Private label market core solutions 2013

Retail Private Label State of the Market, 2013

Core Solutions Ltd. July, 2013

1. What is Private Label……………….…..…3 2. Why Private Label…………….……..….….4 3. Private Label Trends.….….………….....10 4. Private Label Sourcing ………..…...…..13 5. Private Label Collaboration…….…...…18 6. Private Label Strategies.……..………...20 7. How can Core Solutions help……...….25

TABLE OF CONTENTS:

Private label brands - also known as store brands, home brands, own label, own brands and retailer brands – are products made by a contract manufacturer and typically sold under a brand name of a retailer.

The current economic climate has put pressure on consumers to seek better value and in turn on retailers to provide quality, on-trend products at low prices. This has presented an opportunity for retailers to expand their private label programs, to offer greater variety, quality and value.

CHAPTER 1: What is private label?

// Retail Private Label – State of the Market, 2013

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Private label products offer significant benefits for the consumer as well as for retailers and their suppliers. These range from cost savings, margin improvements, greater product variety and shorter lead times for on-trend products.

CHAPTER 2: Why private label?





44.7% of retailers identified differentiation as the most important role of their store brand program.

What makes private label an attractive proposition?

Offers control over the

product: image, pricing, production, distribution

Builds own brand loyalty and differentiation

Customers indicate a preference for certain private label products

Private label is much more profitable

It allows retailers to undercut brands by around 20%

Consumers get to save around 30% of their usual shopping costs

Eliminates the need for an agent or middleman

Source: Private Label Store Brands Research, 2013

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Retailers rely on private label for differentiation

Retail Private Label – State of the Market, 2013




Private label is an attractive proposition for retailers on many levels. Aside from greater profits, it helps differentiate their products and respond faster to consumer trends.

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Private label drivers

What’s Driving Private Label?

Price Advantage

over branded products Differentiate

from branded products

Opportunity for higher

profits

Developing Brand loyalty

Consumer savings of 30%

Faster time to market

Ability to respond faster to trends

Greater control over the product





A recent British consumer research study found that consumers believe that private label products are the same as national brands but in different packaging. Consumers believe that advertising costs are the only differentiator.

Shoppers now believe they can actually get their preferred brands for a cheaper price because it is presented in a supermarket style branded packaging.”

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What do consumers think?

Source: Emmar Herbert, Canadean Research, March 2013





Private label is increasingly popular with consumers, who are attracted primarily by the value:

When consumers buy private label, they save around 30% of the cost of their products

U.S. consumers saved approximately $32 billion in 2012 by choosing private label.

Most consumers feel the quality of private label products is almost as good as branded merchandise.

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Why consumers like private label?

26% of shoppers think they will buy a larger amount of a supermarket’s private label product in the coming year.”

Source: PLMA, Research 2013





Consumers say that there are a few important factors which will influence their decision to buy private label products in the year ahead:

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What makes consumers buy more private label?

57%

• Will buy more if satisfied with the private brand

49%

• Will buy more if the private label quality is good

46%

• Will buy more private label based on special offers

43%

• Will buy more based on greater private label variety

Source: PLMA, Research 2013





Private label still has much room for growth especially in North America where it is under-penetrated, also in developing market. Retailers are focused on delivering more localized private label offerings as well as extending their range of products beyond basics into premium and luxury goods, both food and non-food. Private label products are no longer just a low cost option, they offer a distinctive mix of variety and value.

CHAPTER 3: Private label trends





Private label growth continues strongly in Europe, where in some countries it accounts for the majority of all products sold. Penetration in North America still lags Europe, but is growing. In developing economies such as China and Brazil, private label only represents a small margin of total products.

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Global penetration of private Label

Source: Nielsen, PLMA, IRI

Private Label Share of Total Retail Sales by Country (2013)





Retailers in the U.S. continue to expand their private label product offerings to boost margins. Of the top 30, 62% saw an increase in the percentage of private label product sold.

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Top 30 U.S. Private Label Retailers

Source: Retail Systems Research, PLByer, October 2012

U.S. Retail Private Label Sales (US $ millions) Company Name 2011 Rank 2011 % PL Sales 2011 $ PL Sales

Wal-Mart 1 18.0% $31,385

Kroger 2 27.0% $24,401

Costco 3 24.0% $11,244

Safeway 4 25.0% $10,158

Loblaw 5 27.0% $8,360

Trader Joe’s 6 85.0% $7,650

Aldi 7 95.0% $6,935

Target 8 20.0% $6,025

Supervalu 9 20.8% $6,000

Publix 10 21.0% $5,663

WMT-Sam’s Club 11 18.0% $5,326

Walgreens 12 20.0% $5,096

Delhaize 13 26.0% $5,000

Sobey’s 14 27.0% $4,387

Ahold 15 17% $4,143

CVS 16 18.0% $3,401

H.E. Butt 17 16.7% $3,000

Giant Eagle 18 30% $2,790

Metro 19 21% $2,419

Dollar General 20 22% $2,383

Meijer 21 25% $2,356

Hy-Vee 22 28% $2,044

A&P 23 20% $1,688

Winn Dixie 24 23% $1,583

Wegman’s 25 25% $1,550

Rite-Aid 26 18.3% $1,525

Whole Foods 27 11% $1,112

Shoppers Drug Mart 28 20% $1,092

Wakefern 29 31.6% $1,010

Family Dollar 30 17% $959





Private label sourcing is going through a shift in the face of emerging retail trends, more competition and increasing costs. Facing these pressures, private label has evolved from a low cost alternative, into the role of product differentiator, offering greater quality and value. As such, more sophisticated sourcing expertise is required to select the right sourcing markets and handle more complex requirements. Retailers also need to work closely with their suppliers to collaborate on ways to offset the increase in wage rates and volatility in currency rates and commodity prices.

CHAPTER 4: Private Label Sourcing





With the growth of mobile, online commerce and the omnichannel market, global retail is going through a period of massive change. This is forcing retailers to leverage their private label supply chains to drive differentiation, grow market share and increase margins. This is not easy with commodity cost fluctuations and wages increase. Consequently retailers are looking at how to optimize their private label sourcing.

Sourcing can help open up new supply markets, serve international retail markets with varying tastes and manage raw material cost volatility.”

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Sourcing can enable the development of more sophisticated and unique private label offerings to combat online competition.”

Source: Private Label Sourcing: Strategies to differentiate and defend, Deloitte: July, 2013

Sourcing: A private label supply chain lever





Retailers in categories including apparel, general merchandise and hard goods are facing a lot of pressure from volatile cost structures in their supply chain. Top pressures include variability in commodity costs and wages. Along with transportation these costs comprise 80-84% of landed cost.

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Supply disruptions

International productcustomization

Need to customize productspecs for multichannel market

Consumer sustainabilitydemands

Transfer pricing policy changes

Regional tax policy variability

Availability of productionfacilities

Supply chain integrity andtransparency

Fee trade policy changes

Rising production labor wages

Fuel price volatility

Raw material cost volatility

Top market pressures on private label sourcing

Source: Private Label Sourcing: Strategies to differentiate and defend, Deloitte: July, 2013

Top pressures on private label sourcing





According to Deloitte, raw materials, production wages and transportation costs make up 80-84% of landed cost paid. This means that retailers must source more strategically. This climate provides an advantage for private label producers who can leverage a more streamlined supply chain to reduce costs.

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Private label sourcing trends Product sourcing cost structures (% of landed duty paid)

Source: Deloitte, July 2013





Retailers are currently actively responding to private label cost pressures across their value chain and their sourcing footprint. They are also increasingly looking at more strategic response such as diversifying their sourcing countries, re-shoring to domestic vendors and consolidating existing vendors.

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Strategic responses to private label sourcing trends

Source: Private Label Sourcing: Strategies to differentiate and defend, July, 2013

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33

28

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Diversify country source ofsupply footprint

Re-shore production todomestic vendors

Consolidate the number of vendors

Align metrics and systems to fostersupply…

Implement vendor performance…

Enhance ethical sourcing capabilities

Negotiate raw material sourcingon behalf…

Disintermediate supply chainmanagement…

Engage in advancedplanning/scheduling

Guarantee volumes or…

Enhance quality assurance programs

Engage in innovation/product design/R&D…

Collaborate with buying houses/supply…

Provide logistics support to vendors

Strategic responses to private label sourcing pressures

= Do not use strategy, but plan to = Currently use this response





Suppliers who focus on branded products need to manage the different requirements of multiple retailers. They likely have different lead times, minimum order quantities, delivery cut-off times and packaging requirements. This makes it difficult for suppliers to optimize their operations. Life is more simple for private label suppliers. They usually have exclusive relationships with retailers and are better able to serve their need. Collaboration is easier which allows for reduced costs, increased efficiency and better decision making.

CHAPTER 5: Private Label Collaboration





Why private label enables improved collaboration?

Alignment of orders is simple due to greater visibility

Improved forecasting, order and replenishment

Optimized production schedules, batch sizes and lower inventory

Greater visibility into demand,

Open-costing is easier to enable

As retailer cost pressures intensify, collaboration with suppliers will play an increasingly greater role. Retailers will look to suppliers for greater input on design and require open costing. Suppliers will expect more visibility into planning and forecasting. Both sides will expect to support each other to mitigate currency and commodity cost fluctuations and ensure quality and compliance. At the same time, retailers will look consolidate their supplier base.

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Private label enabled supplier collaboration typically results in a 2% reduction in end-to-end supply chain costs.

Private label collaborative benefits





To ensure the ongoing successful of their private label programs, retailers need to focus on new strategies, processes and tools. Successful players are developing unique products for individual markets, at they same time leverage their commodity buying and sourcing scale across markets. They are also consolidate suppliers and extended the scope of tools such as product lifecycle management (PLM) which help optimize their supply chain.

CHAPTER 6: Private label strategies





Retailers are shifting toward creating more unique products for individual markets. They will also increasingly leverage common components and raw materials across these markets. Other strategic changes to improve their private label product development include consolidating suppliers and in some cases looking for suppliers closer to home.

Ongoing retail private label process improvement

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Retailer plans for product development process improvements over the next five years

Source: Accenture, 2011

82%

64%

45%

36%

36%

Unique products developed forindividual retail markets

Common products developed formultiple retail markets or regions

Common suppliers leverage acrossmultiple retail markets

Common components leverageacross multiple retail markets

Common raw materials leveragedacross multiple markets





Retailers recognize the need to leverage more advanced tools to enhance their private label programs. Many still rely on desktop tools such as spreadsheets and other manual processes which limit the ability to scale and improve efficiency. Most retailers expect to adopt more advance tools in the next five years.

Tools to enhance private label capabilities

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Percentage of retailers who plan to use specified tools to support their private label programs

Source: Accenture, 2011

83%

75%

75%

75%

67%

67%

Product Lifecycle Management (PLM)tools

Sourcing applications

Import management tools

Collaboration tools

Product costing tools

PO and SKU visibility tools





PLM enables retailers to manage complex processes involved in product development

Line Planning – PLM helps manage various product options, developed internally or externally, employing tools such as critical path management, to ensure on-time delivery

Specification Development – PLM helps to manage the entire product specification for a range of product types

Supplier Management – PLM manages supplier information ranging from profiles, audits, performance, capabilities and compliance related information

Sourcing and Costing – Retailers can issues RFQ’s through a PLM system, compare quotes and calculate landed costs

Product Commitment – The PLM system centrally manages all information in the commitment process and can effectively track work-in-progress (WIP)

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PLM systems support private label product development





What makes a private label program successful? The following are three key attributes of a successful private label program:

Visibility – a single version of the truth

Intelligence – ability to aggregate data for decision making

Collaboration – communication on a high level, with central archiving of information and social-media like capabilities

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Three elements for a successful private label program





Core solutions provides systems and processes which help retailers and brands scale and optimize their direct sourcing and private label programs. Core’s CBX extended supply chain management platform automates manual processes and builds visibility and collaboration across the retailer’s supply chain.

CHAPTER 7: How can Core Solutions help?





We helps retailers

drive speed, agility,

efficiency and profit

in bringing private

label and branded

merchandise to

market on-time and

on-trend.

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Plan

Develop

Source

Order Make

Deliver

Pay

CBX Extended Supply Chain

Management

CBX enables Retailers, Brands, and Manufacturers to

streamline their end-to-end product development, global

sourcing and supply chain processes, from concept

through to production and delivery.

CORE’s clients include large multi-national, multi-brand

retailers, including: Safeway, LiDL, ICA, Redcats, Migros,

Dairy Farm, Home Retail Group and Wesfarmers.

A platform to efficiently manage private label sourcing





This leading retailer increased their direct sourcing from approximately $250 mln in 2009, to a projected $1.2 bln for 2013. This represents on ongoing shift from branded to private label product, which are expected to comprise over 60% of the retailer’s product offering in the next few years.

CBX helped us to scale our direct sourcing without a corresponding. increase in headcount and costs.”

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Case Study: $5 billion retailer


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If you’re interested in learning how to grow your private label and direct sourcing with minimal additional cost or resources, request a consultation or demo of Core Solution’s CBX platform.

Fine-tune your retail private label program

www.coresolutions.com [email protected]

Americas: 1.908.898.1880 Europe: 44.20.8133.0328 Asia: 852.2378.6300

http://www.coresolutions.com/request-a-callback/

http://www.coresolutions.com/cbx-extended-plm-demonstration/

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Private label market core solutions 2013

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