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Private label making strong gains in weak economy The first clear signs of how the current economic crisis is playing out for the country’s retailers are beginning to appear—and there is plenty of good news for private label. In the latest Nielsen data for the third quarter of 2008, private label unit share in supermarkets jumped more than a point, to an all-time high of 22.2%, up from 21.1% for the year-ago period. Dollar share also rose sharply, to 18.2% vs. 17.1% a year ago.
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Wal-Mart CEO: Store brand sales up sharply |
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Eduardo Castro-Wright, Wal-Mart’s President/CEO, revealed that store brand sales are up significantly for the retailer, climbing at 2.5 times the pace of national brands over the last few months. He also noted private label sales are increasing at the beginning and middle of each month, when people receive their paychecks.
The sales gains come at a time when Wal-Mart is said to be ramping up its store brand program by adding package-goods marketing talent. The giant retailer is recruiting package-goods personnel from the likes of Procter & Gamble, according to an article in Ad Age. A search firm reportedly has circulated a solicitation for a post called Director-Portfolio Strategy, Private Brands. “The new director position appears squarely focused on growing sales, market share, cash flow and brand awareness—all of them included in the performance metrics of the job description,” Ad Age reports, adding that the “move could present a substantial new challenge” to national brand marketers.
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Walgreens’ brands boost front-end profits |
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Walgreens reports that rapidly growing private label sales are boosting its bottom line. The drugstore chain reported that store brand sales shot up 15% in the most recent quarter, compared to last year’s results. Top executives told analysts that this gain produced strong profit margins, helping offset greater promotion activity for national brands.
Greg Wasson, President, said the increase in store brands sales “helped us overcome some of the margin pressures and additional promotional pricing. So it’s definitely an economy that’s helping us with private label.” Wade Miquelon, Senior Vice President, Chief Financial Officer, noted that “front-end margins were essentially flat and helping the front end was a shift toward high margin items such as our private label brand products but hurting front-end margins were heavier than normal promotions.”
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Store brands reach 33% market share at Kroger |
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Market share for Kroger’s store brands has climbed to 33%, an all-time high, David Dillon, Chairman/CEO told Wall Street analysts. While the growth has come from all segments of the retailer’s three-tier, 14,400 SKU range, there has been an especially strong performance by Kroger’s most upscale line, Private Selection.
“Private Selection is our fastest growing brand,” Dillon said, adding that this line of premium products does well with all customers, not just those with high income. “Based on year-to-date trends, Private Selection will be a $1 billion brand for Kroger in 2008,” he said. “In this economy, customers are much more willing to try a private label item, and we’re seeing signs that this is happening more and more as the year progresses,” Dillon noted.
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New pricing, merchandising spur Safeway’s brands |
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Safeway’s CEO reports that market share for store brands is climbing as sales are “dramatically outpacing” those of national brands. Steven Burd, Chairman/CEO, told analysts: “We are just concentrating on the items that matter most to consumers and then we made very significant changes in our corporate brand pricing which are causing the sales of corporate brands to dramatically outpace those of national brands.”
Burd said price cuts have been made on “the vast majority of our corporate brands” and the supermarket chain is relying on good merchandising to communicate the value to shoppers. While lower prices are contributing to the sales gains, Burd emphasized that consumers will not accept lower quality products. “It’s always been my feeling that when you buy food, whether it’s in a restaurant or grocery store, it’s a serious expense and so you want to make sure you’ve got the best quality. So I think that our quality is actually helping us a lot right now.” |
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Family Dollar sees big store brand opportunity |
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Family Dollar believes store brands offer “a significant opportunity” in consumable product categories and has created a senior executive position to help capitalize on the situation. “We do intend to increase our private label offering in fiscal 2009,” Howard Levine, CEO told analysts. “We’ve had a program in place; we’ve done a lot in terms of improving the quality of our private label offering, the packaging of our private label offering and are getting better at defining what the private label strategy is overall within the company.”
The dollar store chain has promoted Dorlisa Flur to the position of Executive Vice President, Strategy and Marketing. “Dorlisa will utilize customer insights to lead our cross-functional efforts to enhance Family Dollar’s private label strategy,” Levine said, predicting analysts would “see an increase in private label penetration at the company.”
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Private label gains in disposable razors |
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Store brands are gaining market share in the huge disposable razor blade category, according to data from IRI. Dollar sales for store brands year-to-date rose 19% over the year before to $45.6 million, while unit sales climbed 11%. One analyst, Burt Flickinger III, Strategic Resource Group, told the Wall Street Journal that this trend will continue: “As we get deeper into the economic slowdown, there will be some really pronounced growth of private label blades.”
IRI reports that unit sales of Gillette blade cartridges in the U.S. have fallen every month of the past year compared with the year-earlier period, and since March monthly declines have been 10% or more.
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Food drives growth at Costco |
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Food sales are driving growth at Costco, the country’s largest warehouse club chain. Richard Galanti, Executive Vice President, told analysts that fresh food is showing high single-digit sales gains, with some categories posting double-digit increases. Food and sundries now account for more than 40% of Costco’s business.
Galanti added that there have been some gains in the club’s private label sales, but there has been no major shift away from national brands.
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H-E-B, Food Lion promote store brand meals |
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Two regional supermarket chains, H-E-B and Food Lion, are now offering programs of budget meals featuring store brand products. H-E-B is touting “Feed a Family of Four for Less Than $10,” while Food Lion is featuring “Dinner for Under $10.” H-E-B provides recipes for seven meals, featuring its line of “Fully Cooked” entrees as its centerpiece.
Food Lion’s dinner program displays all the ingredients to prepare a meal for under $10.
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A&P introduces premium brand |
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A&P is introducing a new brand, Hartford Reserve. The supermarket chain says the brand offers “premium artisan products at value prices” and was “created to bring back the nostalgic taste of the golden age of manufacturing, when products were specialized and manufactured by artisans who took pride in their individual craft.”
The product launch began with the introduction of an in-store baked pie made from more than a pound of fruit and five varieties of apples.
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IN THE STORES |
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Whole Foods Market
will add 200 Eco Baby products to its selection of over 1,000 baby items. The range includes biodegradable teething toys; a wide selection of bottles and cups and organic baby clothing.
Rite Aid
plans to launch an online OTC store. The site will be powered by drugstore.com, but managed, marketed and branded by Rite Aid.
Safeway
has introduced O Organics Supplements, a line of USDA-certified organic supplements. The 12-SKU line includes Vitamin C, Calcium, and St. John's Wort.
OfficeMax,
the country’s third largest office products retailer, has launched four brands—Ascend, Canterbury, Divoga and Infuse—featuring colorful, design-focused products
Food Lion
has started an online “Matching Game,” that encourages shoppers to learn the names of Food Lion’s brands. Winners receive a $1 internet coupon for a private label product.
Supervalu
is testing a small-store format to attract upscale professionals who don’t want to dine out, but don’t want to cook either. Called Urban Fresh by Jewel, the store is in Chicago.
Shoppers Drug Mart
in Canada is introducing a format featuring cosmetics and skin care. The beauty stores will be called Murale and plans call for about 50 stores.
Wal-Mart Mexico
is bolstering its premium brand offering with 19 new SKUs under the Extra Special brand for its 65-strore Superama chain. The new products include cookies, vegetables and pizza.
Dierbergs Markets,
the St. Louis-based supermarket chain, has debuted Signature Selections, a collection of 18 premium, handcrafted cheeses from Wisconsin.
Best Buy,
the country’s largest consumer electronics retailer, has introduced its Blue Label series, a line of products developed from customer feedback. The first products are laptop computers.
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MARKET RESEARCH |
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Big opportunity in convenience stores |
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Convenience stores are a prime candidate for private label growth, Nielsen research indicates. “Convenience stores are just starting to see the potential of private label,” says Tom Pirovano, Director of Industry Insights. Both unit volume and dollar sales are climbing and he believes the convenience channel has an opportunity to develop their own brands using private label benchmarks at supermarkets and drug stores.
Sales of private label products in convenience stores were up almost 20% to $826 million compared with a 15% increase in drug stores and about 10% in supermarkets. |
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Low prices are not enough |
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While consumers tighten their belts in a turbulent economy, marketers will have to do more than just lower prices to succeed, predicts IRI in a new “Times & Trends” report. It finds that “too often, merchandising strategies rely heavily—and sometimes entirely—on price reductions.” IRI believes markets “must consider new, innovative approaches involving updated positioning and product mixes and solution-based merchandising that generate enhanced shopper loyalty while concurrently reducing the reliance on lowering prices.”
“Simply lowering prices doesn’t fit with a product’s complete value proposition,” says IRI Innovation and Consulting President Thom Blischok. “In fact, just 1% of product categories that utilized price reductions as the sole merchandising tactic earned a sales lift of 100% or more. Contrast this with 86% of product categories that enjoyed a sales lift of 100% or more with a feature and display combined strategy—a merchandising tactic that allows the manufacturer and retailer to define that product, tell a story and create an experience.” |
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PLMA NEWS |
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CNBC’s Larry Kudlow is keynote speaker at Chicago Trade Show, Nov. 16-18 |
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CNBC’s Larry Kudlow, one of the country’s top economic analysts, is the keynote speaker at this year’s Chicago Trade Show, held Nov. 16-18. Kudlow, an official in the Reagan Administration, brings an insider’s perspective when analyzing the current financial crisis. He will speak Monday morning, Nov. 17.
Highlights of the Trade Show include presentations on new product innovation and the latest trends in retailing during a time of economic turbulence. On the Trade Show floor, there will be three new exhibition sections. One is devoted to suppliers of ingredients for private label, the second has companies involved in licensing properties for store brands and the third area consists of firms offering financial services. The Idea Supermarket presents displays of private label programs from retailers and wholesalers throughout the world. Located inside the Idea Supermarket is the New Product Expo, a presentation of new products available at the show. In conjunction with the Show, PLMA offers “Weekend with St. Joe’s” a two-day executive education program for manufacturers, retailers, wholesalers and brokers.
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EVENTS |
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| 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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