Private label outperforms national brands
Store brands once again outperformed the national brands in 2011, while setting new all-time records for total sales and market shares in supermarkets, drug chains and mass merchandisers, according to Nielsen data in PLMA’s 2012 Private Label Yearbook.
Supermarkets saw the biggest store brand gains; sales grew by 5.1% (versus 2.0% for national brands), lifting private label’s share of dollars from 19% to 19.5%. Annual store brand sales in supermarkets approached $60 billion. The increase of $2.9 billion compared to the prior year means store brands contributed roughly 38% of all incremental sales in the channel.
Store brands saw gains in the nation’s drug chains with sales increasing by 3.8% (national brands added 2.7%). Store brand dollar market share rose to 15.2%, another record high, although share of units slipped slightly to 16.4%. The value of private label sales in the drug channel came to $7 billion overall.
In total outlets—combining supermarkets, drug stores and mass merchandisers, including Walmart—private label sales advanced by 3.9%, while national brands were up by only 0.6%. Store brands’ share of dollars climbed to 18%, while unit share held even at 21.9%
Aldi: The first nationwide store brand retailer
Aldi is rapidly establishing itself as a truly national grocery store chain. The private label retailer is making plans to enter the western states, following recent moves into Florida, Texas and the Northeast, according to trade reports.
Aldi is preparing to enter the southern California market, opening its first stores next year and having about 100 stores on the West Coast by 2014. Sources say Aldi wants to expand into other nearby western states, including Nevada and Arizona. The stores will be supplied by a new 850,000 sq. ft. distribution center in Riverside County, Calif.
The retailer currently has about 1,300 stores with an annual volume of roughly $7.5 billion. Aldi started in the Midwest but has been moving aggressively into new markets, including Texas and Florida. Aldi’s sister retail chain, Trader Joe’s, is also stepping up its expansion program. The specialty grocery chain operates nearly 400 stores in over 30 states. Trader Joe’s has just opened its first stores in Texas and will enter the Utah market later this year.
Kroger brands gain share
Kroger’s store brand sales grew faster than national brands in the first quarter, the retailer’s top management told Wall Street analysts. Store brands represented about 26% of grocery department sales dollars. Grocery department units sold are up 60 basis points to 33.6% compared to the same quarter last year.
Rodney McMullen, President, said, “Our corporate brands team continues to create fresh and compelling products that fill unmet customer needs. We recently launched Private Selection’s Snack Chips in 13 new flavors, including sea salt, cinnamon sugar and a new gluten-free rice and bean chip made from rice and azuki beans.”
The emphasis on store brands along with the use of in-depth shopper data is creating more loyal shoppers. “Kroger increased the total number of loyal households. Those households are making more visits. And while they are buying fewer items per trip, the total units we sell to our loyal customers have increased,” McMullen said.
Walgreens going global with Boots deal
Walgreens is going global with a deal that will eventually create the world’s largest drug store and pharmacy retailer with a more that 11,000 stores in 12 countries. Walgreens has agreed to buy a 45% stake in Alliance Boots, the Swiss-based pharmacy retailer, for $6.7 billion, in a deal that could allow it to take full control of Alliance Boots by 2015.
Walgreens says the merger provides the opportunity to cross-pollinate brands — including Boots’ No7 and Walgreens’ Delish — across new markets. “We’re going to bring the two retail brands together to create the first global pharmacy-led healthcare platform, We’ll become a supply chain unmatched in the world,” Greg Wasson, Walgreens CEO said.
The acquisition also would allow Walgreens to expand into overseas markets, and give Alliance Boots a presence in the United States that it has long wanted. The deal is expected to close by the end of September.
Retailers take their brands into new categories
While national brands struggle to narrow the price gap with store brands, retailers are focusing on expanding their private label programs into new categories, especially those with specialty and value-added products. A Supermarket News poll of more than 70 retailers and wholesalers found they are planning more premium products.
“Specialty categories, such as gluten-free, imported and local, are getting a lot of attention with 42.3% of retailers planning to add to or update their specialty private label mix,” the publication reported. “More than one-third of private-brand marketers (34.6%) will add new product innovations to their portfolios within the next year, followed by natural and organics (30.8%), ethnic offerings (25%) and healthy reformulations (23.1%).”
Nearly one in 10 respondents said they will get into an entirely new private label category. “Retailers are venturing into segments traditionally dominated by national brands, in part, to protect channel share, with respondents ranking private label (34.6%) and price (34.6%) as the most popular strategies for fighting Wal-Mart and other competitors for Center Store sales,” SN wrote.
Break up P&G, one analyst says
Procter & Gamble should consider of splitting itself up into various units if its profits do not improve this year, one veteran stock analyst recommended. Ali Dibadj of Sanford Bernstein said splitting up the group would help the separate units focus better on, and improve, their core operations as well as accelerate sales.
He added that P&G’s recently-announced plan to scale back growth in emerging markets is “an appropriate strategy”, and may help “right the ship.” However, he noted that the group “hasn’t been successful” in the period since the announcement, adding that the lack of growth may be linked to P&G’s management, the macro environment, or “to the fact that this company is just too complex.”
Another Wall Street report by J.P. Morgan concluded that P&G will have to become more aggressive to restore its business. The report noted Nielsen data shows that P&G “has been losing share in recent periods in the U.S. tracked channels in some of its biggest categories,
including toilet tissue, paper towels, disposable diapers and razor blades.”
Store brand suppliers making mergers
Three of the nation’s largest private label suppliers—Ralcorp Holdings, ConAgra Foods, and TreeHouse Foods—are making strategic acquisitions to expand their businesses. Ralcorp made two deals. It acquired Gelit S.r.l., a producer of store brand, frozen ready-made meals with annual sales of $45 million. Gelit, based in Italy, will operate as part of Ralcorp’s American Italian Pasta Company division. Last month, Ralcorp acquired Petri Baking Products, which makes private label soft-style and crunchy cookies. Petri has annual sales of more than $50 million.
ConAgra Foods, which made an unsuccessful attempt to acquire Ralcorp, has purchased the pita chip business of Kangaroo Brands. The acquisition includes a manufacturing facility in Milwaukee. The deal follows the acquisitions of National Pretzel Co., Del Monte Canada and Odom’s Tennessee Pride during ConAgra’s fiscal year.
In April, TreeHouse Foods acquired substantially all of the assets of Naturally Fresh for $25 million. Naturally Fresh, headquartered in Atlanta, produces refrigerated dressings, sauces, marinades, dips and specialty items in a wide array of packaging sizes. Naturally Fresh has annual revenues of approximately $80 million.
Dollar General gains share from supermarkets
The nation’s largest dollar store chain is gaining market share from supermarkets, drug chains and mass merchandisers—but it is taking the biggest bite from supermarkets, Rick Dreiling, CEO of Dollar General, told Wall Street analysts. “If you look at the Nielsen data, we are gaining share from grocery first, drug second and mass third,” he said.
The Dollar General executive noted that the number of items priced at $1 have been increasing and now account for more than 26% of all products sold in the stores. The addition of these products hasn’t hurt sales of more expensive competitive products. “We put in anywhere from a 12 to 16 foot section with a $1 HBA and assorted items, and it didn’t hurt our margin and it didn’t cost us any sales. So, it’s all incremental,” he said.
Private label entering coffee pod category
The fast-growing single-serve coffee pod business is about to become more price competitive. Two of the country’s largest supermarket chains, Kroger and Safeway, announced plans to introduce their own store brand coffee pod products.
Kroger will begin selling single-serve coffee pods under its Private Selections and banner brands this September. The pods will be compatible with Keurig single-cup brewers and possibly more coffee brewing systems. Safeway plans to launch five private label coffee pods for use with Keurig single-cup brewers.
The introductions are timed to the expiration of patents held by Green Mountain Coffee Roasters on its Keurig Brewers and K-Cup portion packs, which presently require special licensing agreements with interested coffee brands. “When the market opens up you’re going to be able to zoom in with a private label,” noted Tom Pirko, president of Bevmark Consulting.
Target now has 10 private label or exclusive brands that each generate $1 billion or more in annual sales.
Supervalu is expanding Essential Everyday range to 2,700 products across more than 100 categories by next year.
Walgreens is expanding its Petshoppe brand of pet supplies, while also revamping packaging and improving shelf position in stores
Whole Foods Markets’ and Walgreens’ ice cream products beat national brand competitors in taste tests by Consumer Reports.
Walgreens is introducing a monthly mail subscription service enabling customers to try new artisanal foods not currently available in its stores.
Fresh & Easy has launched a ready meals range called Kitchen To Go. The line, which aims to offer restaurant-quality products, includes American, Italian, Asian and Mexican selections priced from $1.99-9.99.
ShopRite, based in New Jersey, is offering free 30-day supply of prenatal vitamins at its pharmacy locations.
A&P is expanding its Woodson & James beef range and supporting the brand with new in-store signage and sampling. Also, meat department personnel are outfitted in Woodson & James aprons.