Latest / The Pivot Podcast with Fexingo: How Businesses Change Direction and Survive Disruption / How a 50-Year-Old Retailer Pivoted to Private Label Dominance
Transcript
- Lucas: There is a grocery chain you have probably walked past and never thought twice about. Mid-tier, about 400 locations in the Midwest and mid-Atlantic. Not Whole Foods, not Trader Joe's, not Walmart. The kind of place you go for milk and toilet paper. Ten years ago, this chain was barely breaking even. Today, its operating margins are among the highest in the industry. And the reason is private label. Luna: Private label meaning their own branded products, right? Like, the store-brand cereal and canned tomatoes. Lucas: Exactly. But the way they did it was completely different from the old model, where you slap your logo on a generic product and sell it for ten percent less. This chain decided to treat private label as a separate innovation engine. They hired a veteran from Procter & Gamble in 2015 to run the whole thing. And they gave him a mandate: build products that could beat the national brand in a blind taste test, not just undercut it on price. Luna: That is a very different playbook. Most grocers use private label to boost margins on commodities like sugar or flour. They don't compete on quality. Lucas: Right. But this chain saw something. The big consumer packaged goods companies were raising prices every year, even as their ingredient quality slipped. There was a gap opening between what people paid and what they got. The chain's team realized that if they could deliver better quality at a lower price, they could capture not just margin, but loyalty. Luna: So what was the first product they launched? Lucas: Oat milk. This was 2017, before oat milk was everywhere. The national brand was charging four dollars a half-gallon. The chain's version used a different enzyme process that made it creamier and more stable on the shelf. They priced it at two ninety-nine. In the first year, it outsold the national brand three to one in their stores. Luna: Three to one? That is a shocking number. Usually, private label captures maybe fifteen percent share in a category. Lucas: Normally, yes. But because the product was genuinely better, the chain started getting customers who came specifically for that oat milk. Not for the store, for the product. That changed the internal conversation. Suddenly, private label wasn't a margin play—it was a traffic driver. Luna: So they scaled it. How broad did they go? Lucas: Over the next four years, they launched more than two hundred products. Everything from pasta sauce to frozen pizza to beauty bars. Each one went through a development process that mimicked what a national brand would do: consumer testing, packaging design, pricing strategy. They even created sub-brands—a premium line called 'Signature Reserve' and a value line called 'Everyday Value.' The premium line had products like aged balsamic vinegar and single-origin coffee. Luna: And the financial impact? I have to imagine margins on those are much higher. Lucas: Dramatically. Before the pivot, the chain's gross margin was around twenty-eight percent, typical for a mid-tier grocer. After five years of building the private label program, it hit forty-one percent. That is a thirteen percentage point improvement. On four hundred stores, that's hundreds of millions in additional profit. Luna: But there has to be a downside. When you push private label that hard, you risk alienating national brands who supply the rest of your store. They might withhold promotional support or pull their products. Lucas: That's exactly what happened. Some of the big CPG companies reduced their trade dollars because the chain was giving their own products better shelf positioning. The chain made a calculated decision: they accepted the loss of some promotional income in exchange for higher margins and customer loyalty. And they were careful not to go too far—they still carry the national brand in every category, just with less prominent placement. Luna: So it was a managed conflict, not a war. Lucas: Exactly. And the results have been durable. Even as inflation hit in 2022 and 2023, the chain was able to keep prices lower than competitors because their cost of goods for private label is so much lower. They gained market share during the inflationary period. Luna: That is a classic pivot story: a company that looked like a commodity player found a way to build a moat through product innovation and vertical integration, even though they don't own any factories. Lucas: Right. They own the formula, the packaging, the brand—but they contract manufacturing. That's the nimble version of vertical integration. And it's a playbook that more retailers are trying to copy. But the hard part isn't the strategy, it's the execution. You need a product development culture, not just a procurement desk. Luna: And that is where most fail. They treat private label as a cost center, not a profit center. Lucas: If today was actually useful to you and gave you a concrete example you could apply to your own business thinking, these episodes stay ad-free because of listener support. You can help keep it that way at buy me a coffee dot com slash fexingo. Luna: Yeah, it's a small thing that makes a big difference for us. Just a way to say this kind of content matters. Lucas: So the takeaway from this chain's pivot: private label isn't just about margins. It's about creating products that people genuinely want more than the name brand. If you do that, you don't have to compete on price—you compete on value. And that is a much more defensible position. Luna: And the chain? It's now being studied in business schools. The same company that was an afterthought ten years ago is now a case study in how to pivot from commodity to brand builder. Lucas: Which raises the question: what other industries are ripe for this kind of private label disruption? I think there are dozens. But that is a conversation for another episode.