3.1. The Effect of Strategic Intent on Supplier Selection Criteria
The concept of strategic intent in management was initially suggested and defined by Hamel and Prahalad [
17] as “a stable obsession on winning, which specifies a desired leadership position and establishes the criterion the organization will use to chart its progress” (p. 150). As an overall organization’s desired future direction, strategic intent is more than a vision or ambitious target of top management teams in that it is shared and implemented by every organizational member on all levels [
18,
19]. Retailers can advance two strategic intents by rolling out new PLs. First, bargaining power, defined as the ability of a retailer to obtain leverage over its suppliers, has been identified as a primary strategic intent in the literature [
20]. For example, new PLs often bring about an improved category margin by helping retailers negotiate lower wholesale prices or demand more sales promotions from NBs [
21]. Store loyalty, which refers to a customer’s intention to repeat purchasing behavior at a particular retail chain, is another critical consideration in new PL offerings [
22]. The Private Label Manufacturers Association website echoes this by noting that “retailers use PLs to increase business as well as to win the loyalty of their customers.”
Prior PL literature, however, does not fully account for the link between these strategic intents and retailer performance. For instance, Ailawadi and Harlam [
23] found that the heightened bargaining power obtained by new PL introductions does not always provide higher margins for retailers, and Pauwels and Srinivasan [
24] showed that the addition of PLs does not always lead to higher gross category margins. These inconsistent findings suggest that the strategic intent per se does not guarantee desirable consequences for retailers, but rather needs to be translated into appropriate actions to have a performance impact. Recent purchasing and supply management literature emphasized that manufacturers must set clear criteria for supplier selection and ensure they are well aligned with the firm’s strategic intents [
25,
26]. From a theoretical standpoint, this view also corresponds to strategic choice theory, which asserts that strategic intents are pursued via specific actions. In other words, the retailer’s intent of introducing a new PL would be better understood and implemented by its sourcing managers when specific guidelines for building buyer-supplier relationships are provided. This research, therefore, posits that it is the strategic intent, in conjunction with PL supplier selection criteria, that yields retailer performance.
Specifically, we first put forward the notion that the emphasis on a PL supplier’s logistics competence can be driven by the retailer’s desire to improve its bargaining position over its NB suppliers. Logistics competence has become a crucial supplier selection dimension because it is critically important for retailers to ensure their PL suppliers deliver the products on time, in the right quantity, and to the right store. As major retail markets consolidate and competition increases, retailers are beginning to recognize the importance of logistics competence. For instance, the importance of logistics cost has grown continuously due to the proliferation of global sourcing and dispersed production locations. Unstable world oil prices and other logistics risks and uncertainties continue to drive retailers to appreciate the logistics capabilities of their PL suppliers more than they had in the past. In this regard, one crucial performance dimension is the supplier’s capability in the areas of demand management, flexibility, transportation, and delivery reliability [
27,
28]. In an attempt to bolster its bargaining power over NB suppliers, therefore, the retailer can employ logistically competent suppliers for its new PL products. This idea is represented in the following hypothesis:
Hypothesis 1a (H1a). A retailer’s strategic intent to strengthen bargaining power positively impacts its emphasis on logistics competence in PL supplier selection.
The emphasis on a PL supplier’s logistics competence can also be driven by the retailer’s desire to establish its consumers’ store loyalty. If retail chains select experienced PL suppliers and adopt an integrated inventory management system to manage logistics cost-efficiently, they can retain or increase store loyalty by reducing cost, stock-outs, or backorders [
29,
30]. Responsiveness is also a critical aspect in satisfying customer demands and improving overall customer evaluations of products [
31,
32]. By sourcing from responsive manufacturers with abilities such as short cycle time and on-time delivery, retail chains can better respond to changing customer needs, which leads to higher customer satisfaction and loyalty. This relationship is formally expressed in the following hypothesis:
Hypothesis 1b (H1b). A retailer’s strategic intent to establish store loyalty positively impacts its emphasis on logistics competence in PL supplier selection.
Retailers, in an attempt to improve their bargaining position over NB suppliers, may also
de-emphasize product competence in selecting PL suppliers. In large assembly manufacturing industries, an original equipment manufacturer (OEM) is generally more knowledgeable about the final product than its upstream supply chain members (i.e., component or sub-component suppliers) and thus can better perceive the current and emerging needs of end-customers [
33,
34]. Using this advantage to strengthen its bargaining power, the OEM selects suppliers on the basis of their product-related capabilities (e.g., cost, quality, lead time, etc.), which enables a more thorough evaluation and monitoring [
35,
36]. In PL sourcing, retail chains have no such advantage, due to their lack of manufacturing experience and immense product variety—an average U.S. supermarket carries 33,055 items, and PLs represent a unit share of 19.3 percent [
37,
38]. Retailers often source PLs from small and medium-sized regional manufacturers, accepting their often relatively inferior product capabilities in exchange for necessary resources, such as customer purchase information, to help them identify and test new ideas [
23,
39]. This complementary partnership also mitigates opportunistic behaviors by the PL suppliers and, in turn, strengthens the retailer’s bargaining power over PL suppliers. The distinctive nature of the PL sourcing environment leads to the following hypothesis:
Hypothesis 1c (H1c). A retailer’s strategic intent to strengthen bargaining power negatively impacts its emphasis on product competence in PL supplier selection.
Retailers endeavor to attract and hold more customers by developing unique product competence. Considering that PLs are exclusively produced for a specific retail chain, a more price-competitive PL lineup attracts price-conscious shoppers and contributes to increased sales [
40]. High quality can also increase retail customers’ switching costs, binding them to the store, increasing loyalty and preventing attrition to competing chains. By the same token, PL quality problems can harm retailers considerably when it comes to customer store loyalty because customers are more likely to blame the retailer than the manufacturer. Whole Foods Market’s fraudulent extra virgin olive oil scandal in 2010 is a well-known example of this risk. Although this problem was relevant to only one of Whole Foods’ 2200 PL offerings, the public and media attention over that one specific product severely damaged the brand image of their entire PL lineup but left their supplier’s image untarnished. Thus, retailers may select their PL supplier based on product competence to avoid the risk of losing customers, due to their PL suppliers’ shortcomings. This is reflected in the following hypothesis.
Hypothesis 1d (H1d). A retailer’s strategic intent to establish store loyalty positively impacts its emphasis on product competence in PL supplier selection.
3.2. The Effect of Supplier Selection Criteria on Financial Performance
A number of studies have shown the relationship between logistics competence and retailer performance. For instance, with the rapid growth of global PL sourcing, logistics cost and dependability/predictability are critical factors affecting retailer performance. Schramm-Klein and Morschett [
41] confirm that logistics cost highly influences a retailer’s financial performance. Particularly with current global sourcing trends, firm responsiveness (in terms of delivery lead times, on-time delivery, and non-routine request accommodation) should lead to increased performance. This, therefore, suggests a positive relationship between a retailer’s emphasis on logistics competence in selecting PL suppliers and the retailer’s resulting financial performance. The logistics competencies provided by the supplier can be a valuable resource in achieving a superior financial performance [
4,
42]. For example, failure to have the right product in the right place in the right quantity can result not only in lost sales in the short-term but also a longer-term loss of goodwill that leads potential consumers to other retailers. Therefore, the following hypothesis is tested:
Hypothesis 2a (H2a). A retailer emphasis on logistics competence in supplier selection improves a retailer’s financial performance.
In contrast, recent research has demonstrated that the direct influence of product competence in terms of quality and cost on financial performance wanes or even disappears in the presence of various strategic factors (e.g., [
43,
44,
45]). Due to the vast and still growing variety of their PL offerings, it is almost impossible for retailers to establish and maintain detailed product-related criteria in selecting suppliers for each PL. Further, the variation in product-related aspects of PL products sold by competing retailers is rapidly decreasing. More NB manufacturers are using their expertise and excess production capacity to produce PLs for retailers, and many small quality manufacturers specialized in particular product lines are employed by both retailers and NB manufacturers [
38,
46]. Under such circumstances, devoting limited corporate resources to understanding diverse product-related aspects can result in negative financial consequences for retailers. This argument suggests the following hypothesis.
Hypothesis 2b (H2b). A retailer emphasis on product competence in supplier selection diminishes a retailer’s financial performance.
3.3. The Moderating Effect of Product Type
Contingency theory suggests that relationships are influenced by environmental variables. As such, contingencies need to be considered in order to appropriately modify strategies and ensuing actions. One important contingency in the retail industry is product type (i.e., whether the product is a food or a non-food product), which is one of the most commonly employed classifications in the industry. With the aggressive expansion of grocery sections in regular merchandise stores, for instance, retail giants such as Target and Walmart have built dedicated grocery teams that only work in the grocery section of the store and equipped them with specialized training. This dichotomy is also the most commonly accepted classification for PLs in a number of market databases, such as IBISWorld, Mintel Report, Nielsen Company, and others. Our investigation, therefore, also considers whether the hypothesized relationships are moderated by product type.
Specifically, as food products generally have a shorter life span than non-food products, retailers use different supply chain, warehousing, and sourcing strategies for each. For example, the relationship between strategic intent and competence may be positively moderated by the perishability of food products. This is reasonable to expect since there is a greater likelihood that food products will spoil in transit when there are delays and disruptions. In addition, food contamination and spoilage can pose a significant health risk to consumers and affect the reputation of the retailer, compromising both retailer loyalty and bargaining power. With the potential for food contamination and terrorist acts in the current environment, it is expected that the capability of the PL supplier to guard against such logistics failures is more important in food than in non-food product categories. Thus, we hypothesize that the relationships between a retailer’s strategic intent, the ensuing supplier selection criteria, and performance are moderated by product type, and that these relationships will be stronger for food products.
Hypothesis 3 (H3). Product type moderates the relationships between a retailer’s strategic intent, supplier selection criteria (i.e., logistics and product competences), and financial performance, in that the path coefficients are greater for food products. This should hold true for all six relationships proposed above (H3_1a–H3_1d, H3_2a, and H3_2b).