If you want to know what’s going on inside a retailer, you can talk with various executives. But a talk with their chief merchandising officer can give you a sense of their strategy, including how they want to win over and retain customers. Albertsons
“It’s Albertsons’ mission to deliver top-notch products at a competitive price, which we strive to be equal or better than national brands,” Saenz summed things up.
The days when merchandising meant simply selecting what to sell (at good price points) are over: Albertsons is increasingly seeking to brand products under its labels. It’s been adjusting that strategy by combining sub-brands into bigger brands. Albertsons’ greater focus on private label is just the latest example of how retail is being remade. While Costco, Trader Joe’s, Lidl, and Aldi are known for store brands, Albertsons’ ambitious strategy is going into high gear as inflation pushes up national brand prices.
The Big Picture
What Albertsons does matters in food and beverage partly because of its scale. The company operates about 2,270 stores with about 1,720 pharmacies and about 400 associated “fuel centers.” It also has 22 distribution centers and 19 manufacturing facilities. The company operates under 24 banners, including Albertsons, Safeway
Saenz said in some cases, private label fills a vacuum since there are no national brands, making private label more enticing and facing less competition. But the big motivation behind private label, beyond margin, is building loyalty. If everybody sells the same brands, it becomes tougher to retain customers. Saenz sees private label as a key path to loyalty. Albertsons touts private label as being sold “exclusively” in its stores, but it isn’t relying only on one brand. Signature SELECT is part of its Own Brands portfolio, which includes O Organics, Lucerne, Open Nature, Primo Taglio, Debi Lilly design, waterfront BISTRO, Soleil, and Value Corner. It’s opting for choice as well as company brands.
A merchandising moment
It’s not a mystery that inflation has caused many consumers to shop for better prices and hope for good quality, making this a pivotal merchandising moment for private label. Consumers are looking for money-saving options, such as store brands. Saenz and Albertsons are hoping to fill that niche. Albertsons’ research found “nearly all grocery shoppers (94%) say that price is important to them these days due to inflation and rising costs. Albertsons’ research, done online with polling partner Prodege, also indicates 51 percent of those who prefer store brand over name brand cite price. Meanwhile, 27 percent cite quality, and 26 percent cite availability.
“The main reasons that people choose store brand over name brand products are price, quality, and availability,” according to Albertsons’ research.
The Food Institute recently said Aldi is cutting prices on more than 250 products after annual price hikes of 7.7 percent. They said that could lead to “intense competition for other companies.” It could also pour more fuel on the private label fire at a time when consumers often prioritize price.
Saenz understands that strategy matters as well as quality and quantity. While products proliferate as Albertsons rolls out items, Saenz and Albertsons also want to simplify. That means not just rolling out all sorts of brands but building bigger brands. Costco’s Kirkland is one example of a powerhouse brand. Albertsons recently consolidated several Signature branded product categories (Signature Farms, Signature Care, and Signature Café) into one new category, Signature Select.
Packaging is always a part of branding. And Albertsons is seeking to build a look around Signature Select products, branded with a new, bold black label. Saenz said that look is preferred by consumers based upon a survey they conducted. Albertsons has also been changing the O Organics brand and redesigning Open Nature. But Albertsons believes taste, look, quality, and price aren’t the only things consumers want.
They like security when deciding to try something new. So, they offer a money-back guarantee if the customer is not fully satisfied with Signature Select. Saenz said consumers are selecting the product but rarely take the company up on the offer for returns. “Our quality is so good, and we are so confident in our products that very few customers have exercised this option,” according to Saenz.
While building bigger brands is a big deal, Albertsons is maintaining different price points and brands. The company has been on a journey over the last few years, investigating what customers want, understand, and are comfortable with. The results have encouraged Albertsons to consolidate some products under the Signature Select brand. But consumers like choice and Albertsons still offers premium products under the brand Signature Reserve. Saenz explained that Reserve has a different feel, but further consolidation is not out of the question.
Product Profitability and Margins
The accountant in me came out in our conversation as I asked how the company manages margins and profitability for as many as 8,000 or more products for Signature Select. Saenz said while Albertsons uses common metrics to evaluate the profitability of products, the first filter is always the customer’s needs and understanding the customer landscape. Albertsons is trying hard to create an emotional bond with customers by emphasizing everyday living and everyday events, life moments, and things that warm the heart. Saenz said margins have been under pressure not only from inflation but also because of supply chain issues. Navigating the way through margin erosion is very tricky and requires balancing pricing and value. Increasing productivity has enabled the company to work through some of these issues.
In addition to the 100% money-back guarantee if not fully satisfied, the company has a vibrant loyalty program, “For You.” When combined with exclusivity, a loyalty program can be a powerful incentive. Consolidating the Signature Select products, focusing on customer experience and loyalty, and delivering quality at affordable prices help make Albertsons a leader in the private label world. While Saenz would not comment on the potential merger with Kroger