Name Brand, Private Label—or Both?
With more convenience stores emphasizing in-store destinations such as coffee bars, restaurants and banks, it means more competition for the space allocated to health and beauty care (HBC) items and all other in-store categories. Statistics show that while merchandise sales contribute only a quarter of c-store revenue, they accounts for more than 50% of total gross margin. That means stocking the merchandise consumers want is critical, and the basic choice is between name brand or private-label merchandise.
Brand names are particularly important in attracting consumer demand for food, beverages and other consumables, which are the largest part of convenience merchandise. The top-selling half-dozen product groups (cigarettes, beer/ale, carbonated beverages, energy drinks, smokeless tobacco, salty snacks) all benefit from substantial demand by consumers.
The attractions of name brand products to retailers are clear: They have better name recognition, leveraged national advertising and marketing, a higher retail selling price and an attractive shelf presence, just to name a few. Yet name brands increasingly have become a concern, especially in the HBC category. While HBC is admittedly a smaller share of merchandise sales, its high margin dollars make it an important category for retailers.
Supply Challenges, Acceptance
Over the past several years, supply difficulties involving production shutdowns have resulted in limited nationwide availability of certain name brand over-the-counter pain relief, cold, sinus and allergy relief products. Some of these shortages have lasted for months, which can create a major supply problem where the retailer might otherwise have opportunity. Consider the fact that when it comes to analgesics (the No. 1 HBC subcategory, with approximately 26% of HBC dollar sales), many consumers, by preference or doctor recommendation, specifically seek out the pain reliever acetaminophen, with Tylenol as the No. 1 name brand.
Until recently, private labels have not made major inroads into the c-store market. In fact, in 2010, SymphonyIRI Group data showed that private label’s share of dollar sales was significantly lower in convenience stores: only 4.8% (and that was up from 1.5% in 2007), compared to 16% of drug store dollar sales and a nearly 21% share of supermarket dollar sales.
There is no reason for such a disparity. During the economic recession, as shoppers cut back and altered shopping behaviors, they frequently turned to private brands as a value alternative. They have held onto that preference because product quality is virtually indistinguishable between name and private label—and they often come from the same source. So it’s no surprise that there was an unprecedented 11% growth in sales of c-store private-label products in 2011.
An Ideal Solution
For the convenience retailer, balancing name brand and private-label supply is best done by sourcing with a vendor that offers both types of products, especially in the top HBC product categories.
Such a strategy offers a better way to assure supply of the top sellers in the largest destination HBC categories, especially the unquestioned category leaders, pain relievers/ analgesics and cold/allergy/sinus relief. These two product categories have been plagued with periodic quality-related shortages of name brand products the past several years. C-stores aligned with suppliers that could offer quality private-label brands without supply disruption did not have to lose sales or profits when there were name brand shortages.
There are other advantages of single-vendor sourcing for name and private brand products: vendor consolidation, shared marketing leverage, attractive packaging with a similar look, and efficient inventory management. Add everything up and the bottom line is simple: C-stores that have suppliers with assured access to both brand name and private-label products will benefit from dependable supply, fewer SKUs and stronger in-store financial results.