SEPTEMBER 2008
	VIDEO INTERVIEW PLMA’s new video series, PLMA Live!, interviews marketing guru Wendy Liebmann on recession, retailing and store brands. Click here for PLMA Live!
	MARKET RESEARCH Slowdown in organic food sales
	UPCOMING EVENTS Washington Conference Washington, Oct. 6-7

Kroger CEO says store brand success tied to strategic focus, not economic woes

   The success of store brands at the nation’s largest supermarket chain has less to do with national economic conditions and much more to do with a long-term strategy of investing in new product development, marketing and promotion. David Dillon, Chairman & CEO of The Kroger Co., acknowledged widespread trade reports that the weak economy is driving private label growth, but told security analysts that other factors are more important.
   “A lot of the kind of discussion we’ve heard out in the trade has to do with the economy driving people to buy more Kroger brand or private label. And while I’m certain there’s a certain degree of that going on, we actually think most of our improved results—and our first quarter was a good improvement—was because of the plan, because of the team, because of the focus we’ve had on that area.”
   This long-term investment has yielded consistent results. In fact, Kroger’s private label products have gained market share in 12 of the past 15 financial quarters—during times of strong economic growth as well as the recent hard times. Moreover, much of the growth is coming from Kroger’s premium Private Selection brand. “Nearly half of the new corporate brand items introduced last year were under our Private Selection label,” Dillon said.

Supervalu launches premium Culinary Circle range

   Supervalu has launched a premium foods line under the Culinary Circle brand. The line includes more than 150 grab-and-go meals, artisan breads, appetizers, side dishes, soups, salads, specialty sauces, seasonings and desserts. The line will be offered at all of Supervalu’s store banners.
   The launch comes as store brand market share at the company has reached all-time highs. Jeff Noddle, Chairman/CEO, told Wall Street analysts. “This exciting new line will provide time-crunched consumers a compelling reason to turn the lights back on in their dining rooms. They will enjoy a restaurant quality, chef-inspired meal at an outstanding value. With items across multiple categories this mega-premium brand will have a significant presence in fresh prepared foods.”
   Noddle reported that Supervalu’s private label program continued to show positive momentum. “Today own brands represent slightly more than 16% of our total retail sales with own brands share up 90 basis points from last year at this time. Overall our own brands’ growth rate continues to outpace national brands.”

Trader Joe’s posts big sales gains

   Trader Joe’s is racking up big sales gains—both through new stores as well as same-store increases—according to industry estimates published in a Supermarket News feature article honoring the retailer’s 50th anniversary.
   Sources told SN that Trader Joe’s has annual sales of more than $6.6 billion — an average of $21.3 million per unit — with overall revenues climbing at an annual rate of approximately 15%. Trader Joe's comparable-store sales are growing about 10% a year, Neil Stern, Senior Partner, McMillan Doolittle, told SN.
   Stern estimates Trader Joe’s gross margins range from the low to mid-20s, compared with 28% at conventional supermarkets, which have a higher mix of perishables. Margins on private brands, he estimated, are about 25% to 30%, compared with 35% at conventional supermarkets; margins on national brands are in the teens to low 20s, compared with 28% at conventional supermarkets.

Another big European retailer plans to enter U.S.

A successful European food retailer is drawing up plans to enter the U.S. market. Lidl, which operates about 7,000 stores in 17 countries, announced plans to open its first U.S. stores by 2012. The German-based retailer’s top executive, Klaus Gehrig, told a business publication, “Currently, we are preparing to enter the U.S. market.” Lidl stores are smaller than typical supermarkets and carry a higher proportion of private label products. Lidl is often considered Aldi’s biggest competitor in their home market of Germany as well as other countries across Europe.

Safeway names P&G executive to top marketing post

Safeway has appointed a veteran Procter & Gamble executive to oversee its overall marketing efforts. The supermarket chain named Diane Dietz as Executive Vice President and Chief Marketing Officer, reporting directly to Steve Burd, the retailer’s Chairman/CEO. Dietz comes to Safeway after a 19-year career with P&G, where she most recently ran the company’s oral care business.
Burd also reported that Safeway’s private label portfolio keeps gaining market share at the expense of national brands. “We continue to see growth in corporate brands relative to national brands. We have been encouraging that shift. We are encouraging it because that’s what consumers want to stick with,” he said. Burd acknowledged, however, that the increased sales of private label products, with their lower price points, have contributed to lower same-store sales results.

Infant care grows up for store brands

   There are indications that infant care be ready for healthy store brand growth as retailers step up their new product development in the category.
   Safeway has added a sub-brand, Kiddie Ups, to its recently introduced “Mom to Mom” range of more than 80 products. The range was developed with help from real mothers and features consumer testimonials on each package.
   Supervalu also is investing in the category, introducing the Being Well Baby range of infant care products at its Save-A-Lot limited assortment stores. The range includes breast pumps, bottles, toys, baby wipes and lotion. Save-A-Lot has launched a website to promote its baby products as well as a baby club at www.beingwellbaby.com.

Private label share gains at Winn-Dixie

Store brands keep gaining market share at Winn-Dixie, and the supermarket chain has aggressive plans for expanding its program. Peter Lynch, Chairman/CEO, told analysts: “We continue to make significant progress with our corporate brands program, and our customers are responding very favorably. We launched over 1,500 redesigned products during the year and increased our penetration rate substantially.” Market share has improved to 20.6% on measured categories, an increase of 150 basis points from the prior year.

Petco makes licensing deal with Dog Whisperer

Petco, the pet supply retailer, has made a licensing deal with Cesar Millan, a dog behavior specialist and star of National Geographic Channel’s “Dog Whisperer” show. As part of the program, the retailer is introducing a line of more than 100 Dog Whisperer products.
The line includes organic dog food and treats, fortified water and liquid supplements, as well as accessories such as collars and leashes, bedding and toys. The licensing deal also encompasses instructional DVDs and an online dog coaching course, developed by Millan and offered by Petco on its website.

Shoppers Drug Mart pushes product innovation

Canada’s largest drugstore chain, Shoppers Drug Mart, is relying on an aggressive new product development strategy, described as “permanent innovation” by its top executive. The retailer is expanding its new product program in both food and non-food categories, Jurgen Schreiber, President/CEO told financial analysts. This year the retailer plans to debut chocolate products as well as two brands in the skincare category. Additions also will be made to the recently introduced Nateeva range of organic products.
The new product development program is reflected in substantial market share gains. Schreiber said in the most recent quarter store brand’s market share climbed to 16.4%, up 2.7 percentage points from the prior year’s quarter.

Wegmans says store brands lead in several categories

Wegmans’ store brands are outselling any national brand in categories including cereals, salsa, ice cream, frozen vegetables, yogurt and frozen self-rising pizza. The supermarket chain’s Senior Vice President, Consumer Affairs, Mary Ellen Burris, reported on the success of private label in her latest column on the company’s website.
She attributes the brands’ success to the strict criteria that must be met before items hit Wegmans’ shelves. Burris notes that manufacturing plants are audited before production and then product quality is regularly checked by inspectors. Finally, the chain monitors comments of customers and works with buyers and developers to continually improve.

Private label wines win awards

Private label is catching the attention of wine critics. Two retailers, Tesco’s Fresh & Easy Neighborhood Market and Dehaize’s Food Lion group, have received awards for their store brand wines.
Fresh & Easy executives say the chain has won 63 awards in less than six months, including a Best in Show, 90 Parker Points and Platinum Medals. Meanwhile, Food Lion reports that its Surf Point brand received recognition at the San Francisco International Wine Competition, where its Surf Point Pinot Grigio received the gold medal, its Surf Point Merlot won the silver medal and its Surf Point Chardonnay won the bronze medal.

Dollar General boosts store brand SKUs

Richard W. Dreiling, CEO, Dollar General, told Wall Street analysts that the chain is “working very hard” on expanding its private label program. “By the end of 2008 we expect to have about 800 private label products available in our stores. That’s a net increase of 112 SKUs that will be visible throughout our highly consumable category.”
He noted that “during the first quarter we worked to refine our private label strategy, carefully choosing products and labeling and establishing a rigorous quality control protocol.”

IN THE STORES

Whole Foods Market is promoting its store brands, urging shoppers to “Check out store brands—All of the company’s private label products must adhere to high-quality standards while offering great value 365 days a year.”

H-E-B has launched a promotion, H-E-Buster, that tells shoppers about the savings that can be achieved in purchasing private label products compared to national brands.

Walgreens is adding to its roster of exclusive brands with the addition The Face Shop, a line of 10 facial mask treatments made by a South Korean-based company.

7-Eleven plans to expand its hot cooked meals program to about 800 stores, following a successful trial in 100 stores.

Sam’s Club is expanding its meat and deli offerings, promoting gourmet and specialty items and plans to launch more grab-and-go prepared meals. It recently launched home meal replacement programs in about 200 clubs stores and expects to expand to 100 more locations

Topco reports that 500 retail members are testing a nutrition rating system, the Overall Nutritional Quality Index (ONQI), with a full-scale rollout to the cooperative’s 5,000 members scheduled for next spring.

Price Chopper has introduced a line of gluten-free items at selected stores. The line consists of a range of flours, cereal bars, rice chips, ready-made biscuits and pasta.

Food Lion has launched the Guiding Stars nutritional guideline system in all its stores. The system identifies products by nutritional content using a rating of one, two or three stars.

Stew Leonard’s, the Northeastern supermarket retailer, has rolled out three signature extra virgin olive oils under its own brand name.

MARKET RESEARCH

Slowdown in organic food sales

   A new study from the Hartman Group finds some slowdown in sales of organic foods. The researcher found that aggregate consumer use of organics dropped four percentage points from 73% of the population buying organics in 2006, to 69% in 2008.
   The study pointed out that despite this slowdown, organic’s appeal is strengthening with the “core” organic consumer. These consumers are continuing to increase their purchasing and use of organics across a wide variety of categories. Core consumers are more emotional about the organic movement, and their purchase frequency is increasing.
   Hartman reports that consumers respond more strongly today to fresh organic categories, which offer the perceived benefits of being hormone or pesticide free, according to the study. Organic categories that still have strong consumer appeal include dairy, fruit, vegetables, prepared foods, meats, breads, and juices.

PLMA NEWS

Washington Conference, October 6-7, focuses on food & drug safety

   The issue of food and drug safety will be examined from a number of perspectives at the Washington Conference, to be held October 6-7. The controversial topic of third-party audits and certification will be examined by a panel of retailers and manufacturers. The session will be moderated by Nick Hahn, former director of corporate brands for The Kroger Co.
   An insider’s perspective on proposed food and drug safety legislation and regulations will be provided by John Bode, Olsson Frank & Weeda, a Washington law firm. The global supply chain and how it affects safety will be discussed by an industry expert, Paul Hall, President, AIV Microbiology and Food Safety. Soaring ingredient costs will be the subject of a presentation by Chuck Cerankosky, FTN Midwest Securities, and a manufacturer panel moderated by Bill Bond, Willert Home Products.
   In addition to presentations, there will be opportunities for attendees to share their own experiences and identify issues that need to be followed up. Registration for PLMA’s Washington Conference is open to all PLMA members and their guests. Retailer registration is complimentary. For more information, email: washconf@plma.com.

EVENTS

Oct. 6-7

Washington Conference
Washington

Nov. 16-18

PLMA Trade Show
Chicago

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