DECEMBER 2008
VIDEO REPORT

PLMA ENCORE SHOW
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UPCOMING EVENTS
30th Anniversary Leadership Conference
Pebble Beach, Calif.,
March 26-29, 2009.

Recession brings store brand gains, quality keeps them

   Private label sales are surging now as the economy keeps falling, but the industry needs to understand “the important lessons to be learned from past recessions” if the current market share gains are to become long-lasting, Brian Sharoff, PLMA President, told attendees at the annual trade show in Chicago.
  “An analysis of the past three U.S. recessions indicates that store brands make sales gains during times of economic weakness, but only hold onto these increases when high quality standards are maintained,” Sharoff said.
   In the 2001-2003 recession, private label’s unit market share climbed from 20.0% to 21.8%. In the 1990-1991 recession, unit share for retailer brands moved up from 17.6% to 20.0%. “In both of those economic downturns, consumers tried store brands, liked them and stayed with them after the economy improved,” he explained.
   The results were very different in the 1980-1982 recession. Private label market share climbed rapidly during that period, as retailers introduced many budget-priced “generic” product lines. These gains were short-lived, however, as shoppers were disappointed with product quality and soon switched back to their favorite national brands.

Private label pushes profit up for retailers

   While retail CEOs can find little solace in the current economic downturn, there is one bright spot in their P&L statements: The growing penetration of private label is pushing up profit margins.
   Dave Rickard, Chief Financial Officer of CVS, told Wall Street analysts that “increased private label penetration” is one of the main reasons why the drug chain’s gross profit margin has increased in the weak economy. Store brand growth has been especially strong in OTC categories, as more consumers are self-medicating as a way to reduce medical expenses.
   A similar impact is being felt at Food Lion and Hannaford Bros., where growing store brand sales have had a “positive impact” on gross margins in the third quarter, according to Pierre Oliver-Beckers, CEO of the retailer’s parent company, Delhaize USA.
   Private and exclusive brands are also increasing profits at a mass merchandiser. Kohls President and CEO said one reason for the recent gains in gross margins is the steady market share advances in private label.

Stop & Shop, Giant benefit from store brand gains

   A new emphasis on store brands in its Stop & Shop, Giant-Landover, and Giant-Carlisle chains is a big factor in the retailer’s success in meeting competition from limited assortment stores, top executives from their Holland-based parent company, Ahold, told The Financial Times.
   The improved private label program along with rebranding stores and promoting value are not only increasing shopper loyalty but also boosted profitability, John Rishton, CEO, said. The retailer’s operating margin rose to 4.9% in the quarter from 4.8% a year ago, driven by margin improvements in Stop & Shop and both Giant chains.

Wal-Mart will relaunch Great Value range

   Wal-Mart plans to relaunch its Great Value range, executives told a meeting of financial analysts. The new store brand effort is part of a larger strategy that includes smaller and more productive supercenter formats, accelerated store remodels, and wider price gaps with conventional grocers.
   One analyst, Mark Wiltamuth, Executive Director at Morgan Stanley, said Wal-Mart’s growing emphasis on private label could have a big impact on supermarkets. “Private label is an effective weapon” to combat Wal-Mart’s lower prices on national brands, he said. As Wal-Mart expands their private label offerings, competitive supermarkets will need to reexamine their pricing and assortment strategies, the analyst believes.

Private label SKUs up 27% at Whole Foods

   Whole Foods Market is rapidly adding store brand products, reflecting strong growth in both food and nonfood categories. “Our SKU count offerings under our own label increased 27% year-over-year,” according to John Mackey, Chairman/CEO. The retailer now has about 2,600 items accounting for 21% of total grocery sales. In the health and beauty area, Whole Foods now has 300 exclusive branded products with another 20% in the pipeline.
   “Sales in our own brands are growing three to four times that of branded product,” he said. “We believe the strengthening our value image throughout the store is the right strategy over the short-term and long-term. We are making positive strides in differentiating our product selection with a major emphasis on expanding offerings under our own label, our control brands and exclusive branded products.”

7-Eleven expands snack program

   The nation’s largest convenience store chain is stepping up its commitment to store brands. 7-Eleven has launched a line of 32 packaged food products under the 7-Select brand. New items include cookies, candy, nuts, potato chips, beef jerky, trail mix, plus chocolate-covered pretzels, coffee espresso beans, raisins and peanuts. Suggested retail prices offer savings from 10 to 20% compared to comparable national brands, according to the convenience store chain.
   Earlier this year, 7-Eleven began a pilot program to offer the new snack items in 1,500 stores in Florida and the Mid-Atlantic area. “New 7-Select items are already in the pipeline, and we plan to widen our assortment in early 2009,” a spokesperson said. By the end of the first quarter 2009, 7-Eleven expects to have more than 180 items available in the U.S. The chain also plans to expand its 7-Select snacks to its Canadian stores early next year.

Supervalu launches branding campaign

   Supervalu is launching a national advertising campaign for its stores, using the theme “Good things are just around the corner.” The campaign is designed to unite the company’s broad array of banners under a common theme, while reinforcing the identity each local chain in its market. The program is being rolled out in local radio and TV spots, circulars, national ads, direct mail, billboards and in-store promotions.
   The company also announced that its stores will be moving quickly to an everyday low pricing strategy in certain highly promotional categories. Jeff Noddle, CEO, noted, “There are certain categories at traditional formats where we and other operators have trained consumers to buy only when the items are on sale, such as cereal, and that those categories might do better with everyday pricing rather than promotional pricing.”

European hard discounter delays U.S. entry

   One of Europe’s most successful “hard discounters,” Lidl, is postponing its plans to enter the U.S. market, according to published reports. Lidl’s parent company, German-based Schwarz Group, had previously indicated that it had intended to enter the U.S. by 2012.
   A German trade publication reported that Schwarz had difficulty obtaining financing and moving its European supplier base across the Atlantic. Private label-oriented discounters such as Lidl and Aldi have been making big sales gains across Europe in recent years.

IGA upgrades products, packaging

   IGA plans a “revitalized private label program—including new package designs, improved quality assurance and improved availability—over the next 18 to 24 months on close to 2,000 items,” announced Mark Batenic, Chairman, President and CEO of IGA USA.
   He said there will be some product reformulations forthcoming “as we work with our vendors and make sure all specifications are followed.” New merchandising aids, including interior and exterior signage, will communicate the changes to consumers.

Fresh & Easy may redesign packaging

   Tesco’s Fresh & Easy chain is working on a package redesign of its grocery products line, according to published reports. The changes reportedly are being considered for the shelf-stable packaged goods items sold in the grocery department, but not for perishable ranges.
   Reports also are circulating that Fresh & Easy executives are talking about changing the orientation of the grocery shelving in all of the retailer’s 100 stores in Southern California, Nevada and Arizona. The new design would encourage customers to shop the entire store.

Cutback on paper coupons

   Some big brands are cutting back on one of their biggest marketing weapons, paper coupons, in an attempt to reduce costs during the economic downturn. One of the biggest coupon publishers, Valassis Communications, reported a significant sales decline in recent months and predicted volume is unlikely to recover through the first half of 2009.
   “Coupon advertisers cut back quickly and dramatically in September,” when the credit crunch kicked in, said one financial analyst. It’s “one of these cases where, when package-goods companies get scared, marketing is the first thing cut.”

IN THE STORES

   Winn-Dixie says store brand share climbed to 22% for the first quarter of fiscal 2009, an increase of 150 basis points compared to the same period a year ago.

   Loblaw has introduced 145 food items as part of its 25th birthday celebration for its President’s Choice brand.

   Wegmans is pitting its store brands against their national brand counterparts in blind taste tests. Wegmans brand products that win the taste tests will be promoted in advertising circulars and store shelves with signs reading “Great Taste Wins.”

   Target is introducing an exclusive line of wines that have been certified by the Fairtrade organization, a group that monitors the working condition and payment of supplier employees.

   Aldi reports that sales of its nearly 60 Fit & Active products are expected to increase about 30% this year. The retailer is planning to make some label changes in the line by adding nutritional guideline daily amounts on all the items.

   Stop & Shop and Giant Stores are introducing shelf labels to highlight healthy foods. A “Healthy Ideas” logo will identify the products that meet or exceed certain criteria set by the Food and Drug Administration.

   Safeway will carry about 300 OfficeMax products into its supermarkets, using co-branded aisle displays to identify the products.

   Best Buy, the largest consumer electronics chain, has introduced the industry’s first personal navigation device with embedded wireless Internet connections under its Insignia brand.

   Harris Teeter promoted its cleaning product products by offering a reward points every time a customer used a loyalty card to buy a “yourhome” product.

   Wal-Mart’s Sam’s Club is planning to test a new warehouse store catering specifically to Hispanics and featuring products from Mexico, The store will be called Mas Club and require a separate membership.


MARKET RESEARCH

Private label equal to national brands, shoppers tell Nielsen

   A new Nielsen survey finds that nearly three-fourths (72%) of respondents surveyed view private label brands as equivalent to national brands, while 62% said store brands were just as good.
   The findings are based on online surveys drawn from 54,000 U.S. households in the Nielsen Homescan platform, which tracks shopper behavior in the packaged good sector. The results are taken from data obtained June-July of this year.
   The study also found that nearly two of every three (63%) consumers believe private label’s quality is just as good as name brand quality, while 33% of respondents said they consider store brands to be of higher quality than name brands. Price and value are key drivers for growth, with 74% of consumers expressing price as the key purchase factor. Two-thirds (67%) of those surveyed said store brands provide “extremely good value” for their prices, while 35% are willing to pay the same or more for a store brand if they like it.

Store brand opportunity in organics

   The economic downturn may slow the growth or organic food and beverages, but it may prove a boon for private label. A new report by Mintel predicts that economic concerns are deeply affecting people’s shopping habits. Across the board, shoppers “are spending less and ‘organic vs. traditional’ is a decision many people are thinking about carefully. To cope with higher prices, many shoppers are simply opting not to buy pricey organic or premium brands,” according to Mintel.
   This creates an opportunity for store brands. Mintel found that most shoppers have confidence in store brand products. When asked about the difference between name-brand and private label organics, three in five (60%) said it didn’t matter, that they reached for “whatever is available” when shopping.

EVENTS

 
March 26-29 2009

30th Anniversary Leadership Conference
Pebble Beach, Calif.


June 15-18 2009

Executive Education Program
St. Joseph’s University, Philadelphia


   
e-Scanner is a monthly publication of the Private Label Manufacturers Association, 630 Third Avenue, New York, NY 10017, Telephone (212) 972-3131. Copyright 2008 by PLMA.
 
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