MAY 2009

VIDEO INTERVIEW

PLMA Live! interviews Jim Donald, former CEO of Pathmark, on what's next for retailers and store brands. CLICK HERE TO PLAY VIDEO INTERVIEW

de MARKET RESEARCH
Big drop in new products

de

UPCOMING EVENTS
Executive Education Program,
St. Joseph’s University,
Philadelphia, June 15-18

More than 90% of supermarket companies plan to add store brands

  Almost all supermarket chains, more than nine of every ten, plan to increase the number of store brand products they carry in the coming year, according FMI’s “Annual State of the Industry” report. Not only are retailers investing in new product development, but they also are giving a high priority to their own brands. FMI reports that nine in ten of the retailers polled said they are promoting store brands as a core competitive strategy.
   The 2009 Industry Speaks study finds that store brand products now comprise 9.7% of the items carried in a typical supermarket, up from 8.1% in 2008 and 7.5% in 2007. Private label sales increased 10.8% in the most recent fiscal year—more than twice the industry’s overall growth rate and well above the 2.5% growth rate for manufacturer brands.
   Overall supermarket industry sales increased 5.2% in 2008, and identical-store sales rose 4.5%, but these gains were offset by the 5.7% food-at-home inflation rate last year. FMI reports that industry net profits decreased to 1.43%, from 1.82%, as companies competed more intensely for fewer consumer dollars in a recessionary economy.

Private label also gaining in low-penetration categories

  The surge in store brand sales is spreading to categories where private label has traditionally had a hard time gaining traction, reports Nielsen. Its new report on store brand trends identified nearly a dozen categories where such a shift to private label is occurring: hair care, skin care, baby food and care products, household cleaning, cough & cold, oral care, antacids, whole bean coffee and tea, cooking sauces/glazes, breath fresheners, carbonated beverages and feminine hygiene.
   These market share gains are part of a larger trend, according to Nielsen, as “consumers are increasingly turning to store brands as the economy weakens.” For the latest 24-week period, overall store brand unit sales climbed 5.3%, compared to a 4.4% decline in national brands. The drop in national brand sales was even more dramatic in the most recent 4-week period, falling 7.2%.
   Nielsen identified consumables as the key driver of store brand growth, coming in the dry grocery, dairy, packaged meat, fresh meat and fresh produce department. By contrast, the strongest performance for national brands came in general merchandise, non-foods, health and beauty and dry grocery.

Target goes on the 'up & up'

   Target is dropping its namesake brand and familiar bull’s-eye graphics. The Target brand is being replaced by the “up and up” brand, which already is on more than 700 products. The number of “up & up” products will increase to about 800 by the end of the year. Target has added baby food and laundry detergent to the brand and is seeing better-than-expected sales.
   The package design features a big, colorful arrow on a white background that says “up & up.” A Target official said, “We believe that it will stand out on the shelf, and it is so distinctive that we’ll get new guests that will want to try it that maybe didn't even notice the Target brand before.”
   “Up and up” has been about a year and a half in the making. Renamed products began appearing in March, and the line will be rolled out across 40 product categories by autumn. The brand will be promoted in weekly advertising circulars, online and in stores.
   The new brand may take the place of secondary and tertiary manufacturer brands. “Name-brand items that are not the No. 1 or No. 2 product in their category could be replaced by an up & up item,” according to Target.

 

The battle for center store heats up

   National brands are stepping up their promotions and advertising for center store categories. Some marketing analysts claim the investments point to a revival of center store sales. Others say the national brands are trying to stop market share losses to private label.
   “Recognizing recession-weary consumers are buying more shelf stable products, Del Monte, General Mills, Kraft and others are focusing their marketing and R&D efforts on the formerly unsexy center of the supermarket,” writes Brandweek. Del Monte recently began advertising its canned fruits and vegetables line for the first time in 10 years and Kraft has begun running “portfolio” print ads for its dinner products for the first time ever.
   But a marketing columnist for the New York Times suggests the increased marketing activity has more to do with winning back cost-conscious shoppers who are switching to store brands. “That means advertisers concerned about losing market share must make persuasive arguments about the value propositions of their wares.”

CVS adds 200 private label SKUs

   CVS added 200 private label products in the first quarter of this year, helping to push up market share for store brands at the drug store chain. Tom Ryan, Chairman/CEO, told retail analysts, “Private label sales were 15.4% of front end sales, up about 60 basis points, and to take advantage of the growing willingness to try private label, especially in this economy, we’re introducing a store brand proprietary ‘try me’ section in over 4,500 stores.”
   Ryan expects “private label to grow to be about 20% of our front end sales over the next several years.” The growth of store brands comes at a time when front end business is strong. “In our core CVS stores we continued to gain share versus food, drug and mass competition.”

Store brands climb as Safeway moves to EDLP

   Safeway is moving steadily to an everyday low pricing program, a strategy that often is thought to help national brands and hurt private label. But this isn’t happening, according to Steve Burd, Chairman and CEO. “We are seeing more trade dollars coming from national brand vendors,” he said, but “corporate brand items carry great price points and in this kind of economy, consumers are turning increasingly to those brands.”
   “We continue to make major share gains in private label,” he told Wall Street analysts. “We are outpacing the growth in national brands by 1000 basis points. And so that says a lot. And I don’t see that dissipating. I don’t expect that number to be much different in quarters two, three and four. And I’m not sure it’s going to be different in 2010.” Turning to the chain’s move to EDLP, Burd noted: “We’re selling less on promotion than we were a year ago, whereas most people are selling more on promotions, which I think confirms that the everyday price investments we’ve made are in fact getting the attention of consumers.”

Albertsons, Hy-Vee, Price Chopper offer Safeway brands

   Three regional supermarket chains—Albertsons, Hy-Vee and Price Chopper—are carrying private label ranges being marketed by Safeway. Albertsons is carrying more than 100 O Organics and Eating Right products. The rollout involves only the 240 Albertsons LLC-operated stores, not Supervalu-owned Albertsons banners. Hy-Vee in Iowa and Price Chopper in New York are now offering the Eating Right line of foods.
   O Organics and Eating Right will also being sold overseas at ShopRite in South Africa and Exito in Colombia. The brands are offered at retailers in Taiwan, Hong Kong, Singapore, Mexico, Chile, the Philippines and Saudi Arabia.

A&P increases private label at Pathmark stores

   Private label penetration is poised to increase sharply at the Pathmark supermarkets acquired by A&P. “We’ve started of late making some changes and I think one of the biggest things to help us is our private label,” Eric Claus, A&P’s President and CEO, told analysts. “We have some very aggressive private label penetration plans” that include new pricing that will widen the gap with national brands.
   He also said A&P’s Food Basics format is an important factor in future growth. “Of all of our concepts, it would definitely be the price leader,” Claus noted. “We focus on more private label. We have a very different selection of private label in those stores, although we commonly share the America’s Choice. You will find much more proliferation of our Smart Choice, which is our entry price point private label.”

Whole Foods brands score big with bloggers

   Bloggers are apparently becoming a factor in store brand marketing. J.D. Power and Associates, the well-known monitor of quality for automobiles and other consumer products, has just completed an analysis of 50,000 blog entries related to grocery store brands over the course of a year.
   The survey revealed that 73% of comments made about Whole Foods private label products were positive. That’s the highest percentage achieved by any food retailer’s store brand. Safeway took the number two position, with 45% of comments related to its store brands being positive. Trader Joe’s was third with 41% positive comments, followed by Sam’s Club (40%) and Kroger (39%).

Walgreens tests reduced SKU plan

   Walgreens, will test a reduced-SKU program in 35 stores this spring. The pilot stores will feature about 15 to 20% less assortment. Shelf heights will be lowered, and the store layout will be designed to be easy to shop. Products will be arranged by brand and complementary items sold next to each another. More emphasis will be given to core categories like skin care and cosmetics.
   Senior Vice President and CFO Wade Miquelon said the new format will eventually be expanded to include all the drugstore chain’s stores. In addition to streamlining the assortment—which management hopes can reach a 30% reduction over time—the format has an expanded selection of convenience food and staple items.

Best Buy brings store brands to electronics

   Private label hasn’t made much headway in consumer electronics categories, but this may be about the change. The nation’s largest consumer electronics retailer, Best Buy, has announced it plans to rapidly expand its store brands business to gain an advantage over competitors such as Wal-Mart and Amazon. Best Buy believes it can succeed by using the customer feedback it collects from its stores to make innovations in established electronic categories. Sales of Best Buy private label electronics advanced 40% during the fiscal year ending in February.

Private label share climbs to 25% at Harris Teeter

   Store brand penetration at Harris Teeter has climbed to 24.8%, an increase of 62 basis points over the prior year, according to Thomas W. Dickson, Chairman and CEO. “These periods of continued economic uncertainty, rising unemployment and declining consumer confidence are changing our customers’ spending habits and shopping demands. Therefore, we have been enhancing the overall value we deliver to our customers.”

Loblaws diapers go green

   Loblaws in Canada is launching its President’s Choice G.R.E.E.N Diaper by providing 60,000 free samples to child care centers and parents across the country. Parents also received a coupon redeemable for a free pack of up to 60 PC G.R.E.E.N diapers at their local Loblaw retailer, in the size that best fits their child.

IN THE STORES

   Winn-Dixie reports that private label penetration has climbed to 21.8%, an increase of 110 basis points compared to the prior year. The supermarket chain has completed packaging and label redesigns for more than 2,000 store brand products.

   Supervalu reports private label penetration has climbed to nearly 18%, up from just 15% two years ago. Compared to the fourth quarter 2008, penetration increased about 150 basis points.

   Walmart Canada is expanding its Greenline range of environmentally-friendly cleaning products to include a phosphate-free dish soap, dish detergent gel and dish detergent tabs.

   BJ’s Wholesale Club’s private label sales per week per club for the average item increased 15% annually, estimates Warehouse Club Focus newsletter.

   Meijer is introducing a range of 75 food items under the Meijer Naturals brand. The products contain no genetically modified organisms (GMOs), high fructose corn syrup, artificial sweeteners, added hydrogenated oils, trans fats, artificial food colorings or flavorings, or artificial preservatives.

   Walgreens has launched a direct-to-retail merchandise program with Marvel Entertainment involving comic book characters such as Spider-Man, Iron Man, and Hulk.

   Tesco plans to open between 60 and 70 Fresh & Easy Neighborhood Markets this year, although the UK-based retailer expects losses to continue until the economy recovers.

   7-Eleven is introducing 23 snack items, including traditional potato chips, pretzels and tortilla chips. Take-home sizes of potato chips with $1.99 and $2.99 price points will join the single-serve mix. The assortment of salty snacks will add nut and trail-mix offerings.

   ShopRite, the New Jersey-based supermarket group, has started a shopper rewards program as part of a larger effort to create an online parenting network. A web site will offer online surveys, polls and message boards.

   OfficeMax has introduced a product line by Peter Walsh, a TV personality known as a “Professional Organizer.” The line, called [In]Place System, includes document wallets and file folders, portable file totes and rolling case files.


 

MARKET RESEARCH

Big drop in new products

   The recession is putting the brakes on new product development. According to Mintel, new food and beverage product launches fell 51% to 2,660 during the first quarter of 2009 compared with the same period a year ago.
   Mintel reports that there is typically a decline in launches at the beginning of a recession and a sharp increase upon signs of a recovery. Mintel says, however, that this year’s drop was significant, as it comes on the heels of a 32% decrease in all product launches during the first quarter of 2008. The biggest drops were in non-alcoholic beverages, down 56%; chocolate, sugar and gum confectionary, down 55%; and dairy products, off 60%.

PLMA NEWS

PLMA plans a second food safety training course

   PLMA is planning its second food safety training course after attendance for its first such event in April exceeded all expectations. The initial course was attended by 70 representatives from manufacturers and retailers. The two-day event, “Implementing SQF 2000 Systems,” was devoted to implementation of SQF (Safe Quality Food) standards.
   The course curriculum gives participating companies the information and knowledge they need to achieve compliance with SQF 2000 Code for manufacturers and distributors. The course is conducted by Silliker Inc., a well-known company that provides food safety and quality assurance services. For those who didn’t attend the event in April another two-day training course will be held during PLMA’s annual Chicago trade show in November.

EVENTS

 
June 15-18

Executive Education Program
St. Joseph’s University
Philadelphia

November 15-17

Private Label Trade Show
Chicago


   
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.
 
Return To: Previous Screen