CHECK IT OUT 1994-10-03

JOHN KAROLEFSKI

NEWS ITEM: Procter & Gamble Co. has filed a suit against one of its customers, F&M Distributors. It charges that the drug store chain is selling store brands in packaging that looks too much like P&G brands. The products are deodorants, cleansing cream and shampoo. P&G also is suing the manufacturers that supply F&M.

Has the competition between name brands and store brands suddenly turned ugly? Have the makers of name brands drawn a line in the aisle? Will this suit lead to others against larger retailers and spark a Cold War in trade relations? The answer is yes and no. First of all, this isn't the first time a supplier has sued a retail-customer over trade dress. It doesn't happen as often as suits against private-label manufacturers, but it happens. These suits aren't discussed at trade shows. They're never mentioned in the same breath as strategic alliances. And they don't receive widespread media coverage. Until now. So what's behind this headline? Part of it is obviously a question of trade dress infringement. P&G feels it has a legitimate gripe that presumably couldn't be resolved behind the scenes. But the public airing of the suit is the real story. It is a warning shot in the battle between name brands and store brands. P&G is serving notice to retailers everywhere that store brands will have to stand on their own merits if they want to take business away from its national brands. No more Mr. Nice Guy. In the larger sense, such action makes one wonder just how alarmed the makers of name brands are about the growing share of store brands. According to Information Resources, market share of private label in 1993 was an all-time high of 19.7% in unit volume. That leaves 80.3% for national brands. But the top 20 manufacturers accounted for 42.2% in unit volume last year. So, store brands are really almost half the volume of that lofty top-20 club, of which Procter is a charter member. Most analysts expect store brands to grow for the rest of the decade. The level of concern over this growth by makers of name brands will rise at the same rate. The level of concern over trade dress is also rising. Paul Field, who handles dress issues for the New York-based law firm Darby & Darby, said more suits are being filed now because the U.S. Supreme Court ruled that nationally branded trade dress can be protected if it is inherently distinctive. Maybe it's a coincidence, but P&G singled out a small company -- F&M has 124 stores -- for a big message to the trade. Filing suit against a major customer -- assuming there were trade dress concerns -- would be risky. That probably won't happen.

Regardless of the size of the retailer, however, this kind of bickering can lead to hard feelings over the long haul. Say the suit is settled out of court, and the packaging is changed (a reasonable scenario). What's the working relationship going to be like between P&G and F&M? Industry observers don't see any benefit in these suits. For example, Jeffrey Hill, managing partner with Meredian Consulting Group, says, "Aggressive action taken against the retail marketplace does nothing but hamper the long-term relationship regardless of the short-term gains secured."

Case closed.