CHANGING CHANNELS

STEPHANIE FAGNANI

Private label still finds its biggest fans in the aisles of the traditional supermarket. But retailers are only as good as their last sale, and there's plenty of aggressive new talent in town.

Alternate venues like warehouse clubs and mass merchandisers are steadily chipping away at grocery's command of private label. A recent category overview from ACNielsen bears this out. "U.S. Trends in Private Label" found the grocery channel enjoyed a 67% share of private-label consumer packaged goods sales in 2002 across all outlets (see chart on Page 34). While this far surpassed the channel with the second highest share -- supercenters with 12% -- it still represented a decline from 1997, when grocery's share was 80%.

Retail's loss was everyone else's gain. Alternate formats like club stores and supercenters reported individual private-label sales increases that surpassed that of the overall channel growth. Dollar stores, for example, increased their private-label sales by 1,082% from 1997 to 2002, while all outlets combined grew sales by 38% during the same period, according to the report.

The changing numbers are also a reflection of what is happening within the private-label industry. As the category gains more respect among consumers, price becomes less of an issue. What began as a generic low-price catch-all has evolved into a black-label, premium standard-bearer.

"A lot of the growth in private label has been in premium items. It's an interesting mix and it will be interesting to see how it shakes out," said Todd Maute, vice president of marketing for Stamford, Conn.-based Daymon Worldwide, an international company specializing in the sales and marketing of private-label consumer products. "I think that from a channel standpoint there is a definite threat for grocery retailers because [competitors] are developing their private-label programs to be a point of difference, and price isn't [an issue]."

Maute said consumers are not choosing where they purchase their private-label items based on price -- at least, not anymore. "I'm not sure that the consumer is going to say, 'Well, I'm going to go to Dollar General to buy private label vs. Stop & Shop,"' he said.

Indeed, premium products were what Albertsons, Boise, Idaho, focused on in launching its Essentia private-label line this year. After a year in development, the retailer rolled out the first 50 items with a concentration primarily on frozen foods, such as striped ravioli with pesto, seven-cheese lasagna and two-meat lasagna, teriyaki-seasoned chicken breasts, bacon-wrapped chicken medallions, cajun-style breaded chicken wings, pizza, country-style ribs and eggplant parmesan. The line also boasts premium cookies and crackers.

"Private labels are one of the fastest-growing segments of the grocery industry, growing at almost twice the rate as traditional national brands," a member of the retailer's corporate brands department recently told SN. "Albertsons recognized the interest consumers have in finding something unique. Our Essentia line gives our customers a premium-tier private label from which to choose."

If price isn't the be-all and end-all of competitive strategy these days, industry sources suggest more concentrated promotional programs may be the key to keeping shoppers from buying their private-label groceries elsewhere.

"I believe, if retailers continue to promote their store brand not just with deep discounting and pricing, but promote it in such a way that it's to build consumer loyalty and trust and confidence, that we will start to see consumers drive past retailer A to get to retailer B's private label," said Gail Zielinski, Homescan account director at ACNielsen, Schaumburg, Ill., and author of the report.

Although some retailers have done a good job with packaging and finding the appropriate price differential for their private-label items, she suggests more could be done regarding cross promotion. Whether it involves additional displays, complete meal-solution centers showcasing private label or more store-brand presence in store circulars, "I think the return could be sizeable [if retailers] make their store-brand presence known, maybe in a category consumers didn't know it was in," Zielinski said.

Once shoppers are keyed into a certain store's private-label offerings, individually targeted promotions could also help prevent them from switching channels, according to Key Wyker, president of Wyker Marketing, Charlotte, N.C.

"Where the industry is headed, from a promotional standpoint, is more toward a focus on top customers, more toward a focus on personalization; all of that is strategically aligned with promoting private label as well. So, in a sense, a retailer that moves down the path of being more personalized opens the door naturally for a stronger promotion of their private label," Wyker told SN.

To that end, Wyker will be launching KwikAd, a targeted e-mail program, with an unidentified retailer in the next few weeks. He described the system as one that will leverage loyalty marketing data with a retailer's weekly specials, and provide each customer with a personalized version of the weekly ad.

"When trying to maintain loyalty, and your focus is on retention instead of attracting new customers, that's exactly the strength of private label. I guess the real message is that, regardless of how well-developed a retailer's product offerings are in the area of private label, they can give their private-label sales a quick boost by simply targeting their top shoppers with messages about the items they buy most frequently," Wyker said.

Indeed, the ACNielsen report found a correlation between private label and purchase frequency. Researchers found that 50% of shopper's trips to the grocery store end with at least one private-label item leaving in their cart. In other retail formats, that percentage was found to be much lower, indicating yet another opportunity for grocers to prevail as the store-brand channel of choice in the future.

"The retailer should be thinking what categories to carry private label in -- or to promote -- so that on all those other shopping trips the consumer is aware of, or has motivation to, purchase private label while they are in the store," Zielinski said.

And, as always, speed-to-market with new private-label products is a sure-fire way to keep fanning the flames of competition among the various channels.

"The grocery retail industry is all about making sure that I'm remaining competitive," said Daymon Worldwide's Maute. "The beauty of private label is that it competes on every single level. So, if I'm a typical grocery retailer in a marketplace and a specialty format comes in, I can create specialty-type items to make sure I maintain my customer base. In a margin-enhanced segment of the business, speed-to-market is everything."

Shifting Sales

Supercenters and club stores are increasing their share of the private-label business, at the expense of supermarkets:

'97 share of '02 share of

P-L $ business P-L $ business

$2MM Grocery 80% 67%

Mass Merch. 6% 7%

Supercenters 4% 12%

Drug Stores 4% 4%

Warehouse Clubs 1% 5%

Dollar Stores 0% 1%

Con./Gas 0% 0%

Other 5% 4%

NOTE: Total U.S.; Homescan; all product groups included

SOURCE: ACNielsen