Health and beauty care is becoming a popular target in the expansion of supermarket private-label lines.
The primary reasons for this heightened activity are the potential for increased gross profit, growing consumer confidence in the quality of private-label lines and less direct competition from other retailers on an item-for-item basis.
"The expansion of HBC private label is becoming increasingly important at our stores," said Jim McCarty, HBC buyer for Brookshire Grocery Co., Tyler, Texas, a 99-store chain. "We expanded our private label by about 50% over the past two years. As new private-label items come into distribution, we'll be picking them up as well."
According to Towne-Oller & Associates, New York, for the 12-month period ending June 30, 1995, the dollar amount of HBC private label was $1.2 billion vs. $974 million for the previous year, a 23% increase.
According to Nielsen North America, Schaumburg, Ill., this upward trend is also reflected in total annual sales for supermarkets with an annual volume of $2 million or more. For the 52 weeks ending Dec. 31, 1994, dollar sales for private-label HBC increased 13.8% over the previous year.
Though marketing approaches and expansion plans vary, the common reason for private-label expansion is competition. "Our biggest drive to expand private label was competition. We use private label as a secondary source to drive product and still cut a good gross margin out of it," said Lannie McDaniel, director of HBC and general merchandise for the 14-store Horner Foods, Tulsa, Okla.
"Private label is where the gross profit is today," said Randy Arceneaux, head buyer for Church Point Wholesale Group, Church Point, La., a supplier to 80 supermarkets. "The markup in HBC when it comes to private label is unbelievable. The warehouse makes 25% and the stores makes 40%. Even with the markup, you can still have a 30% price gap between private-label and the national brands." McDaniel of Horner Foods said that another advantage of private-label HBC is that you don't have to compete head-to-head with other retailers on the same item as you must with a national brand.
"We don't focus in on any one segment of the competition. We recognize Wal-Mart and Kmart, local drug chains and other supermarkets such as Albertson's as our competitors," said McDaniel. "National brands have almost priced themselves out of the market," McDaniel said. "We try to gear ourselves to private label for stable day-in and day-out HBC business. First of all we try to offer good quality at a good price."
"We try to expand our private label a bit at time," said Mark Beyer, HBC buyer at Copps Corp., Stevens Point, Wis. "It seems to be a growing area. We are part of IGA, so we use the IGA private label in most of our stores. Right now, we are adding to analgesics and first aid. Recently, we put in about 17 new items."
When asked whether the expansion of private label could cut down on the national brands carried, Beyer said, " We always purge slow movers. As private label grows it is likely that national brands could become the slow movers and then they would be squeezed out by the private labels."
Dale Green, HBC buyer for Houchens Industries, an 84-store chain in Bowling Green, Ky., said, "Overall, we've had increased activity in our HBC private label -- we've put more emphasis on it in pricing, and in-aisle and other displays, and we've increased our advertising." Houchens runs "compare and save" promotions so that consumers can compare its private-label products to national brands. "The future of private-label HBC appears to be growing here, and I think it will get stronger," said Grant MacLean, director of HBC and general merchan-dise at Rosauers Supermarkets, Spokane, Wash. "We now carry several hundred HBC items in our Western Family line and we expect to bring other products in as they become available through the Western Family pipeline. As new items come in, they will take the place of national brand items."
At Brookshire's, the biggest entry of new private-label HBC items has been in the area of antihistamines, Tylenol-type products, aspirins and ibuprofens, McCarty said.
"I envision strong sales and continued growth as long as the new items are of good quality," McCarty said. That's what brings the customers back. Not that it's cheaper or a look alike of a national brand, but that it is good," said McCarty.
Shari Steinbach, spokeswoman for Spartan Stores, Grand Rapids, Mich., said, "The switch of prescription medications to over-the-counter products should be a real benefit to HBC private label, especially as patents expire." Spartan, a wholesaler servicing 500 stores, noted considerable expansion in cough-and-cold, especially children's cough-and-cold, incontinence products and deodorants.
"Private-label HBC offers increased profitability to our retailers as they continue to compete with discounters and mass merchandisers on branded products," Steinbach said.
Quality is another prime reason for the growth of private-label HBC.
"Today, with the growth of private label, it's a fact that in many categories private labels are the category leaders," said Tuck Jasper, president and CEO of Shurfine, a private-label procurement and distribution company, North Lake, Ill.
"We just redesigned our whole Shurfine HBC line for supermarkets in the last year. And we have given a very distinct look to it," Jasper said. "We strongly promote an individual image for our private-label lines because we think it's important to have a private-label identity that the consumer recognizes." Private label is essential for competition against the supercenters and mass merchandisers, according to Jasper. Mass merchandisers have squeezed the margins out of the national brands, so private label is where the profit is, he said. "Our new private-label line is a tremendous program and the growth has been far beyond our expectations," Jasper added.
Shurfine retailers run "compare and save" promotions featuring Shurfine private-label HBC lines, said Jasper. A percentage saved or amount saved is clearly printed on the shelf tag.
Brian Sharoff, president of the Private Label Manufacturer's Association, New York, said HBC expansion is a growing trend among supermarkets.
"Once a supermarket retailer establishes a strong brand identity in HBC and it begins to make a clear and strong statement to the consumer, it is inevitable that the next step will be to widen the product assortment. This is what the drug chains have done. And supermarkets will follow," he said.
