Going into their second decade of battle, supermarkets and mass merchandisers are both pulling out new tactics. However, mass merchants have taken the war to a new area and crossed the lines into private label. Here, they are uprooting customer loyalty in some core categories and subtly garnering market share.
Nevertheless, with some altered thinking coupled with defensive, as well as offensive, actions, supermarket retailers are positioned to reclaim some of those losses and market share.
According to data provided by the Private Label Manufacturers Association, New York, supermarkets lost total category unit sales during 1999 in the coffee, cold cereal, pasta, pickles/relish/olives, shortening and oil, soups and tomato products categories. Mere figures cannot give an accurate recording of where those unit sales went, but the second half of data shows unit activity in the mass channel, where the numbers for those same categories are positive.
To complicate matters further, the data implies that private-label sales are partly responsible for this upswing in the mass format. For example, coffee, albeit a commodity, was down 33.2 million units in supermarkets, while it was up 18.5 million units at mass merchandisers. Moreover, the percentage increase in coffee's private-label unit sales at mass was up 20.5%, while it was down 3.8% at supermarkets.
On the flip side, supermarkets reign victorious in other categories, such as bottled juices, bottled water and hot cereal, in which supermarkets show a gain of 76.4 million units in bottled juices vs. 35 million units at mass, an increase of 135.1 million units in bottled water as compared to 66.7 million, and a boost of 12.2 million units in hot cereal against mass' 8 million.
There is a downside to those increases, which is reflected again in the private-label numbers. While supermarkets are far outselling the number of store-brand units, their percentage change is not as great as that of the mass merchandiser, which indicates that private-label unit sales are growing in the mass channel.
According to executives in the supermarket business, this migration toward own brands was expected and is said to be a known strategy of stores such as Wal-Mart, Kmart and Target. Brian Sharoff, president of the PLMA, said, "mass merchandisers are using private label as their strategy tool as well."
He noted another realization that's revealed through the data: that the supermarket industry thought consumers would lose their loyalty to store brands once they began shopping at mass merchants. On the contrary, "they didn't lose their loyalty to the concept of the retailer's brand. They went to Wal-Mart, Target and Kmart and wanted to buy private label, and those retailers have responded with dramatic private-label increases, which the statistics show," Sharoff said.
To the retailers SN interviewed, the mass channel has been quietly charging into private label. There hasn't been a big marketing push, but the products have been available at shelf level, and therefore have been catching the consumer's eye. "They've done it more behind the scenes than they did anything else because they've taken a merchandising philosophy that says the consumer is going to come in and see us because of what we offer in national brands," said Craig Espelien, corporate director of store brands at Supervalu, Minneapolis. "So, their private-label shares have not grown as quickly or to as high a level as say an H-E-B, Kroger or Safeway, because they've never been a prototypical private-label merchandiser.
"[Shoppers] are going to make an actual purchase decision at the shelf based on the value that they find either in the national brands or the [mass merchandiser's] private-label offerings," he said.
An executive at a major regional grocery retailer, who wished to remain anonymous, added that he has seen mass merchandisers "tick off these highly penetrated categories and implement the 80/20 rule." Basically, the 80/20 rule is a theory whereby a retailer takes 20% of the stockkeeping units that represent 80% of the volume and gives those units more display activity in order to encourage consumers to switch where they make their purchases.
"Typically what we've seen is [mass] will drive it with branded so it doesn't cost them a lot of money; they get the vendors to pay for it either through low costs or merchandising support and then they develop a presence in the category," he explained.
One way Bill Carlson, category manager of grocery at Ukrop's Super Markets, Richmond, Va., has seen Wal-Mart specifically develop a private-label presence is by purchasing brand-name recognition. He said that Wal-Mart has purchased the White Cloud label and is planning to use the former bath tissue brand name on a line of private-label diapers. When he looked at the data, he was concerned about the loss in coffee until he looked at his own numbers, which showed that units were up 1% and sales were up 4.1%, which indicated to him that his shoppers had been buying more of the bulk $8 per pound coffee than the $2.19 brick packs he also sells.
Following up an earlier comment about how supermarkets are being affected by mass merchandiser's private-label push, the PLMA's Sharoff said "the supermarket format has not been losing all of this to the mass merchandise format; they've been losing it to another supermarket format, which calls itself a supercenter." "To show that this is not simply wishful thinking, starting next year, [Information Resources Inc.] will retabulate all of their mass-merchandiser figures so that the supercenter numbers will appear in a supermarket format," he added.
In a press release, Chicago-based IRI stated that, with the launch of InfoScan 2000, it will track supercenter data under the grocery channel. "Supercenter data are now included in the Grocery outlet, better reflecting consumer purchase behavior. This change in supercenter placement allows for more relevant fair share and benchmarking analyses for both retailers and manufacturers in the consumer packaged-goods industry," according to the press release.
Apparently the supermarket industry has been asking for this service from the information databanks for a while. "We think it's better because we look at mass including supercenters today and we ask about the supercenters, and nobody is able to tell us," Espelien said. "So, when you start looking at the business space, and coffee's probably a great example, a lot of that growth occurring in the mass format could be in the supercenter format," he added.
"Basically, customers wake up and go buy products. It's just that they want variety in the store. That's why for us to really appreciate who we're competing against, we need to understand supercenters in a grocery retail number and mass. So we believe that was a step in the right direction," the anonymous source said.
To Sharoff, this modified thinking should help supermarket retailers because now they're competing in a realm that they understand; they don't have to entice customers away from an alternative format.
Ukrop's best defense has been its store label because its customer base inherently trusts the chain's name. "Right now our private label is our biggest defense, you may even want to call it offense, against Wal-Mart supercenters because of the price and the quality," said Carlson.
"People really know us in the community as a retailer who gives back to the community. They equate our name with someone who lives, works and gives back to the community, so having that Ukrop's name on our products is a huge selling point," he added.
Such recognized manufacturers as Heinz, Ralston, Quaker and Starkist pack the 27-store chain's store brands, Carlson said. According to him, the quality produced by these vendors helps sell the own-label products, although a competitive price point is important too.
To encourage purchase, Carlson said, Ukrop's offers tastings, and two to three times a year he runs a Ukrop's brand sale.
The advantage for this small operation is that it is regional, has built trust within its consumer base, offers competitive pricing and has been able to secure quality products packaged under its well-respected name.
The source said his stores are better able to compete against the mass merchants in his area because he has the flexibility to offer flavors and products that appeal to the consumers in his market. "For instance, in the sauces and salad-dressings category, we have specific flavored products and we also try to blend coffees that meet the profile of our customers.
"What we're all about is how we can know our customers better. That's how own brand can be a trip driver for us," he said.