PINE BROOK, N.J. -- Store-brand health and beauty care has begun to show signs of maturation in some large-volume supermarket categories, after having achieved significant penetration rates.
This may slow the overall pace of growth of private-label HBC within the supermarket channel, said Gabe Lowy, a former New York securities analyst who is now president of Lowy Group, a research and consulting company located here.
Among over-the-counter categories in grocery with double-digit store-brand market shares that are beginning to mature are: internal analgesics, reaching 25% of category penetration; vitamins, 44%; cold and allergy, 30%, and laxatives, 24%. In non-OTC categories, diapers and mouthwash have both reached market-share penetration rates of 24% and 25%, respectively.
"The penetration rates of some HBC private labels are already high. When looking at mouthwash, for example, it is running at 25% of the category. At this point, it's pretty much maxed out on the upside. The rate of growth in this category will slow," said Lowy.
In going forward with private label the key for any retailer will be commitment to a marketing program that supports store brands, said Lowy. "The day the retailer decided to put a private label on the shelf is the day they decided to go into competition with the most powerful and savvy marketing companies in the world," he added. Thus, there is still room in many categories to drive private label. However, to get to the next level of market penetration is dependent on the retailer's commitment, Lowy added.
The retailer's object in private label is to raise the margins in the entire category with the greater margins achieved through private-label sales and by gaining more leverage with the branded manufacturers.
"If retailers do a good job in marketing and promoting a private label and it is a successful program they can use that as a lever against the branded companies to extract better margins from them. Thereby, their overall objective in raising margins in the category is achieved," Lowy explained.
Although industry figures show overall private label is slightly lagging in the supermarket channel, Lowy said opportunities for growth in HBC are strong in prescription to over-the-counter switches and in new formulations.
"Growth will come mostly from OTC switches. Other growth areas, not switch-related, are new product introductions and line extensions," he said.
The above category market-share figures can be found in a new report on the state of the private-label industry, researched and written by Lowy. It's his first major study on the industry since he left Oppenheimer & Co., New York, where he tracked private label.
The report, titled "The Store Brands Industry. Growth Brands for the 1990s or Short-Term Phenomenon? Mixed Signals From the Supermarket and the Stock Market," is being launched at the Private Label Trade Show this week, Nov. 12 to 15, in Chicago.
Some obstacles to HBC private-label growth that are inherent within certain categories will challenge its growth. For example, the fragmentation of some categories into sub-categories makes it difficult for retailers to properly position private label within the category.
"The most success private label has, particularly in a start-up situation, is against the single highest volume product in the category. If you have a category that is sub-branded to so many different segments, which one does private label attack?" Lowy asked. He pointed out that private label makes the most economic sense for both retailer and supplier if the volume is sufficient to profitably cover production and marketing costs.
Also, the broad pricing structure that exists in such categories as personal soaps, shampoos and deodorants presents a challenge in gaining private-label penetration. "These are highly fragmented categories and sub-categories with a broad pricing umbrella. When you can buy four bars of Ivory for a $1 there isn't a lot of room there for private label unless it can materially raise the retailer's margin in the category," Lowy explained. Lowy mentioned that deodorant consumers also are "fiercely brand loyal," making it difficult to get substantial switching to private label. "It's hard enough to get brand switching among the national brands, so to try to get someone to try a private label in that category is also going to be more of a challenge," he commented. Cosmetics also presents a limited window, he added. "The major mass market companies have vigilantly kept their price increases in check and in fact have been looking for places to take pricing down," said Lowy. "There are pockets of opportunity, but not likely across the entire spectrum of category," he added.