Opinions about branding by Dr. Dannielle Blumenthal

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Friday, August 31, 2007

Branded store brands at Target, Wal-Mart, Safeway, Kroger, and Costco - a brilliant move

The Wall Street Journal reports (8/29/07) that "food retailers are growing more sophisticated about developing and branding their own products." In a far cry from previous years, when store brands were relatively generic offerings, U.S. retailers like Target, Wal-Mart, Safeway, Kroger, and Costco are offering new brands that compete with manufacturers like Sara Lee and Kraft.
 
It's a brilliant strategy. As the Journal notes, "sales of private-label products carry higher profit margins than the goods they buy from the traditional food companies." And the food retailer-created brands are doing well: "private-label sales of food and nonalcoholic beverages in the U.S. rose 4.3% to $44 billion in the year ended July 14" (not including Wal-Mart) vs. a 2.2% rise for branded food and nonalcoholic beverages during the same time period.
 
It is ingenious how grocery stores are elevating their commodity offerings to the status of a brand. And it is interesting how the best-branded food retailers are creating successful new brands that have no resemblance to the original - like Target's Archer Farms line. This is an example of intelligent brand architecture - a parent brand spinning off a child brand that makes no mention of the original. (There is no connection other than being housed by it in the parent's retail environment.) This is not always the right call to make, but in a case where the parent brand's equity would not enhance the child brand's equity, it can work well to build a new brand starting from scratch. For Target, "chic at reasonable prices" equity does not translate directly into house-branded items, but it does work well at bringing in other brands into the Target umbrella.
 
This is an example of good branding at work--creating added value out of items that would normally be sold at generic prices.