ORLANDO, Fla. -- Private label will become a critical weapon for supermarkets to stem the flow of health and beauty care dollars and market share to mass merchants.
That was the message Ray Stone, executive vice president of Allen Levis Organization, Northfield, Ill., delivered to approximately 200 executives attending the Private Label Manufacturers Association's Annual Meeting and Leadership Conference here, March 16 to 19. Over a three-year period beginning in 1992, HBC private label has grown 1.5 percentage points to represent 10% of the total HBC market, according to statistics presented by Stone. Most of the statistics used in Stone's presentation were compiled from Information Resources Inc., Towne-Oller & Associates and Nielsen North America data.
He looked at how private label can affect both supermarkets and drug chains in the sales performance of shampoos, toothpastes, mouthwashes, deodorants and analgesics across all three trade channels.
Generally, Stone's statistics indicated that supermarket sales fell or remained flat for branded categories, but picked up for private label. In branded toothpastes, for example, food store sales fell 1% and drug store sales dropped 1.8% while mass merchants' sales were up 2.8%. However, in private-label toothpastes, grocery sales were up a significant 3.5% and drug stores were essentially flat -- up 0.7%, while sales were down 2.8% for mass merchants.
"Private label will grow mainly in grocery and drug [stores] because those channels will use private label as a weapon to negate the mass [merchants]," said Stone, a former nonfood executive for Dominick's Finer Foods, Northlake, Ill.
For private-label lines over that three-year period, both food- and drug-store market shares are declining, but at different rates, Stone pointed out. Drug stores have dropped from 45.1% in 1992 to 41.8% in 1993 to 40.9% in 1994. Food stores have gone from 35.6% to 35.8% to 35%, respectively. "Interestingly enough, food stores' decline in private-label share is smaller. The grocery industry is really waking up on the HBC side of the business in terms of private label," Stone commented.
Meanwhile, mass merchants' share of HBC private label went from 19.3% in 1992 to 22.4% to 24.1%. "Mass merchants are having less impact with private-label HBC. This is mainly because of their everyday low price on branded product. One of the things the grocery and drug industry needs to realize is that they can neutralize the mass with private label," Stone emphasized.
He predicted that for the three-year period of 1995 to 1997, private-label market share will continue to decline for drug stores from 39.4% to 38.3% to 37.4%. On the other hand, both food stores and mass merchants will increase their private-label market share. Food stores will go from 35.5% to 36% to 36.2%. Mass merchants will grow slowly from 25.1% to 25.7% to 26.4%.
"Food retailers have lost HBC share across all major categories to mass merchants and warehouse clubs. They have regained momentum in several key private-label categories and are starting to gain and begin to build back their market share," said Stone.
He also pointed out that "drug stores have not shown the ability to turn the tide," when it comes to private label. "The drug store industry really needs to look at their HBC program, and their private label," he added.
Total HBC market share declines will continue for the next three years among both drug and food stores, Stone predicted. However, the losses will not be as great as those suffered during the previous three-year period of 1992 to 1994 when market share percentages were as follows for the three classes of trade. Drug store market share declined from 41.3% to 39.4% to 37.6%. Food stores' share dropped from 36.4% to 35.2% to 34.6%. Those losses equalled gains for mass merchants, who grew their market share from 22.3% to 25.4% to 27.8%.
Stone projected market share rates in total HBC volume from 1995 to 1997 as follows: Drug stores would continue to decline from 36.3% in 1995 to 35.6% to 35%. Food stores would drop from 34.2% to 33.9% to 33.7% by 1997. Mass merchants will continue to gain HBC ground, going from 29.5% to 30.5% to 31.3%.
Total HBC dollar sales from 1993 to 1994 were up 3.5%, and mass merchant HBC dollars rose 15.5%. Grocery stores also edged up 1.7%, but drug store sales dollars fell 1.3%. "Drug is taking a major hit and the hit is occurring from mass merchants. Grocery is taking a hit, but not as much," Stone said.
New product introductions offer another opportunity for supermarkets to maintain their HBC business. "New items are essential to HBC sales growth. New HBC items drive total category volume. New HBC items build category sales and share. Food retailers are doing a better job [in introducing new items] and starting to win," said Stone.
To illustrate the importance of new items to HBC, Stone presented the following statistics: For the three-year period 1991 to 1993 there were 3,370 new HBC items introduced at food stores. Presently, those items represent 18% of the HBC market, or $2.58 billion, said Stone. In shampoo alone, new items introduced in that period represent $1 billion in sales or 68.2% of shampoo.
Besides a strong private-label program and being first to market with new products, Stone recommended the following to stay competitive in today's hotly contested HBC battle ground: create a strong merchandising and advertising program, use price comparison programs, monitor supercenter pricing and practice category management. Stone said private label has the potential to drive category management. "Progressive manufacturers and retailers who establish category management leadership will dominate the field and be the HBC winners in the 1990s.