Price competition doesn’t stop  
store brands from trading up

Annual Washington Conference  
will be held on September 19-20

Store brand quality takes the spotlight  
on ABC’s “20/20” report
September 19-20
Washington, D.C.

Annual Washington Conference

November 13-15

PLMA’s “Store Brands Celebration” Trade Show

Price competition doesn’t stop  
store brands from trading up

While there’s no denying the presence of pervasive retail price competition, there’s another trend taking place—the proliferation of product lines, often private label, which offer higher quality and higher price points.

The biggest stage for this drama is the epicenter of low-price retailing—Wal-Mart. Every month, it seems, there is another announcement out of Bentonville about the introduction of product and packaging upgrades. For example, Bruce Peterson, Senior Vice President, recently reported the chain was adding gourmet items and more upscale packaging to its Sam’s Choice private label food range.

The trade up also is evident on the nonfood side. Wal-Mart announced with much fanfare, the introduction of its upscale Home Trends Select line of bedding and bath products in more than 1,000 stores. The new products are part of an effort to make the company more trend-conscious, according Paul Beahm, Vice President, Divisional Merchandise Manager.

These moves don’t surprise one retail analyst, who declared: “Wal-Mart is facing new reality: Its customers want more than just the lowest price.” Wal-Mart is hoping that its expansion into higher-priced, trendier merchandise will help make it less vulnerable to the economy’s fluctuations, analysts say. The new merchandising, which Wal-Mart says has gotten good reaction from customers so far, aims to get more affluent Wal-Mart customers, who tend to shop just for groceries, to cross over to the other side of the store.

The new merchandise direction is primarily aimed at Wal-Mart’s arch-competitor—Target, the epitome of trendy discounting. Bloomberg News Service reports that Wal-Mart “has been losing sales to Target, the No. 2 U.S. discount retailer, because of a lack of fashionable styles.” Bloomberg goes on to say that Wal-Mart is “is fighting back with merchandise like the Home Trends Select line of products and efforts to make shopping more pleasant.”
Patricia Edwards, Wentworth, Hauser & Violich, believes Wal-Mart must jazz up its assortments. “They can retain the business they’ve got with the model they’ve got. They can’t get the higher demographic groups in there on a regular basis.”

Meanwhile, Target keeps sharpening its appeal to a higher-income customer with affordable fashions and home merchandise from designers including Cynthia Rowley and Isaac Mizrahi. Interestingly, Wal-Mart has just promoted an ex-Target official, John Fleming, to the post of Chief Marketing Officer. “The longer-term thing we want to do is put more energy back into the brand, which stands for value and trust,” Fleming said. “We’re going to look for ways to broaden the message to more of our customers that we have quality products. We’ll look for ways to go beyond opening-price-point businesses and target key customers,” he said. “We’ll move more toward customer solutions.”  

While the retailer will continue to showcase its associates and “good works” programs in its ads, “our product focus needs to be more on creating solutions for customers needs, and show them how they work together,” he said.  

The trade up trend is not confined to just Wal-Mart and Target, however. For example, Costco has introduced a co-branded line of cosmetics, which “is part of its continued effort to boost profits by bringing in upscale products for customers,” says Jim Sinegal, CEO.

Industry analysts point to a broad trend toward more upscale private label products. “As consumer acceptance of store brands has grown, retailers have narrowed their price gap with the national brand, while improving the way they promote these lines,” IRI reports. “Retailers are beginning to find they can narrow the price gap with national brands and charge higher premium prices,” said Jon Hauptman, Vice President, Willard Bishop Consulting, “With advances in packaging and graphics, some of these items are looking increasingly upscale.”

Annual Washington Conference  
will be held on September 19-20

PLMA’s 2005 Washington Conference will focus on key private label issues—ranging from the impact of packaging regulations, the future of legislative and regulatory initiatives, and the growth of international trade. This year’s Washington Conference will be held Sept. 19-20.  

The event will feature a special presentation by a former Wal-Mart lobbyist, Erik Winborn, who will outline strategies and tactics to change government policies and offer recommendations on private label concerns.

A senior official from the Food and Drug Administration, Clark Nardinelli, will give a briefing on the prospects for future label changes and their possible economic impact  
on private label manufacturers.

The impact of Chinese exports to the U.S. and the issues of international trade and sourcing will be analyzed by Frank Vargo, Vice President, National Association of Manufacturers. In addition, a briefing on the outlook for the economy will be presented by an official from the Joint Economic Committee of the U.S. Congress.

PLMA’s annual Legislative and Regulatory Report will cover both food and non-food topics, such as country-of-origin labeling, trans-fats, and slotting allowances. The Annual Washington Conference also will feature presentations by veteran political analysts who will provide an insider’s perspective on the important changes in Washington.  

On Monday evening, the Opening Dinner speaker will be TV commentator Fred Barnes, co-host of Fox’s “Beltway Boys.” He will provide insights into the inner workings of Washington.  

On Tuesday night, PLMA’s annual “Dinner with…”guest will be Ed Rollins, campaign manager for President Ronald Reagan’s reelection and a Republican campaign consultant.    

On Tuesday afternoon, a series of PLMA Task Force and Committee meetings have been scheduled.  

The Conference will be held at the Holiday Inn on the Hill and kicks off with the annual golf tournament at the Springfield Golf and Country Club, Springfield, Va. For more information, call PLMA at (212) 972-3131.

Store brand quality takes the spotlight  
on ABC’s “20/20” report

Usually it’s the big national brands that take the spotlight on network television. Recently, though, private label became a star performer, getting positive exposure on one of  TV’s most popular national news programs, ABC’s 20/20.”  

The news program focused on the quality of store brand food as part of an extensive report entitled, “Food: Myths, Lies and Straight Talk.” One of the myths examined during the segment was the claim of national brand superiority over store brands.  

The show conducted a blind taste test among shoppers in a supermarket in New Jersey. Shoppers were asked to compare leading national brand products with store brand competitors from different retailers from various U.S. regions in six categories.  

The result? “The adults in our random sampling had a difficult time determining which was the store brand and which was the national brand,” said the “20/20” reporter.  

“One woman who told us she hated store brands ended up liking them better four times out of six. The big name national brands failed to score a knockout. The humble store brands held their own—or were even preferred—half the time. The real difference is in the price. The six national brand products in the taste test cost about $33, while the store brands cost $23—almost 30% less.”

Soon after this broadcast, “20/20” followed up with another, more limited consumer taste test that focused only on bottled water. A store brand product, Kmart’s American Fare, ended up winning over some of the most heavily promoted brands—Evian, Aquafina, Poland Spring, and Iceland Spring. The results prompted consumer reporter John Stossel to advise: “Bottom line, if you buy fancy brands because you think they taste better, you’re probably just buying the hype.”

The multi-category “20/20” results parallel a much more extensive taste test sponsored by PLMA and conducted by Meyers Research Center. In double blind tests held in ten locations from Boston to Los Angeles, consumers preferred the taste of private label products to national brand versions by a 51% to 49% margin across twelve popular product categories representing the three daily meals. Within each category, two private label brands and two national brands were sampled. Testing involved about 1,800 overall category decisions and the taste test was concluded in December 2004.  

For a typical breakfast of raisin bran cereal, orange juice, French roast coffee or iced tea, the consumers by a considerable margin preferred the taste of private label products. They selected private label raisin bran over national brand versions by a 62% to 28% margin; and gave narrower but significant preference for store brand orange juice, French roast coffee and iced tea mix. In snacks, consumers scored private label about the same as national brands in several categories

The survey taste-tested leading national brands versus counterpart store brand  
products from chains such as Wal-Mart, Kroger, Safeway, Albertsons, Target, Publix, Shaw’s, Trader Joe’s, and Weis, among others. Test locations were in Boston, Massapequa, N.Y.; Baltimore, Atlanta, Tampa, Dallas, Chicago, Minneapolis, Tacoma, Wash., and Los Angeles.  

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