NEW YORK -- Private label's outlook is rosy, according to Brian Sharoff, president of the Private Label Manufacturers Association here.
roff said. Sub-brands -- brand additions (often carrying the chain's name) to existing private-label programs -- will bolster the image of private-label products, he explained.
That will more than offset private label's 0.3% dip in unit market share to 19.4%, as shown by 1994 sales figures, Sharoff said. He attributed the decline to heavier-than-normal promotional and price-cutting strategies by national-brand manufacturers. And although private label took a slight hit in supermarket unit sales, its dollar volume grew 3.1% to an all-time high of $31 billion. Private label also posted dollar gains of 11.2% in drug chains and 15.9% in mass merchandisers, Sharoff noted.
Supermarkets were particularly vulnerable because branded gains came in categories where private label gets much of its market share, such as soda, Sharoff said, adding that current promotional and pricing activities by name-brand manufacturers probably are temporary.
Two areas cited by Sharoff as ripe for continued gains in private label are health and beauty care (see related stories on Pages 37 and 59) and chilled prepared foods.
SN editors met with Sharoff as he prepared for the annual PLMA convention this week in Chicago. Here are some excerpts from the interview:
SN: You've listed potential growth areas within private label. What overall trends do you see for the segment?
SHAROFF: We are beginning to see the effects of sub-branding. It's a concept that makes a lot of sense and will start to emerge over next five years.
For example, in England, Sainsbury's name as a retailer is certainly well known to consumers, so Sainsbury's name on a package is clearly Sainsbury's product. But as you start to innovate within product categories, you need something a little flashier than the name of the product. Otherwise, you're left with Sainsbury's detergent, Sainsbury's pie crust, Sainsbury's corn flakes, etc. You need something more for your packaging. In line with concept of category management -- but not because of it -- Sainsbury started developing sub-brands. So you get Sainsbury's Novon, a brand name created to unify an entire category of household detergents. They just came out with Sainsbury's Paws for cats and Scout for dogs. This unifies the pet food line.
That sub-branding concept has started to show up in the U.S. Companies like Kroger and Publix have started to use sub-brands for particular product categories. Now Shaw's has Novon, its brand for detergents and cleaners, which is interesting because Shaw's is owned by Sainsbury.
SN: Have others also done it?
SHAROFF: A&P, in effect, is creating sub-brands -- not within categories but by tier. So the sub-brand is Master Choice and the sub-brand is America's Choice. Even though the name of the store doesn't appear in either case, it's the same concept.
SN: Why is it being done?
SHAROFF: You've got to give that product more pizzazz than just the name of the retailer and what's on the inside. It represents a change in fundamental dynamics, which is that a retailer like A&P, which for 30 years said to anyone who was listening, "We are a branded retailer," now clearly is a private-label retailer. A retailer like Vons, which was a branded retailer, suddenly is putting emphasis on private label.
SN: What element is most important in retailer sub-brands?
SHAROFF: I don't think the name of the retailer has to be on the package in order for it to be a sub-brand, but the name of the retailer has to be understood by the consumer.
SN: Many chains are working to consolidate their private-label lines. Doesn't sub-branding fly in the face of that strategy?
SHAROFF: There were plenty of examples of retailers who had a variety of sub-brands for different lines. Those were in the days when private label was offered as a price alternative to a national brand. In that environment, the consumer didn't really look at the private label in terms of quality. They looked at it terms of, "Well, I only have this much to spend." It was a real lock on 10% market share for the retailer.
This [present sub-branding] is different. The retailer makes it clear in the store that this is his brand. The sub-brand just gives the packaging guys something to play around with.
SN: Have sub-brands been limited to premium private-label offerings?
SHAROFF: It's natural that it starts on the upscale side, but I don't think that's where it finishes up. That's a very short use of it. Basically, you're trying to separate your private label from your mainstream. It's going to be category by category. You're going to see private label meet category management in a back alley one day and come out with sub-brands. That is where the category management thing may come out.
SN: What is the status of premium private label?
SHAROFF: Premium private label has proved its point. Its main point was that you could introduce products a cut above those that consumers would buy. From an industry point of view, that was the significance of premium private label. What individual retailers do with it is not that important. Some will undoubtedly replace President's Choice with their own brand. Having seen it work, they'll now do their own thing. Some will introduce the concept to HBC. Some will upgrade a lot of things to be on the same level. Its significance was to set a standard in what you can do.
SN: Has private-label packaging quality been improved? If so, why?
SHAROFF: After a lot of years of circling the target, many packaging companies are beginning to feel at home with store brands. They were uncomfortable because there was nothing to highlight in the package. If all it said was "Sainsbury's Potato Chips," they had trouble with that because the logo was already created and [a bag of] potato chips -- no matter how many different typefaces you have -- still says, "Potato Chips."
If they can get into this sub-branding concept, that is an area they can have fun with, and that is where some of these companies are beginning to move.
H.E. Butt [a San Antonio-based supermarket chain] has been working with Landor Associates from San Francisco. That, again, is part of packaging. That kind of company would never have worked for that type of client 10 or 15 years ago because that type of client -- a retailer -- would never have put up the bucks.
SN: Why have retailers increased their private-label promotional activity?
SHAROFF: It raises the ante when a company like A&P decides to abandon national brands as a strategy and goes into America's Choice. The retailer says, "What do they have that I don't have? I've got everything. What are they doing that I am not? They are promoting more. Then I better promote more." So it probably has more to do with that, keeping up with other retailers. SN: Despite increased private-label emphasis by retailers, private-label unit sales in supermarkets were still down slightly last year. Why?
SHAROFF: The 0.3% decline came from categories where national brands could make a small dent and pat themselves on the back. Since those categories represent such a large percentage of private-label sales, when it rolls back a little, it reflects right through to the bottom-line numbers. But that is not where the growth is in private label. It's in the image the retailer is projecting and no one particular product. A&P is going private label. Kmart is going private label. SN: Does the aggressive pricing by national brands worry you?
SHAROFF: Things that are price-driven like that eventually have to come out of somebody's pocketbook. And it's not the consumers', it's the stockholders'. It's on the balance sheet. There is no way you can sustain an overall price decline in category after category all throughout the supermarket. It just can't be done.
I don't think lowering prices is a long-term solution, and I don't think they do either. I think they're trying to regain the confidence of their corporate officers in their company. They're basically trying to say to the chairman of the board, "We've regained market share. Don't worry, Cott is on the run."