FEBRUARY 2009

VIDEO REPORT

RECESSION AND STORE BRANDS
How are shoppers coping with the economy?

de MARKET RESEARCH
Retailer poll: Big store brand gains in 2009

de

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

Costco CEO: Store brand share heads for 25%

   Costco’s private label sales may reach 25% market share, up from just below 20%, within the next few years, according to CEO Jim Sinegal. He says some store brand items, such as olive oil, have become so popular that Costco no longer stocks a national brand equivalent.
   Sinegal also noted how Costco has benefited from consumers dining at home by selling more prime-grade meat that used to go almost exclusively to restaurants. Similarly, the number of televisions sold at Costco is up more than 50%. “It could be people saying that home entertainment is more important now than ever,” Sinegal said.
   One research analyst, Patty Edwards of Storehouse Partners, already sees a shift to more store brands. “Every time I walk through Costco I see more and more Kirkland brands,” she told Supermarket News. Among the new products is a line of Kirkland Signature environmentally friendly cleaning products, including a liquid laundry detergent made with palm and coconut oils. Costco has also expanded its Kirkland wine selection and nearly replaced all of its branded spices with store brands, she said.

Wal-Mart’s new Great Value products ready by July

   Wal-Mart has delayed the introduction of its revamped Great Value range. A spokesperson said the retailer will introduce the program, which includes hundreds of new and reformulated products and new packaging, by the end of July. Earlier, Wal-Mart had said the program would be in stores by its fiscal first quarter, which began Feb. 1.
   Great Value is Wal-Mart’s largest brand with more than a thousand items across more than 100 categories. The retailer had tested more than 5,500 products against national brands and is reformulating 1,200 items.
   “We’re building from a position of strength,” Andrea Thomas, Senior Vice President of Private Brands, told a recent analysts meeting. “Great Value is the largest brand at Wal-Mart. It plays across more than 100 categories, making it the largest food brand in the country. In this economically challenging environment, we have seen our customers turn to us even more this year. We have plans to make this brand even stronger with improved value and quality.”
   She believes the new package graphics will help sales. “The new design has a much better brand billboard and much more appetizing food photography. And we aren’t just dressing up the outside. We have also worked hard on what we are putting on the inside.”

House bill would increase FDA inspections

   A bill introduced in the House of Representatives would increase Food and Drug Administration powers and the frequency of safety inspections. The bill, proposed by Democrats on the House of Representatives Energy and Commerce Committee, would require food companies to be inspected at least once every four years and drug companies at least every two. The cost of extra inspections would be covered by fees paid by manufacturers to the FDA.
   The proposed legislation comes at a time when several food industry organizations have been calling for increased powers for the FDA, which currently only has the power to request companies to implement voluntary recalls. The FDA also provides advice to manufacturers who initiate their own voluntary recall procedures.

FDA publishes new rule on additives

   The Food and Drug Administration has published a final rule amending its color additive regulations for products containing cochineal extract and carmine. The rule will require companies that use carmine and cochineal in food and cosmetic products to list the additives by name on the product label instead of declaring them as “artificial color” or “color additives.”

Kraft, Sara Lee, Kellogg hit by store brand growth

   Three of the biggest name brand companies—Kraft Foods, Sara Lee and Kellogg—told financial analysts told that the retailer’s push on private label is having an impact on the manufacturers’ bottom lines.
   Kraft was hurt by inventory reductions by retailers across the board, including the world’s largest retailer. “Wal-Mart is cutting its inventories—they are quite public with that fact. All of our retailers are cutting back,” Kraft CEO Irene Rosenfeld told Dow Jones. “The inventory impact has hit branded products disproportionately.”
  
At Sara Lee, one analyst, Chris Growe of Stifel Nicolaus, identified “aggressive private label competition” as one of the primary drivers responsible for the company’s poor earnings.
   Speaking of Kraft and Sara Lee, UBS analyst David Palmer said, “These are two of the more ‘penetrated by private label’ companies in the foods space, and thus each company’s pricing is more affected by falling commodity costs and more aggressive private label competition.”
   At Kellogg’s, CEO David MacKay reports that store brands are gaining market share in the cereal category. “We are seeing retailers...push the private label pretty hard,” Mackay said. He added some retailers reduced inventory in the fourth quarter, a result of price increases Kellogg made in the third quarter.

Loblaw launches No Name range

   Loblaw in Canada is introducing more than 2,600 products under its No Name private brand. The range features style and graphics that recall its retailer’s original 1978 black and white generic packaging. That range drew international attention to Loblaw and was a key factor in its eventual growth to become Canada’s largest retailer.
   The new product packaging has simple, bright yellow and black graphics. About 300 products are currently available in the re-launched packaging with the entire line expected to be converted by year-end. Loblaw said the No Name brand offers a savings of more than 20% vs. comparable national brands.

Aldi hires new ad agency

   Aldi has selected McCann Erickson as its new advertising agency with responsibility for all integrated marketing communications and advertising services. “Aldi has a terrific story to tell. We are looking forward to helping them tell it, both from a strategic branding point of view and tactically in ways that drive in-store sales,” said McCann. “They have a unique business model and a great product, and we’re excited about the opportunity to work with them to help them achieve their aggressive growth plans.”

Walgreens expands store brand SKUs by 10%

   Walgreens expanded its line of store brand products by about 10% last year, and the retailer sees more sales growth this year. Private label accounted for about 20% of non-prescription sales in 2008, and the more than 2,000 store brands are “definitely being helped by the difficult economic climate,” spokeswoman Tiffani Bruce said.
   This month Walgreens launched a program to boost its consumables sales, featuring both private label and national brands. The Affordable Essentials program focuses on basic consumables such as milk, bread, and toilet paper. Walgreens is offering the items in the Affordable Essentials market basket at significantly reduced everyday low prices.

Safeway, Winn-Dixie launch frozen seafood lines

   Two major supermarket chains, Safeway and Winn-Dixie, are putting their brands on frozen seafood programs. Safeway has introduced Waterfront Bistro, a line that includes shrimp, tilapia and halibut. About six items have been promoted in an initial circular. A 12-oz.package of tilapia sells for $6.99; halibut is priced at $14.99 for 12 oz. The line also includes Waterfront Bistro cocktail sauce, two for $4. Winn-Dixie, based in Florida, has launched a range of frozen seafood dinners under its Fisherman’s Wharf brand. There are six varieties of the dinners, which can be prepared in ten minutes.

Store brand promotions pay off at Harris-Teeter

   Store brand promotional investments are paying off for Harris-Teeter, a North Carolina-based supermarket chain. Thomas W. Dickson, Chairman/CEO of the retailer’s parent company told analysts: “Our focus on store brands in our promotional activities has been well received by our customers and our store branded product penetration has increased approximately 23 basis points to 24.88%.”

Nutrition shelf tags gain popularity

   More supermarkets are introducing nutrition education programs that use shelf tags to identify products. Supervalu has launched “nutrition iQ,” a nutrition information program to be rolled out over the next six months across Supervalu’s retail banners. The program uses color-coded shelf tags.
   Ahold USA has introduced a Healthy Ideas program in its Stop & Shop and Giant Food stores. More than 3,000 on-shelf symbols identify healthy foods based on the USDA/FDA’s definition of “healthy,” the federal Dietary Guidelines for Americans and the U.S. Department of Agriculture's MyPyramid.gov.
   In Arizona, Bashas has started an Eat Smart nutrition program featuring shelf tags in every aisle of the store that identify whether a food is a “healthier option,” is “heart healthy,” has “low sodium,” is “calcium rich,” has “reduced sugar” or is an “immune booster”.

IN THE STORES

   Schnuck Markets is testing a format called Culinaria — A Schnucks Market in the retailer’s home base of St. Louis. The Culinaria name will also go on some premium food items when the store opens this summer.

   Spartan Stores is rolling out a line of all-natural chicken for its chain and independent retailers. The range includes breasts, tenders, drumsticks, wings and multiple family packs.

   Loblaw plans to extend its Joe Fresh brand into cosmetics. Beginning next month, the brand will be available in 220 Loblaw stores and in 100 more by the end of this year.

   Metro in Canada is launching a Red Flag Value program that encourages shoppers to buy more store brands as one way to save money.

   Target is introducing the Orla Kiely line of designer home products. The range includes housewares such as a printed laundry bag, hanging shoe organizer and tapered totes. The home décor items range from plates and bowls to placemats and aprons.

   Raley’s has started a competition to promote its private label products. The California supermarket chain asked shoppers to submit a homemade television commercial about why they love Raley’s products. The winner receives $5,000 in gift cards.

   Save-A-Lot is asking its consumers to decide the name of one of its carbonated soft drinks. Shoppers can vote on the Save-A-Lot website and say why they want the name changed from its current Bubba Cola.


MARKET RESEARCH

Retailer poll: Big store brand gains in 2009

   More than six of ten retailer executives polled by Supermarket News expect strong gains in their private label sales this year. A survey of 97 executives conducted last month by the trade publication found that 62% of the respondents expected private label penetration in dollar sales to climb up 2% or more. Only 3% expect their store brand penetration to decrease.
   Most respondents said they intend to engage in more price-focused advertising in 2009. More than one third (37%) plan to engage in significantly more price-focused advertising, and 42% plan to increase their price-focused ads somewhat. These results differ sharply from those of a SN survey of a year ago, in which only 7% said they planned to increase their price-focused advertising significantly during 2008.
   Although supermarkets have been under pressure from consumers to lower their prices, retailers expect most of their relief to come this year in the form of promotional dollars from manufacturers, as opposed to lower list prices. Only 6% of retailers expect vendors to lower prices as inflation subsides, while 65% said they see vendors offering more promotional dollars instead of lowering prices.

Affluent shoppers going private label

   The growth of store brands is accelerating among the most affluent U.S. consumers. Information Resources Inc. reports that for the most recent quarter, shoppers with household incomes above $100,000 were the fastest-growing segment of private-label buyers.
   “Private label is one of the primary strategies that are being leveraged by consumers who are struggling under the recessionary economy,” says IRI. “Consumers across all income segments are really feeling pinched.” Thom Blischok, IRI President, added that, “The private label phenomenon will continue to be a bright spot for innovative retailers that invest in providing a high-quality, convenient, affordable alternative to shoppers.”

PLMA NEWS

PLMA’s 30th Anniversary Celebration at Pebble Beach

   Registration for PLMA’s special 30th Anniversary Leadership Conference will be one of the largest ever for Leadership event. The program, to be held March 26-29 at Pebble Beach, Calif., features top-level executives who have led major retail chains: David W. Bernauer, former Chairman and CEO of Walgreens; and Jim Donald, who was with Wal-Mart, Pathmark and Starbucks.
   The annual PLMA golf tournament will be conducted on the afternoons of March 27 and 28 at the world famous Pebble Beach resort. For more information on attending PLMA’s 2009 Annual Meeting & Leadership Conference click here.

EVENTS

 
March 26-29

30th Anniversary Leadership Conference
Pebble Beach, Calif.


June 15-18

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 2009 by PLMA.
 
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