Store Brands and Category Management

A key benefit to the adoption of any formal category management process is that retailersmust explicitly define the role that each category plays in the overall store portfolio. Having tobe clear about category roles % be it traffic builder, transaction builder, cash generator, profitcontributor, image or excitement creator % leads to a disciplined approach to space management,everyday pricing policy, and promotion tactics. Category management also requires the retailerto define roles for their store brands, both at the chain level and within any specific category. Since store brands can by definition only be sold by the retailer that carries them, someretailers may attempt to utilize this measure of exclusivity to differentiate themselves from thecompetition. Although in the U.S. there is wide variation in the performance of differentretailers’ private label programs (Dhar & Hoch 1997), with the decline of Sears’ commitment tothe Kenmore brand name one is hard pressed to think of any mainstream retailer who is definedby their store brand program. The U.K. is a different story, however, where about 35% ofgrocery store volume (compared to 18% in the U.S.) is private label. Several large chains (e.g.,Tesco, Sainsbury, Marks & Spencer) do utilize their store brands as a key point of distinction, asdoes Canadian grocer Loblaw’s with their President’s Choice line. Our experience suggests thatU.S. store brands should be recognized as a vehicle for the retailer to leverage their installed baseof current shoppers. In category management parlance, this means that the store brand isforemost a profit contributor, taking advantage of the built-in lower variable cost structure andattendant higher gross margins. The store brand can also play an important secondary role, thatof an image creator, where the image to be conveyed is one of best available quality for themoney % i.e., a good value for those customers who want it.