Improvements in store-brand volume are helping private labels surpass their national-brand counterparts
Private-label products are giving national brands a run for their money — and, in many instances, outpacing their growth.
Such has been the case at Wal-Mart, where corporate-brand sales have been growing at 2.5 times the rate of national brands for the past few months, said Eduardo Castro-Wright, president and chief executive officer of Wal-Mart U.S., at Town Hall Los Angeles recently. He expects the trend will continue for “quite some time.”
Likewise, consulting firm Willard Bishop's retail clients are reporting a similar trend, said Jim Hertel, managing director of the Barrington, Ill.-based firm.
“The folks we work with say they're seeing private brand [sales] about 10 percentage points ahead of national-brand trends, so if the private brands were up 5%, national brands would be down 5%,” said Hertel. “Consumers aren't necessarily trading just within the walls of the retailer — since private brands would just be available there, and national brands are carried in a wide number of outlets — but this information is supportive of the notion that people are trading down.”
Although the economy's grip has been unrelenting for quite some time, consumers only recently began purchasing a greater volume of private-label products, Tom Pirovano, the Nielsen Co.'s director of industry insights, observed.
“[This] summer, private label started to take off,” he said during a conference call hosted by Citi Investment Research last month. “It could be a sign that the economy has gotten bad enough that people are starting to shift more [to private label].”
Though store brands have enjoyed five consecutive years of sales growth, these items' momentum had been the result of higher prices accompanied by flat or falling volume, explained Pirovano. Now unit sales have also begun to grow.
Store-brand volume was up 3% in food, drug and mass channels (excluding Wal-Mart) for the 28 weeks ending Sept. 6, according to Nielsen data.
Grand Rapids, Mich.-based Spartan Stores may further capitalize on the trend by expanding its private-label selection, Alan Hartline, executive vice president of the retailer, told SN. Spartan has its eye on Target's corporate-brand program.
“Recently, Target launched a new cereal under its Archer Farms label in a canister with a plastic resealable lid,” he noted. “They also have used marketing with POS tags to communicate the new product, discussing how it won't go stale when opened like cereal packaged in a traditional box [could].”
Another Target innovation that caught Hartline's attention is Archer Farms' frozen oatmeal with fruit in a microwavable container. He also envisions store-brand Center Store items such as cereal and cereal bars that are fortified with probiotics.
Close to 90% of the more than 3,000 store-brand SKUs Spartan currently merchandises are Center Store products. Its offering includes the national-brand-equivalent Spartan Brand, Top Care nonfood items, Full Circle natural and organic products, Aroma Street fresh bakery goods and the store-brand value-tier Valu Time brand.
Sales of certain items, such as the award-winning Spartan Gourmet Coffee, outpace national brands.
“We attribute a significant sales increase in all [store-brand] categories to a combination of the tough economic conditions and the consumer's focus on value and quality,” Hartline said. In recent months, Spartan has increased the frequency of temporary price reductions and has been communicating the value and quality of its self-branded products with in-store signage.
Another new addition to its strategy is www.turntospartan.com. The website is dedicated to private-label recipes, contests and coupons, and also gives shoppers the chance to rate products and read reviews.
“You can find Spartan brands in every room of my house,” says Cheryl B. from Wyoming. “The selection is great and I'm sold on the quality.”
Like Spartan, Publix Super Markets, Lakeland, Fla., has observed an increase in private-label sales.
Although the chain's spokeswoman, Maria Brous, couldn't comment on unit-volume growth, she did say that dollar sales have grown steadily for the past five to seven years, and that price is the biggest influencer of trial.
“Shoppers save an average of 10% to 30% on the chain's goods compared to national-brand equivalents,” said Brous. “From time to time, we run dedicated private-label item sales in our circular, and we also participate in in-store private-label item demonstrations to help raise awareness.”
The retailer also endeavors to build store-brand penetration with its three-year-old Publix Brand Challenge. During six-week promotional periods, which are sometimes held several times per year, a new set of national-brand items is highlighted each week.
Shoppers who purchase these items receive the Publix-brand equivalent for free.
Promoted pairs have included: Hormel Beef Roast, 17 ounces, and Publix Homestyle Beef Pot Roast, 17 ounces; Campbell's Organic Tomato Juice, 46 ounces, and Publix GreenWise Market Organic Tomato Juice, 46 ounces; Hunt's Tomato Sauce, 15 ounces, and Publix Tomato Sauce, 15 ounces.
With promotional strategies like these, supermarkets are effectively converting shoppers to their own brands — but in some cases they may be taking an unnecessary hit on profit, warns Hertel.
Results from Willard Bishop's latest Private Brand Performance Gauge show that overall sales were optimized when private-label and national brands were promoted in tandem. Unit movement and retailer profitability also increased.
“We found that promoting national brands coincidentally with their private-brand counterparts drives better performance overall, and for each of the brands, compared to promoting them alone,” he said. “Promoting them together also increases category excitement and interest among shoppers.”
Hertel explained that when promoting store brands, retailers should aim for at least a 10% discount on the private-label item, while keeping in mind that they must also make as much penny profit per transaction on the store brand as they do on the national brand.
“The discount needs to be enough of a value that it produces incremental sales and volume for the private brand,” he said.
“The penny profit ‘floor’ means that the retailer is financially indifferent between selling the private brand or the national brand. If giving the discount means that they'd have to go beneath the penny profit floor, they're probably better off not promoting the private brand.”
While the current economy is certainly a driving force behind private-label sales, retailers' efforts cannot be discounted.
Wegmans Food Markets, Rochester, N.Y., has developed a comprehensive store-brand program that highlights its self-branded SKUs in weekly circulars and includes private labels in recipe suggestions, cross-promotions, dedicated endcaps and at-shelf comparisons.
The retailer also made dozens of store brands the focal point of price reductions it's put in place in anticipation of cost savings from its suppliers, under a “Just in time for the holidays!” promotion. Wegmans' Cranberry Orange Relish, store-brand Herb Stuffing and private-label granulated sugar are just some of the items that have had their prices reduced, according to Wegmans' website. Seventy-five percent of the 64 products the chain has discounted are store brands.
“During difficult times like these, it's OK with us if we make a little less money,” Wegmans said in a statement. “And, as always, we are committed to offering the lowest price in the market on the items most important to families. We hope these savings will help you enjoy your time with family even more this holiday season.”
The price adjustments could save shoppers $40 to $60 a month, according to Wegmans. It plans to highlight the discounts with shelf signage.
Ted Taft, managing director, Meridian Consulting Group, Westport, Conn., says it's wise to use point-of-sale materials to highlight store-brand discounts amid the endless sea of national brands.
“Retailers are also well served to flag their private-label items on the shelf even when there are no promotions,” he said. “This will call their brands out at the point of purchase and will create a consistent private-label presence across the store.”
Price isn't the only factor they should focus on either, Taft added. He recommends offering great pricing, but also promoting quality.
Wegmans recently instituted an innovative blind taste-test program that pits store brands against national brands. More than 10,000 customers have played a hand in determining winners so far, said Mary Ellen Burris, senior vice president of consumer affairs for the chain, in a recent column.
“Products are identified only with a number, not a name, so neither the test tasters nor store demonstration employees know which products are Wegmans' and which are national brand,” she said in her column.
Winning store brands will be identified on the shelf with “Great Taste Wins” signs. A recent sales circular identified Wegmans Os chocolate sandwich creme cookies, Wegmans Premium ice cream and Food You Feel Good About White (bread) made with Whole Grain as winners of the designation.
Comprehensive descriptions in Wegmans' ads also tout the quality of its store brands and provide insight into their creation. One reads: “Advanced Cleaning Power! Leading the Way to a Bright, New Clean. Our new Advanced Laundry Detergent took two years of development and testing before it was good enough for Wegmans.
“We demanded a detergent with the ultimate in cleaning power. Consumer tests prove that Wegmans Advanced Laundry Detergent is every bit as good as the leading national brand. We guarantee it!”
Targeting consumers is also vital to improving private label, said Brian Sharoff, president, Private Label Manufacturers Association, New York. Sharoff believes that some supermarkets have gotten too passive and are missing opportunities as a result.
“First of all, retailers need to understand who their consumers are. In areas hit particularly hard by the economy, they can offer private label as a way of showing that they care about budget issues,” he said. “If catering to a middle-income base, restaurant-quality private-label products and portion-controlled items are a good idea.”
Once the target audience has been determined and store-brand products are in place, the items must be aggressively marketed to have a true impact. Otherwise, shoppers don't know the more affordable products are there, and supermarkets will become vulnerable to the price rivalry created by high-volume retailers like Wal-Mart, Sharoff added.
— Additional reporting by Julie Gallagher
Promoting store brands together with national brands can improve results overall
|NO PROMO*||PB-ONLY PROMO||NB-ONLY PROMO||BOTH PROMOTED|
|* Indexed figures, with a base value of 100, represent retail adjusted gross profit per item, per store, per week. |
SOURCE: Willard Bishop Consulting