Private Label Sales Pressure CPGs: Costco

ELLIOT ZWIEBACH

ISSAQUAH, Wash. - Costco Wholesale Corp. here said yesterday consumer packaged goods manufacturers are starting to reduce prices, possibly in reaction to rising private-label sales.

According to Richard A. Galanti, executive vice president and chief financial officer, “The branded companies are not passing all the savings back yet, but we're starting to see them do so, which is the right thing to do — and it's great for customers.”

He suggested the CPG actions may be in response to the 300-basis-point increases Costco has seen in private label penetration relative to brands during the current fiscal year — increases Galanti pegged at 10% to 15%, compared with normal increases of 0.50% to 0.75%.

“That increased penetration of private label is equal to the decline in the sale of those branded items,” Galanti pointed out. "And until recently, the branded companies seemed content to make more money."

Galanti made his remarks during a conference call with investors to discuss financial results for the third quarter, which ended May 10. Net income fell 29% to $209.6 million in the quarter and 19.6% to $711.8 million for the year to date, while sales fell 4.8% to $15.5 billion in the quarter and 0.7% to $48 billion for the year to date. Comparable-store sales fell 7% overall and 5% in the U.S. for the quarter, and 3% overall and 1% in the U.S. for the 36-week period.

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