CHICAGO -- The private-label business at Supervalu is benefiting from a variety of Efficient Consumer Response initiatives that are part of the Minneapolis-based distributor's Advantage program, Mike Wright, chairman, president and chief executive officer, told the Private Label Manufacturers Association here last week.
"As we look for ways to improve efficiency and reduce supply-chain costs, our private-label partners play a major role in our Advantage project," Wright said in a keynote address at the association's annual trade show.
Advantage is Supervalu's attempt to use ECR to streamline systems, improve efficiences and serve customers better, Wright explained. He said private-label sales are getting a boost from two Advantage programs -- activity-based selling and category management. According to Wright, ABS "should dramatically lower the cost of private-label products." ABS separates the cost of goods from the cost of serving retailers by passing on the price of the items, plus all allowances, deals and plant pick-up economies, Wright explained.
A Supervalu spokeswoman told SN last week the ABS program will be introduced in three cities in Supervalu's Midwest region -- Green Bay and Pleasant Prairie, Wis., and Champaign, Ill. -- beginning Dec. 8, with full implementation in mid-January. According to Wright, an ABS pilot in Denver enabled Supervalu retailers to achieve "impressive results, as they quickly saw how a change in their behavior can drive down costs." Those changes included ordering in pallet quantities, requiring less frequent deliveries by using full trucks, combining stops on a route and faster unloads.
On the vendor side, "we saw a need to determine mutual cost-cutting opportunities that would make the supply channel more efficient," Wright said. "To achieve our goal of delivering product along the least-cost path to the consumer, for example, we ask suppliers to offer 'menu pricing' and to jointly identify all costs and savings opportunities." Supervalu's ABS efforts in Denver enabled it to eliminate seven tractors and eight trailers from its fleet there and to reduce miles driven by 338,000 per year while maintaining its sales volume, Wright said.
The Denver pilot also generated more than $4,000 per month in order-selection savings and a reduction of $5,000 per week in overtime, the company said earlier this year.
Category management, another Advantage initiative, has helped increase consumer awareness of store brands, Wright told the PLMA -- despite concerns by some private-label vendors that category management is a tool manufacturer brand managers use to justify the removal of private-label products.
"Category management is an invaluable strategic tool to keep product assortments closely aligned with consumer demand," he continued. "We started implementing category management at Supervalu two years ago, and with more than 1,000 retail customers on board, it's our experience that category management does not in any way discriminate against private label.
"Quite the contrary, it has reaffirmed in objective terms the strategic importance of store brands. It has led many of our retailers to position store brands to the right of national brands because this location helps consumers see the comparative value. And it has led grocers to feature private label more extensively because the products enhance the overall store image and increase sales across many categories."
Since introducing category management in Denver in mid-1995, Supervalu has expanded the program to all regions except New England and the Northeast; the spokeswoman declined to say when it will be added in those areas.
Wright told the PLMA audience that the goals of private-label manufacturers and ECR are the same -- to provide quality products at the lowest possible cost.
Along with discussing ECR initiatives, Wright, who is also the current chairman of the Food Marketing Institute, Washington, stressed the importance of other trends influencing the private-label industry, including the strategic value of private label, opportunities for private label in meal solutions, and food-safety issues.
Though store-brand sales have been strong, increasing 8.3% in supermarkets last year, Wright said retailers should not keep programs status quo. Instead, they should be proactive.
One way to do so is to preserve the three-tiered product mix: value brands, first tier and premium brands. The type of program used should depend on the demographics of each store, he said.
"In some low-income areas, Supervalu has learned that featuring the first two tiers is most effective," he said. "This strategy helps retailers project a low-cost, quality-food image." Similarly, premium brands are featured in higher-income areas to convey an upscale merchandising philosophy.
Retailers, especially independents, also should focus on store-loyalty programs, which Wright described as powerful, competitive tools.
"Grocers have found that private label serves as a binding agent for such programs, with the store-brand name on the card and special incentives for purchases of private-label products," he said.
Along with store-loyalty efforts, supermarkets need to partake in the meal-solutions movement. Citing that consumers are buying nearly half their food in the prepared form, he said retailers should include meal solutions in their private-label strategy.
Many retailers are using prepared foods to help establish their store as a brand. Such programs are often the result of retailer-supplier partnerships to develop signature items that help set a supermarket apart from its competition.
Wright said an important part of meal solutions is safety. He said he believes the United States has the safest food supply in the world, but added that the industry must take steps to tighten its food-handling and sanitation efforts.
Wright said the FMI's recent launch of a consumer food-safety education program is one such strategy. Developed by the Partnership for Food Safety Education, the program is aimed at teaching consumers about the importance of washing hands and surfaces often, preventing cross contamination, refrigerating food promptly and cooking food to the proper temperatures.