Today in Tedium: When management consultants get their hands on a business, any number of things can happen. New Coke? Yup. ERP software disasters? Sure, why not? However, there is a reason companies open their wallets for talented consultants. They can make their employers a lot of money. Stupid amounts. An affront to all that is holy amounts. And from time to time, those ideas also happen to help consumers while changing fundamental aspects of major industries. In this instance, we’re talking about something that Ernie has previously written about but didn’t quite discuss. Today’s Tedium is talking about the influx of store brands and how a Candian supermarket in the 1970s created the template for their takeover of America. — Andrew @ Tedium
Be sure to check out our sponsor, Lloyd, below:
Careers can feel like navigating without GPS—stressful and inefficient. Enter Lloyd, a career copilot with 1-on-1 guidance and best practices to accelerate your career. Jump in the driver’s seat: http://app.withlloyd.com.
“I started off running Loblaws like every other retailer in North America, which is getting people in the store by giving Coke and Tide away below cost. I remember one time I ran chuck steaks at 99 cents. I killed every cow between here and Moose Jaw. It was a disaster. I finally said, ‘This is a fool’s errand.’”
— Dave Nichol, a former president of the Canadian supermarket chain Loblaws. After earning a degree from Harvard Law School and a brief stint at management consultancy McKinsey & Co., Nichol was hired to improve the fortunes of Canada’s largest grocery retailer. Described as a “grumpier Dave Thomas”, Nichol turned to some surprising inspiration for his admittedly lowbrow idea. The end result would be “the gem of Canada”.
Necessity really is the mother of invention … and obsession
The 1970s were a rough time for Western economies. Mass inflation was rampant, oil embargoes from OPEC didn’t help, and people spent a much greater percentage of their income on basics, like food. One widely reported number claims that Canadians in 1970 used 21 percent of their income on food. That number today hovers around 5 to 10 percent. (Those numbers are similar to the U.S. as well.) People basically needed a bang for their looney when buying their groceries.
Faced with an increasingly dire situation, Loblaws hired McKinsey & Co., who sent Dave Nichol. Within a few years, the company hired him to lead operations. At first, Nichol ran the company like any other but grew frustrated with the results. So he looked to Europe for inspiration, specifically posh English retailers Marks and Spencer. (McKinsey consultants really do have a fantastic ability to know some things about an industry but not quite everything.)
Founded in 1884, Marks & Spencer built their reputation selling high-quality, British made goods, typically clothing and home related products. Their genius was selling most of these goods under their own brand “St Michael”. This allowed them to work directly with manufacturers to produce higher quality products at a lower cost to consumers. But by the mid 1970s, the cautious company had yet to expand beyond Great Britain. And grocery executives had taken notice. (Admittedly, M&S weren’t the only inspiration for Nichols. He took note of French and German grocery conglomerates that had also launched their own generic brands in the 1970s but his focus on quality seems to have come from the English.)
Nichol and Loblaws launched No Name brand products in 1978 with a line of 16 household staples, including coffee and laundry detergent.
“The consumer gets a choice of three price ranges—national brand-name price, the lower store brand price and the least expensive generic price range,” reported Hana Gartner of the Canadian Broadcasting Corporation. The brand’s launch and deep discounted prices made national news. Which helped Loblaws gain traction over competitors, like Dominion, who were also working on their own generic brands. No Name conquered the newscycle by debuting just 24 hours before Dominion.
The No Name aesthetic has become iconic in Canada, occasionally popping up for viral fame. It’s yellow packaging and straight-to-the-point, black text Helvetica descriptions have developed a cult following. If you google “ominous Canadaian branding”, No Name is what you get. As a result, the not-a-brand brand is a rare store/generic that can engage in some meta marketing. I’ve always wondered which one was the flip and which one was the flop. (Does it somehow make sense that flop is right for English speakers? Like, someone at No Name really put some thought into that…)
By any account, No Name was and has been a smashing success with other Canadian grocers following suit. The Americans, however, took a little convincing.
“The food business in the U.S.—when they say their prayers, they should thank God I did not convince them that that was the way to go.”
— Dave Nichol, not being at all hyperbolic, about his plan to introduce private labels to Wal-Mart. Though the company didn’t quite agree with Nichol’s plan, they ended up following his advice anyway in the early 1990s. By 2003, Wal-Mart’s private labels were accounting for 40 percent of sales. (In a hint of the Canadian private label dominance that would come, Canadian beverage maker Cott ended up producing Sam’s Choice Cola, along with Virgin Cola and many others.)
What to do you when can’t do anything else
Generic brands worked in Canada and Europe. Why not America? Sighs while silently weeping about healthcare, education, gun control, general safety nets …
The initial reaction was not kind, to say the least. Rather than attempt to export No Name to the US, Nichol shrewdly decided on a different name: President’s Choice. One of his first projects was to create the world’s “tastiest” chip cookie. And he kind of succeeded. He did skip the butter for hydrogenated coconut oil, but realized that people wanted the chocolate. After two years of development, Nichol’s team eventually did it.
“I tried to find the maximum amount of chips you could cram into a cookie,” Nichol said. “That turned out to be 39 percent. Chips Ahoy was 19 percent.”
The cookies were an immediate hit and quickly became a major market player. Nichol followed the same strategy with other products in the President’s Choice line, saying, “If Kellogg has two scoops of raisins, we’re going to double that amount. “ With his generics idea considered an unbridled success, Nichol turned his eyes south.
His success in America was limited. While a few regional grocers began selling his President’s Choice generic brand of coffee and cookies, the resistance was strong. Tom Stephens, the salesperson tasked with selling grocers on the idea recalled one referring to the scheme as “Canadian lunacy”. Still, by 1994, President’s Choice products were available in 36 states. Then, Sam Walton called.
The idea was considered “radical.” Introduce Wal-Mart’s version of standard household products to compete with national brands, develop their own R&D center for new products, and buy up existing but nearly forgotten brands to help with marketing. Walton didn’t want to carry President’s Choice, but he certainly didn’t want this.
“If Wal-Mart had adopted that strategy, they would rule the world,” Nichol lamented in 2003. Guess, the Arkansas-based company will just have to settle for only a substantial portion of it.
The concept of generic marketing represents a real issue for manufacturers, bordering on existential crisis. To steal a quote Ernie used in his private label marketing piece: “Some brand-name manufacturers make private-label goods only to use occasional excess production capacity. In those circumstances, private-label production may seem tempting. But beware. Although the system may work well for a company for a time, private-label production can become a narcotic.”
Believe it or not, Wal-Mart seems to believe in some semblance of competition. While there is significant profit motive in pursuing store/generic brands, assuming the manufacturing burden for those products can be daunting. And retailers like Wal-Mart continue to believe in the value of long established brands. People buy Tide and Coke because they know what it is.
But the stores have figured it out. A reputation for quality builds a brand. Turns out that quality is hard.
From No Name to big name to … what next?
If there’s a private label/generic brand champion in the United States, it’s Costco, no question. If anyone made Dave Nichol’s dream for Wal-Mart a reality, it was their biggest competitor.
The “cavernous testament to American excess” offers household staples under the Kirkland brand at cost, a slight profit, or a loss. Their focus on quality is borderline fanatical and some of the deals they negotiate are pretty amazing. Pointing to the warning quote from earlier, Costco has managed to get major manufacturers, like Starbucks, Duracell, and Huggies, to make Signature Kirkland brand coffee, batteries, and diapers. Customers rave about the quality and pricing. Manufacturers get to offload extra product and manufacturing capacity. Should be a win-win, right?
As consumers warm to store brands and generics, established brands are at risk of falling behind. And if forecasts are correct that is exactly what’s going to happen. A Nielsen report released in 2019 titled “The Rise and Rise Again of Private Label” expects an explosion in private labels sales as consumers become more knowledgeable about products they otherwise wouldn’t have thought much about. The report notes, “Consumers now have a global outlook on life, and with the use of technology are more knowledgeable and perhaps more willing to make trade-offs in terms of range, price and availability when choosing a product or service.”
However, it’s not all bad news for the long-term legacy brands, as the report also says, “While this can put pressure on the traditional loyalty to big-name brands, it will also give these brands the opportunity to reinforce the values of differentiation based on long term brand equity.”
Basically, you can’t fight the discounters by becoming discounters. As the generic boom invaded developed markets, established brands needed new products that retailers couldn’t offer. Meganational conglomerate Procter & Gamble recognized pretty early the danger generic brands represented to their hallmark products, like Crest toothpaste. So rather than race for the bottom, P&G focused on a different market. As the writer from Fortune pondered, “So besides getting into private-label production, how do you compete against the store brands? One answer: You don’t. You go after other targets--like the $600 visit to the dentist.”
If you’re wondering why home whitening strips suddenly became ubiquotes around the late 1990s, you’re welcome. It was a combination of cash strapped Canadians, a frustrated former management consultant thrust into the role of president of a grocery chain, an obsession over chocolate chip cookies, and a posh British retailer.
That’s how we got whitening strips. And Kirkland’s Vodka, which isn’t actually Grey Goose to my disappointment. And a plethora of other products that are just as good, if not better than the national brand.
We don’t revisit topics on Tedium often. When a topic is tedious by nature, there usually isn’t a whole lot to talk about. Well, at least nothing interesting. Something like store brands fits the bill for so many reasons. It’s a topic you’ll stumble upon if you wonder about the mechanisms that led to an obscure Johnny Rotten album and the aesthetics behind the movie Repo Man. Or why toilet paper bought by the pallet can be a worthwhile investment. Or why a company you never heard of makes one of the best chocolate chip cookies you’ve ever had. They’re stupid questions that many people don’t question. Stupid questions are worth asking. (Editor’s note: This should be our new slogan.)
This was a rough year. For most, perhaps for all. Being isolated in an apartment in Brooklyn hasn’t been fun but I know I have it better than many, perhaps most. I haven’t seen my family in nearly a year, a personal record, but we still get to speak. I get to write. My loved ones are okay. I’m fortunate. But if I get to speak a little hope into existence, dare ask something of the future, I ask that 2021 is full of curiosity, a bold endeavour founded on hope. To ask a question is to hope you get an answer … no matter how stupid the question.
Stay Tedious my friends, see you in the New Year!
— Andrew @ Tedium
Thanks again to Andrew for another great piece. Find this one an interesting read? Share it with a pal!
And thanks again to Lloyd for sponsoring.