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Insights into the economical green products trend

The keys to ‘green’ private label success? Affordability, credibility and clarity

Post a commentBy Maggie Hennessy , 17-Jul-2014
Last updated on 17-Jul-2014 at 15:19 GMT

Although the US private label market has a ways to go in catching up with Europe, a shifting consumer landscape has more consumers than ever examining products’ origins, paving the way for private label manufacturers to seize on those looking to shop a little greener without breaking the bank.  

“There’s a shift involving the consumer that’s been brought on largely by mobile technology,” Michael Bromme, executive vice president of global customer development at Trace One, told attendees of a webinar hosted yesterday by Planet Retail. “Expectations are changing, and we’re seeing consumers with smartphones and internet accessible devices digging to learn about the food they purchase and verifying whether products live up to brands’ promises. The mobile wave is going to impact the market, and the consumer will be the one to push for more information on the products they buy.”

Green-minded store brands, from all-natural and organic products to those manufactured using sustainable production processes, are helping push mainstream consumers into the green segment—when executed the right way, said Denise Klug, retail analyst at Planet Retail.

One of the most successfully executed “sustainable” private label efforts (which can serve as best practices for retailers and manufacturers alike) comes from US retailer Kroger, which launched green private label Simple Truth in the fall of 2012, following its acquisition of Harris Teeter, Klug said. “Kroger, which has been a historically slow mover regarding changes, started moving to keep pace with the biggest trends in retail landscape—which of course, includes sustainability.” 

Simple Truth was built on the—simple—message of “free from 101”, denoting the 101 preservatives, additives and other ingredients the retailer removed while formulating the products. But the most important part? “With Simple Truth, Kroger is also targeting regular shoppers, not just the dedicated organic shoppers,” Klug said.

Kroger has engaged in marketing campaigns across traditional, online and in-store platforms to boost awareness among all shoppers, which has paid off considerably. Simple Truth is on track to reach $1bn in sales by the end of 2014, meaning it would be the second-largest natural foods retailer in the country if its natural food sales were a standalone business, Klug added.

Loyal Kroger shoppers are buying Simple Truth in place of a second shopping trip

Indeed, during a recent earnings call, Kroger CFO Mike Schlotman said: “I think a lot of sales are otherwise loyal Kroger shoppers who have become more aware of our offerings in natural and organics and are buying more of that product rather than making a second shopping trip.”

Aldi US' Simply Nature label began as a special, but was later permanently added.

Undoubtedly, part of Simple Truth’s success can be attributed to its affordability. The economical green product trend can be seen across the US (especially in all-natural cleaning products), with examples including Walgreens and Duane Reade’s Ology green private label detergent, Clorox’s manufacturer brand Green Works and Walmart’s Great Value.

“It’s part of retailers’ strategy to add value to their economy line and appeal to a growing contingent of consumers with different lifestyles and diet needs,” Klug said.

Indeed, Walmart’s Great Value line also includes gluten-free products. And Aldi US initially rolled out Simply Nature natural and organic private label range of products as part of a special offering for weekly specials, but has since made the products available permanently given demand.

Whole Foods emphasizing more affordable options

Increased competition in sustainability from conventional retailers has even pushed Whole Foods to improve its price position and increase promotional activity around its more affordable offerings, with large in-store displays touting great prices.

That said, affordability, clarity and credibility are key pieces to lure mainstream shoppers and even attract new “super organic” shoppers. “The message has to be clear for shoppers,” Klug noted. “Some shoppers still have to be convinced of sustainability even if the prices are low. Some messages simply do not work—as when value retailers target premium organic shoppers.”

In one example, German discount supermarket chain Lidl’s 2007 purchase of a stake in organic food chain Basic AG resulted in widespread criticism from shoppers and suppliers, who were afraid the products would lose credibility. Coverage of the move referred to a “shift from first-grade organic to second grade”, and a “loss of credibility” for Lidl as a result.

But cooperation by integrating specialist organic private labels (with already established expertise) can enable retailers to gain credibility without being an expert themselves—a strategy that can work for large and small retailers alike, Klug said.

Walmart's recent addition of Wild Oats to its product range provides a great example.

“It’s a former private label food store chain with a well-established reputation, revised by Fresh and Easy and recently added to Walmart’s range at prices that are 25% less expensive than organic manufacturer brands,” Klug said, noting that a recent Walmart-administered consumer survey found that 91% of Walmart shoppers would consider purchasing organic from an affordable organic brand.

Retailers are becoming mini CPG manufacturers

But it’s an investment to build these new brands, as increased visibility into supply chains means additional responsibility.

“In a sense, retailers are becoming mini CPG manufacturers,” Bromme said. “They’re taking on the responsibility of brands and the brand promise. If you want to give consumers confidence in these new brands, it’s important to have the right information behind those products.

“Collaboration between manufacturers and retailers is the critical step to getting green private label right,” Bromme added. “You’re no longer in an environment where the retailer is the sole owner of the brand; you need collaboration from the brand, too, and that involves going much deeper than the first level of your supply chain.”

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