Recent Changes in Consumer Appetite for Private Brands

What is the best strategy for building your small business’s brand? Should you build your own brand with consumers or supply a retailer with product for their private store brand?

While most small businesses should build their own brand, you may want to seriously consider recent changes in consumer appetite for private labels at grocery stores. Private label brands continue to gain ground. The trend started during the recent recession and is still increasing.

The 2014 Deloitte American Pantry Study surveyed 4,025 American adults about 375 brands in 30 categories.

The biggest change uncovered by the study is that nine out of ten consumers like store brands. That is, they view private label brands as good or better than national brand products in 28 of 30 categories. One in five private label brands are actually preferred over the national brand equivalent.

Consumers are least likely to care about brands in bottled water, disposable paper products, food storage, deli meats, condiments and salty snacks. Categories where brand still consistently matters are beer, soft drinks, pet food and coffee.

According to a Private Label Manufacturers Association report at the end of 2013, store brands are at a record high. Now private label products account for a 19.4% market share. Ten years ago in grocery stores 16% of products were private label and that held relatively steady until three years ago.

The growth is even faster in drug stores where private brands’ share is up 9% in the last three years.

Take a look at a grocery retailer whose strategy is focused primarily on private store brands: Over 80% of Trader Joe’s 2,500 SKU’s are their private label.

Trader Joe’s does not copy national brands with their own version at lower price. Instead their interesting strategy is to find out what consumers want in their target market and then source the private brand to fill the consumer need with a high-quality product at value price point.

The strategy is working. Trader Joe’s has been growing at 21% per year. There is a good chance a Trader Joe’s has recently opened near you. They have added almost 200 stores in the last ten years.

You can read a case study about one of our clients that has pursued a focus on supplying private label fashion products by clicking on this link – Global Design case study.

ASN Changes in the Pharmaceutical Industry

Advance Ship Notice (ASN) requirements are changing in the pharmaceutical industry. The changes are being driven by new FDA regulations under the Drug Quality and Security Act (DQSA) and specifically by the supply chain requirements part of the DQSA called the Drug Supply Chain Security Act (DSCSA).

The purpose of the new regulations is to help protect patient safety and ensure the security of the supply chain for prescription drugs. In other words, patients get the drug they are supposed to get.

The focus of the DSCSA is the traceability of prescription drugs all the way through the supply chain from initial manufacturer to final consumer. Manufacturers, repackagers, wholesale distributors, and dispensers of prescription drugs in final form for human consumption are affected. Products that are excluded included blood, radioactive drugs, imaging drugs, medical gas, homeopathic drugs and compounded drugs.

Each trading partner must maintain product information and transaction history that identifies the previous source and subsequent receiver of a prescription drug as well as transaction information that goes all the way back to the original manufacturer. The trading partner must maintain a statement of accuracy of this information.

The transaction information requirements include:

  • Name of the product
  • Strength and dosage form
  • National drug code number
  • Number of containers
  • Container size
  • Lot number
  • Date of the transaction
  • Date of the shipment
  • Business name and address of the trading partner source and of the trading partner destination

Pharmaceutical trading partners are updating their specifications for EDI Advance Ship Notice (ASN) transactions to address the requirements of the new regulations.

For example, McKesson has added a field in which the supplier states “The entity transferring ownership of the product in this transaction states that it is in compliance with 21 U.S.C. 360eee(27).” Much of the DSCSA is codified under subchapter H of Chapter V called 21 U.S.C. 360eee(27) which is why McKesson refers to it that way. ASN item description requirements have been updated to include the product strength, product dosage, and container size.

Disclaimer – This post is not intended as legal advice.

Easy EDI Implementation and Maintenance

CovalentWorks EDI solutions include upgrades at no charge when trading partners change their EDI specifications. For example, all of our clients that trade with McKesson have ASN capability that is current with McKesson’s requirements. Contact us anytime to find out more.

Small Businesses are Critical to the Economy

In May, Janet Yellen, the new Chair of the Federal Reserve, spoke at the SBA’s National Small Business Week conference. Why would the new chair, who just started her job in February, make time to speak to small businesses when she has such an important policy role in the entire US economy? The explanation is that small businesses are critical to the economy and can not be ignored.

How do small businesses consistently make important contributions to economy? Small businesses are very customer oriented and adapt quickly to changing economics. They tend to attract people with a talent for inventing new products and coming up with innovative solutions for problems.

Small business offer an environment that attracts and retains talent through fast decision making and research that is focused on the needs of customers. They are not hindered by layers of bureaucracy and management.

Let’s take a look at the numbers that consistently back up these assertions.

In the U.S. , small businesses generated 64% of new jobs over the last 15 years and paid 44% of private payroll taxes. They generated an even higher percentage, 81%, of new jobs during the 2005 to 2008 time period.

Year in and year out, small businesses employ just over 50% of private non-farm workers. The twenty-eight million small businesses in the U.S. generate about 50% of the gross domestic product. And they are important exporters too. 97% of exporter companies are small businesses and they ship 26% of the value of all exports.

A U.S. Small Business Technology Council survey found that small businesses employ 32% of scientists and engineers while larger firms employ somewhat less at 27%. However, patent productivity is lopsided. An SBA study in 2011 found small businesses generated 26 patents per employee compared to only 1.7 patents per employee at large firms.

Larger companies depend on the ability of small businesses to deliver value and as result small firms play a key role in the ecosystem of larger companies. U.S. auto makers have more than 1,700 suppliers, hundreds of whom are small businesses. Even more small businesses are suppliers to retailers, grocers, pharmacies, distribution, and high-tech companies. High-tech Apple has about 12,000 employees in California, but there are an additional 60,000 jobs in state that are related to Apple in some way.

Small businesses are important to economies all over the world. For example, in Canada small businesses accounted for 37% of new private sector jobs between 2006 and 2007 and employed 48% of private sector workers. They generate about 30% of the Canadian Gross Domestic every year.

Entrepreneurs and their co-workers are the backbone of creativity and production all over the world. CovalentWorks is proud to assist thousands of small businesses with cloud EDI solutions built to serve their unique needs. Contact us anytime to find out more.

Surprising 2014 Manufacturing Trends You May Have Missed

A Boston Consulting Group (BCG) study released in April of this year ranked the top 25 exporting countries on competitiveness. As expected, China was at the top of the list, but continues to be pressured by rising labor costs that have doubled over the last few years, higher transportation costs, and slowing of productivity improvements.

A surprise was that the United States was ranked number two. Contributing to the rise for the U.S. were energy costs that have decreased by half over the last ten years and stable wage growth. Wage costs in the U.S. are now 10 to 25% lower than next eight countries in the ranking of competitiveness and about the same as Eastern Europe.

BCG’s ranking was based on wages, productivity growth, energy costs and exchange rates. Here are the top ten:

  1. China
  2. United States
  3. South Korea
  4. United Kingdom
  5. Japan
  6. Netherlands
  7. Germany
  8. Italy
  9. Belgium
  10. France

Another surprise from the BCG study was that, although it is not in the top ten, Mexico is a rising star with wage costs that are lower than China’s. A May 2014 article in the New York Times expanded on the changes in Mexico. Familiar major brands like Caterpillar, Chrysler, Stanley Black & Decker and Callaway Golf have increased manufacturing in Mexico.

Smaller companies are also moving to Mexico. Examples include Plantronics headsets, Hoopnotica Hula Hoops, Casabella toilet brushes, Meco outdoor furniture, DJO medical supplies, and Viasystems cabinets.

Proximity gives Mexico a transportation advantage with faster delivery that the typical six to ten week time from China, lower transportation costs, and higher sustainability through less pollution associated with the movement of goods.

Closeness to the United States contributes to more cross-border movement of parts during the manufacturing process. About 40% of parts in Mexican imports originate in the U.S., while about 4% of parts in Chinese imports come from the U.S.

Although manufacturing costs are an important component of the global supply chain, so are the other constituents necessary to deliver competitive products to consumers.

A new 2014 study this year by the National Retail Foundation points out that on average 70% of the value of an article of clothing sold in the United States comes from the United States. Much of the value comes not just from manufacturing but from U.S. based research and design, logistics, marketing, advertising, and IT services as well as advice from lawyers, bankers, and accountants.