Why the future of bricks-and-mortar lies in private label

As physical retail locations shrink in size, grocers will need to look for ways to differentiate themselves

Allan Noddle describes the current state of retail grocery as “the age of chaos and disruption.” But all the turmoil could be a wonderful thing for the private-label industry, said Noddle, the former president of Ahold USA and Daymon Worldwide, who was the keynote speaker at the Private Label Manufacturers Association’s third-annual CEO-Only Seminar, held in Chicago.

Like many pundits, Noddle said he expected a “huge gain in market share in private brands” in the near future. With bricks-and-mortar stores getting smaller, Noddle said retailers must respond with differentiation, meaning branded products are out and private branded products are in.

“If I’m going to be a bricks-and-mortar store, how do I get you into my store when you can sit at home at your computer and order something and have it delivered within two hours?” Noddle asked. “Only private brands provide exclusivity, differentiation and profit growth for retailers.”

Noddle said the number of bricks-and-mortar stores would decrease as alternative ways of shopping become more popular. He noted that consolidation would also prevail in the next few years because retailers would have to continue leveraging their low margins against higher sales.

“There will be few global players left in the next five years,” Noddle predicted, adding that Aldi, Walmart, Amazon, Costco and China’s Alibaba Group will be some of them.

“Those five global players are going to put tremendous pricing pressure on . They will squeeze because they are going to have tremendous purchasing power.”

READ: Walmart flexes its muscle against Amazon

Bricks-and-mortar stores will become smaller at the expense of the centre store, where consumers will elect to buy current centre-store items such as bottled water for the cheapest price online, Noddle said. That said, retailers will also expand more fresh products into the centre store. “But not the fresh you think,” Noddle noted.

“Foodservice will become the new innovation of the 21st century,” he added. “You are going to see restaurants and all sorts of food in the store that you have never seen before. Some retailers are way ahead of others with this because they saw this coming.”

Noddle is also aware of consumers’ increasing penchant for healthier foods, including organic and free-from offerings. He predicted this would grow into a full-blown “healthy food revolution.”

But, there is a problem.“Most suppliers are ill-prepared for it,” Noddle said.

This article appeared at StoreBrands.com.

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