Q&A: Planet Retail breaks down 'sourcing local' impact on own brands

Kroger recently launched a new local supplier initiative to increase its local and regional supplier base. Its Kroger.com/WeAreLocal web portal invites producers to partner with the retailer and emphasizes fresh, natural and organic as target categories.

Capitalizing on a consumer’s taste for local has always been in many grocery retailers' playbooks, but Kroger may be hoping to attract Whole Foods Market’s suppliers concerned by Amazon’s aim to drive down prices, suggested Michael Rogosa, global research director at Planet Retail RNG. It may precipitate a trend where sourcing local gains pace in the United States as another differentiator against the likes of Aldi or Lidl, both discount retailers with a product mix that includes a large percentage of own brands.

Own Brands Now recently spoke with Rogosa to learn more about the implications sourcing local has both for U.S. grocers and own brand suppliers. Might they play a role?

Own Brands Now: What does “sourcing local” actually mean? And do retailers that are stressing local include their own brands within that definition?

Michael Rogosa: “Sourcing local” just means they’re considering their suppliers and what actually gets merchandised within the physical store, where those products are coming from. When you actually talk about sourcing local, that generally involves more independent farms, more natural, more organic products than what you might get through a national sourcing level from the major branded distributors or distributor networks.

When you ask if that can include own brands, the answer is it can and it cannot. It’s really up to the retailer. In some cases, they’ll source local farmers and have them potentially do some own brand work for them, but more often than not, it’s local farmers with local produce representing themselves.

OBN: How does this translate into an appealing offer for the consumer? What’s the play? Is it an appeal to the consumer who wants to buy local? Or are there cost savings to be had with a less complicated supply chain?

Rogosa: It’s much more so the former. The cost for providing local support to local farmers actually can increase in terms of the supply chain. When you consider Whole Foods and their decision recently to actually take out some of the local farms and their ability to be in the building promoting their product, all of those add cost to the network. For the most part, when you talk about the reason why so many retailers, especially recently, are engaging in a greater degree with local suppliers, it’s all about shopper trends and shopper perception. The perception of health-and-wellness, for example, is a big one. Traceability and transparency of where your goods are coming from, that [is important].

OBN: When you juxtapose that against Aldi or Lidl, what’s the point of differentiation? Do those discount formats not tap into local?

Rogosa: The difference actually comes more in the way of the experience in the store rather than [the fact] they’re sourcing from local. Both Lidl and Aldi actually do source from local farms and they make a pretty decent point about it. The difference comes in, if you look at an Aldi store versus a Trader Joe’s store, which is owned by Aldi and does [heavily promotes] the fact that they [stock product] from local farmers, it’s a lot more about the merchandising experience in the store as a differentiating factor. When we look at this move by Kroger, that’s still the opportunity that they have.

OBN: Does this initiative extend beyond sourcing product from local farmers and into other categories and local vendors?

Rogosa: It’s an opportunity for all local merchandisers, not just food. It tends to have more cache [across local farms]. [But] the other category where this plays in more so than other center store categories is the health and beauty space. You can have local remedies promoted in that regard. Very similar to food trends, beauty trends change very quickly. There’s more of that showrooming capability, than there is necessarily in a lot of the center store categories.

OBN: What is the bottom line? What does Kroger’s move mean for the industry at large?

Rogosa: This is a continuation of a trend toward local. But it’s really not about them having more local suppliers, [but rather] how they can start using those in a way to differentiate in store. Really, this move keeps focus on recognizing that next trend quickly so it can be activated in a store in a way that is more experiential. Having something like a rotating farmer’s market that takes over the produce section once a week is the type of scenario that would actually be a shift in the industry. That would be something that keeps your stores productive and drives people back in.

OBN: What does it mean for own brands?

Rogosa: You’re in a grocery and overall retail market where top-line is continuing to get pressured, so retailers will continue to look more and more toward bottom-line growth — which means a bigger investment in private label. I know we started this call talking about sourcing local. It can mean own brands or just more opportunities for local farmers to promote their brands. But as retailers focus more on private label, they are going to turn more toward local farmers to identify trends faster, and you’ll see that starting to show up in private label products as well.

 

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