ORLANDO, Fla. -- Marketers of national brands had better start worrying about private label.
That's because changes in the marketplace will spur the growth of store brands, according to an analyst who follows supermarket chains. "The combination of [retailer] consolidation and marketing vision is leading to a fundamental shift of power in the supply chain to the person closest to the customer, whose brand the customer increasingly trusts -- and that is the supermarket retailer," said Mark Husson, vice president of J. P. Morgan Securities, New York. He does not believe in the widely circulated notion that private-label growth is linked to belt-tightening by consumers -- in other words, that consumers go back to higher-priced national brands when the economy gets better. "So if it's not the consumer economy that's behind relatively high levels of private-brand penetration, what is it?" asked Husson, speaking here at the annual leadership conference sponsored by the Private Label Manufacturers Association, New York.
When a major shakeup of the retailing industry occurs, he said, a strong private-label program would make the difference in whether a company survives. It would give the advantages of brand exclusivity, leverage against national brands and "a strong gross margin mix with which to discount national brands to prices cheaper than the competition," he said. In addition, Husson said the emergence of retailers as brands is an "irreversible trend. As this happens, it will become clear that the balance of pricing power within the distribution system has shifted to the retailer and away from the manufacturer."
Husson lists the following factors that are changing the dynamics of the marketplace:
· Price: "The national brands had got bloated in their pricing and in their hubris and resorted to huge coupons to generate value impressions. All this succeeded in doing was loosening brand loyalty because you don't always buy a cereal you want if it's at full price and you have a 75-cent coupon for its rival. In addition, the rise of alternative formats has increasingly thrown the emphasis in the marketing mix on price. "Supermarkets have to find a way of getting down on price near where alternative formats are without killing the gross margin. And the best way of enriching the gross margin while creating a value impression? Private brands."
Product Improvement: "The national brands are increasingly getting involved in manufacturing and marketing [private labels]. Packaging is much better and there are a number of well thought-out premium private-brand programs which help to underscore the quality proposition."
Foreign Ownership of U.S. Food Chains: "It is notable that Ahold -- the parent of Tops, Finast, Edwards, Giant, Red Food, and Bi-Lo -- is actively leaning on its subsidiaries to increase sales of private brands throughout these chains through some buying centralization, as well as use of Topco."
Industry Consolidation: "Industry consolidation is driving the penetration of private brands as the big retail brands start to push market share growth through footage expansion, acquisition, and by the collapse and death of smaller competitors."