Private Label in North America: — CAPTURING OPPORTUNITY AND PROTECTING YOUR BRAND

The New World of Private Label — Private label holds tremendous opportunity for retailers,

but with that comes inherent risk. Establishing and

maintaining a high-level of trust in respect to a retailer’s

brand promise is critical to the long-term sustainability

and growth of their private label assortment. As the

supply chain becomes more complex and consumers

demand more transparency on the sourcing, components,

ethical development and sustainable nature of the

products they purchase, retailers are challenged to bring

new products to market fast while maintaining real-time,

accurate information from their supply chains. This report

examines the state of the industry in North America

and intends to provide retail leaders with tangible

takeaways for navigating the risks and rewards of

private label in the modern retail ecosystem.

Private Label in North America 2

Private Label in North America

The State of the Industry —

Opportunity Calls — Over the past five years, the dollar volume of private label within the mass retail channel has grown more than 41 percent, from $43.1 billion in 2013 to $60.8 billion in 2018, far outpacing national brands’ 7.4 percent growth in the same period. At 18 percent, the U.S. currently trails markets like the U.K. and Australia in private label market share, signaling there may be further opportunity for growth. This growth translates into dollars for retailers, who can realize 25 to 30 percent higher margins on private label goods than from branded products.

Beyond that near-term potential gain from increased margins, retailers must also consider the longer-term gains that private label can offer them in the form of customer lifetime value. In fact, 53 percent of shoppers take their business to specific stores for their private label products. Over time, this may equate to an even bigger opportunity, as 40 percent of shoppers will typically stick to the brands they like rather than shop around, according to Oracle’s The Loyalty Divide: Retailer and Consumer Perspectives report.

Great (Customer) Expectations — North American consumers’ priorities are evolving. Oracle found that 65 percent of consumers find transparency about product details important—including where materials are sourced, and in a separate study found that knowing retailers are acting sustainably is a key influence on loyalty for 52 percent of respondents, with an even higher share (56 percent) saying this is true for grocery. Beyond a fad, this means private label can no longer depend on factors like price to sway shoppers. More than half of consumers now give equal consideration to factors like ethics, safety and transparency as they do to traditional determining factors like price, convenience and taste in their buying decisions.

Private Label in North America 4

41% growth in dollar volume

within the mass retail channel over

the last five years.

18% U.S. private label

market share.

25 to 30%

higher margins on private label goods than from

branded products.

https://www.supermarketnews.com/private-label/private-label-growth-spurred-mass-retailers http://www.oracle.com/us/industries/retail/putting-price-brand-vp-2594321.pdf https://www.cbinsights.com/research/private-labels-disrupt-cpg-retail/ https://progressivegrocer.com/innovative-private-label-sets-pace-evolving-retail-industry https://go.oracle.com/LP=68752?elqCampaignId=146997&src1=:ow:lp:cpo::RC_BUMK180918P00045:LPD100746997 https://go.oracle.com/LP=57306?partnerfef=blog https://go.oracle.com/LP=75440

Preferences and lifestyle choices are not the only forces swaying demand. Peanut allergies in children in the U.S. increased 21 percent between 2010 and 2017, and over 170 foods—including common ingredients like milk, eggs, soy, nuts and wheat—are known allergens, forcing consumers to be more thoughtful in their consumption for their own health and safety.

You’re Only as Good as Your Reputation — Swaying consumers is only half the battle for private label retailers. While private label brands must meet stringent demands to gain shoppers’ loyalty, upholding a strong reputation is key to retaining it. As noted in Oracle’s The Loyalty Divide report, 43 percent of consumers are most loyal to brands that they have a high opinion of. This means that they are more likely to shift their loyalty to another brand (private label or name brand) that is more representative of their ideals, if they find that their current brand is lacking in quality or ethics.

Through voting with their wallets and buying what they believe in, consumers now drive safety and quality expectations far more than the government, legislative bodies or the FDA, and private label brands must keep up.

The share of consumers that find openness about product details—including where materials are sourced—important in grocery, pharmacy and discount retail shopping.

Read More: Retail in Four Dimensions: Understanding Consumer Behavior in an Age of Relativity.

5 Private Label in North America

65%

“During my 30-year career in sustainability, quality assurance and food safety, I’ve had the opportunity to work with both major brand owners (Kraft, Mondelez, Danone, and Ferrero) and retailers (Metro AG and real hypermarket) and the battle in the hearts and minds of consumers has never been more intense. Companies and brands now compete on multiple levels, including quality and product superiority as well as compliance, food safety and now—more and more—sustainability. In the drive for innovation, lines between categories are becoming blurred; success will come to those who are able to maintain a holistic, simple view of processes while delivering safe, new products as quickly as possible. It’s fast. It’s tough. It’s challenging. It’s fun when you have the right technology.”

– John Carter, Former Board Member of the Global Food Safety Initiative.

https://acaai.org/news/new-study-suggests-21-percent-increase-childhood-peanut-allergy-2010 https://www.foodallergy.org/life-with-food-allergies/food-allergy-101/facts-and-statistics https://go.oracle.com/LP=57306?partnerfef=blog https://go.oracle.com/LP=57306?partnerfef=blog

Private Label in North America

Rules of the Road for Brand Management in North America —

Regulations and Legislative Requirements in North America — Government agencies such as the FDA and Health Canada are driving forces in private label regulations, and private label brands must fulfill these agencies’ requirements and meet all standards in addition to other local and state or province-level rules to conduct business. However, being compliant and staying compliant is far from one and the same.

Change Is on the Horizon — The Food Safety Modernization Act (FSMA), passed in 2011, serves as the only major update to U.S. food regulation in roughly 70 years. Following this recent revision, aspects of the law are still being rolled out:

• The FSMA Rule on Intentional Adulteration, or IA rule, impacting companies manufacturing, packing, processing and holding food, requires companies to register as food facilities and have written food defense plans. While the compliance deadline for this rule is now behind us, the FDA will begin routine inspections in March 2020.

• The Produce Safety Rule (PSR) also sits within FSMA, and the deadline for very small businesses is set for January 27, 2020.

• Within the PSR sits the Agricultural Water Compliance Law, with more distant compliance deadlines beginning in January 2022 for larger businesses.

While not all of these regulations impact retailers directly, all do have an indirect impact via suppliers, muddying the waters for retailers. By the same token, Canadian private label retailers sourcing components from the U.S. (or vice versa) or importing/ exporting from other nations must bear local regulations in mind.

Private Label in North America 7

“Today’s consumers have unprecedented access to information, and often, the determination to dig deep and investigate to confirm the facts themselves. While that’s good news for shoppers, it only increases the challenge for brands. If an existing claim is challenged, or as new demands surface, brands must respond quickly to avoid being overlooked or worse, singled out for noncompliance.”

– Paul Woodward, Senior Director, Solutions Management Group, Oracle Retail.

Read more: Transparency Is The New Black for Marketers: It’s Time for Fashion and Cosmetics Brands To Focus In On Supply Chains and Brand Compliance.

https://www.mda.state.mn.us/food-feed/food-safety-modernization-act-fsma https://www.fmi.org/blog/view/fmi-blog/2019/05/08/fsma-rule-on-intentional-adulteration-compliance-date-approaches-who-is-covered-and-what-is-needed-for-compliance https://www.foodprocessing.com/articles/2019/food-safety-and-regulation-issues/ http://umaglaw.org/fda-issues-final-rule-for-compliance-dates-for-agricultural-water/ https://www.martechadvisor.com/articles/ecommerce/transparency-is-the-new-black-for-marketers-its-time-for-fashion-and-cosmetics-brands-to-focus-in-on-supply-chains-and-brand-compliance/?utm_source=onesignal https://www.martechadvisor.com/articles/ecommerce/transparency-is-the-new-black-for-marketers-its-time-for-fashion-and-cosmetics-brands-to-focus-in-on-supply-chains-and-brand-compliance/?utm_source=onesignal https://www.martechadvisor.com/articles/ecommerce/transparency-is-the-new-black-for-marketers-its-time-for-fashion-and-cosmetics-brands-to-focus-in-on-supply-chains-and-brand-compliance/?utm_source=onesignal https://www.martechadvisor.com/articles/ecommerce/transparency-is-the-new-black-for-marketers-its-time-for-fashion-and-cosmetics-brands-to-focus-in-on-supply-chains-and-brand-compliance/?utm_source=onesignal https://www.martechadvisor.com/articles/ecommerce/transparency-is-the-new-black-for-marketers-its-time-for-fashion-and-cosmetics-brands-to-focus-in-on-supply-chains-and-brand-compliance/?utm_source=onesignal https://www.martechadvisor.com/articles/ecommerce/transparency-is-the-new-black-for-marketers-its-time-for-fashion-and-cosmetics-brands-to-focus-in-on-supply-chains-and-brand-compliance/?utm_source=onesignal https://www.martechadvisor.com/articles/ecommerce/transparency-is-the-new-black-for-marketers-its-time-for-fashion-and-cosmetics-brands-to-focus-in-on-supply-chains-and-brand-compliance/?utm_source=onesignal

Navigating Risk and Reward — While private label can offer tremendous opportunity for retailers, risks remain. In addition to compliance with government policies, brands must also be cognizant of how products are marketed, as claims that products are “natural” or regarding the purity of ingredients (e.g., “made with real ginger”) are facing rising litigation. Class action lawsuits related to food marketing have surged from 20 in 2008 to more than 425 in 2015 and 2016, and with litigation against food and beverage brands up nine percent in 2018, the trend is expected to continue into 2019 and beyond.

Despite their own adherence to standards, private label retailers may find risks lurking in their supply chains. Due to a lack of traceability across supply chains, nearly one-third of Canadian seafood products were found to be mislabeled, and forgery in Parmesan cheese led to jail time and a $100,000 fine for importer and private labeler Castle Cheese.

To keep up with consumers’ high standards, grocers must be able to demonstrate full visibility into not only their supply chains, but the supply chains of every manufacturer and farmer providing ingredients or services for the finished product. If ever the integrity of the product comes into question, retailers must be able to provide verification of all claims and be able to offer insight into every step of the manufacturing process.

8 Private Label in North America

https://www.mcguirewoods.com/client-resources/Alerts/2019/1/food-labeling-litigation-trends-2019 https://www.mcguirewoods.com/client-resources/Alerts/2019/1/food-labeling-litigation-trends-2019 https://www.instituteforlegalreform.com/uploads/sites/1/TheFoodCourtPaper_Pages.pdf https://www.foodnavigator-usa.com/Article/2019/03/05/Class-action-litigation-vs-food-beverage-brands-continued-unabated-in-2018-says-Perkins-Coie https://www.jdsalaw.com/law-talk-archives/2018/6/12/the-dangers-of-mislabeling-food-products https://www.sciencedirect.com/science/article/pii/S0963996918309943 https://www.bloomberg.com/news/articles/2016-02-16/the-parmesan-cheese-you-sprinkle-on-your-penne-could-be-wood

Private Label in North America

Managing Complexity —

Consumers Call for Stricter Standards —

of consumers state that a key influence on loyalty is knowing the retailers are acting sustainably.

Read More: The New Topography of Retail. Watch Video: Consumer Talk - Is it important that a brand is sustainable and ethical?

Solving for Private Label Success — The complexity and sheer volume of both suppliers’ supply chains and legislative requirements have pushed the industry to the point where tracking product, ingredient and sourcing data manually is no longer feasible. The risk of human error is too considerable, and the consequences too severe. As grocers strive to bring products to market faster, there is a higher risk of contamination, mislabeling or spoilage, which can have dangerous ramifications. To solve this challenge, grocers have embraced enterprise-wide technology solutions, which help retailers and suppliers collaborate.

One Version of the Truth — Complete, accurate, real-time product information—spanning ingredient suppliers to manufacturers, packers and shippers—is essential to providing a complete and accurate view of a final product. Having a single source of data enables grocers to respond rapidly to any claims or issues relating to products or the supply chain. By deploying compliance lifecycle solutions in the cloud, users can access and interrogate the data in seconds.

Private Label in North America 10

52%

https://go.oracle.com/LP=75440?elqCampaignId=171771 https://www.youtube.com/watch?v=Zqq2Pzs7FwQ

Overview of Oracle Retail Brand Compliance Customers in North America —

Global Impact of Oracle Retail Brand Compliance:

• Nearly 70%: the Share of grocers worldwide managing product specifications and supplier compliance

• Over 80%: the Share of the world’s primary private label suppliers using solution

• Over 1,000,000: the Number of products developed and protected

• Over 10,000: the Number of suppliers concurrently managing product specifications each day in the solution

• Over 1,000,000: the Number of supply chain trading relationships visible through the solution

11 Private Label in North America

10,000+ STORE LOCATIONS

in all 50 U.S. states and 10 Canadian provinces

have products developed by Oracle Retail Brand

Compliance.

Private Label in North America

The Bottom Line —

supply chain trade relationships run on Oracle Retail Brand Compliance.

The Bottom Line — Whether a grocer already has an established private label line or they’re deciding whether to make the investment, having the right technology to provide complete visibility into the supply chain is imperative. When choosing a solutions provider like Oracle, grocers can rest easy knowing they have chosen a partner with a proven track record. Click here to learn more.

Private Label in North America 13

Over

1,000,000

The Oracle Retail Brand Compliance Ecosystem —

— U.S. grocery retailer with $10B in annual sales and 7,000+ SKUs plans to increase its private-label portfolio by 30 to 40%.

— U.S. retailer with $71B in annual sales and 12,000+ SKUs chose Oracle as the best-of- breed, out-of- the-box offering and implemented within 12 weeks.

— Canadian grocer decided on Oracle when relaunching 4,000+ products due to its ability to deploy within 6 months to meet labeling law deadline.

— U.S. organic grocer with $16B in annual sales chose Oracle after two failed attempts to implement non- Oracle solutions.

https://www.oracle.com/industries/retail/products/brand-compliance/

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