Valero Goes After Private Label Loyalty

SAN ANTONIO -- Once upon a time, consumers turned to private label products mainly for a single pragmatic reason: to ease the pressure on their wallets. The Great Recession made cheaper-than-brand-name private label items a better deal than ever. But now as the economy slowly recovers, does that mean the stigma of private label will return?

If Valero Retail Holdings has anything to do with it, the answer is no. At last year’s NACS Show, Valero Retail President Gary Arthur revealed that the company would introduce an additional 50 private label SKUs to its Corner Stores during 2012.

While these products might be new, Vice President of Merchandising Hal Adams told CSNews Online that Valero's focus on growing its private label offerings has long been in the works. The push is "not a new initiative for us -- it's an ongoing major initiative," Adams said. "It is and has been [a growth plank] for the last three years."

Valero uses its signature brands to accomplish two main purposes, he said. First, they're a "loyalty play" meant to attract customers to high-quality products of value that can only be purchased at Valero stores. Secondly, they leverage profitability against the national brands to raise overall store profitability.

Rather than concentrate on a specific subcategory, Valero is focusing its private label efforts on "immediately consumable needs, particularly [in] refreshment and snacking," said Adams. The company selected new signature brands for development by looking at what items have the highest unit movement in the stores, and introduced more 100 SKUs in total to date.

"Our private label products represent about 10 percent of our non-cigarette merchandise business," Adams noted.

Existing proprietary products include salty and meat snacks, spring, vitamin and fitness waters, sports and energy drinks, trail mix, soda and Valero's proprietary line of motor lubricants. Upcoming products include an extension of the company's salty snacks line, a new line of energy shots and an extension of Valero's sports drink line that will include flavors such as coconut water.

This vast expansion could mean trouble for Valero if consumers eschew private label in favor of brand names as the economy recovers, but Adams doesn't see that happening. "Our customer base is very amiable to private labels," he said, adding that supermarkets and drugstores paved the way for private label products to be more than generic money-savers.

The primary difference is quality. Consumers can recognize it quickly, and there are many quality private label products already on the market," Adams said. "They just don't have the advertising dollars placed behind them to heighten awareness and broad appeal."

Good-looking packaging makes a difference as well, so Valero has concentrated on making its packaging as high-quality as its signature lines.

Moving forward, the retailer plans to introduce new private label products based on market potential, not an average timeline. "We prioritize our items in terms of where we think the opportunity lies," Adams explained.

Once a product hits the shelves, individual stores can promote it through monthly themes, each focusing on a signature brand item. Managers receive special fact sheets containing information on the product, how it compares to the competing national brand-name product, and what value it holds for the consumer. The company also plans to focus on sampling and will empower managers to offer interested customers a taste test of Valero products.

In the end, Valero expects consumers' desire for both quality and value to make them private label buyers. "When you can get a customer to taste your product and find it's equal to the national brand, that typically seals the deal with the consumer," he concluded.