pressures ease. But if they don't, the effort has to be part of a retail strategy for products within a portfolio, according to Harris, including how to handle store brands.

"Retailers will need to react by understanding the 'price impression' products within their product portfolio," he explained. "Then they have to make a strategic decision -- do they go after it and really own a category [where] no one is going to beat them on price, or are they going to be competitive in a category, or are they just going to participate in a category?

"Some retailers are going to end up saying, 'This is the category we're going to get aggressive in, so maybe we'll substitute private label for some national brands.' The idea is that they can satisfy their customer's needs with their own brand and make some money."

Wal-Mart, Wal-Mart Everywhere

The growth of Wal-Mart Supercenters throughout the decade will challenge supermarkets to establish and maintain a point of difference with the world's largest retailer. That will be the key to shopper loyalty, according to Gary Giblen of C L King & Associates.

Competing on price for national brands is not the answer, added the senior vice president and director of research for the New York-based firm. The conventional wisdom throughout the industry is that nobody beats Wal-Mart on price.

"But private label is something where you perhaps can get fully competitive pricing as well as achieve some quality differentiation," he said.

Wal-Mart has been selling food in their supercenters for 11 years, but they were never good with it. They never had "enough food presence" to be credible to the consumer, according to Giblen.

"But that's changed now," he said, "and it will continue to be a factor that increases private label."

Giblen said retailers can use a control label to combat Wal-Mart's buying advantage of being a national chain and having such high volume. "A given chain might be the largest customer of a packer. That means the retailers will compete on the quality of their products."

A wild card in this emerging scenario, according to Giblen, will be retail consolidation, which will also be driven by Wal-Mart market share gains.

"The bigger you are, the more you can afford to market a known brand product," he said. "That fosters private label."