DOLLAR ITEMS: A NEW PRICING TIER

DAN ALAIMO

Private label is no longer the lowest-priced alternative in health and beauty care. "Dollar" sections and programs are adding a third layer to many retailers' pricing strategies.

If executed properly, retailers said, sales of dollar merchandise can be incremental business and a competitive weapon, although the traditionally healthy profits on private label could take a hit.

Jay Goble, vice president of merchandising, Valu Merchandisers Co., Kansas City, Kan., sees continued pressure on HBC pricing, with dollar merchandise at the center of the storm. "Probably the hottest trend is the impact of the dollar price point and the value-oriented products, so it's possible that you could actually have a three-tier program of national brand, private label and dollar goods," he said.

At the item level, retailers have to constantly analyze the potential cannibalization and the validity of the retail price point on private label, he said. "So store-brand retails are under siege by a whole new entry price point. How supermarkets react to the dollar price point in their mix, or in the shop next to them, may dictate the long-term viability of their store-brand programs," Goble said.

It's not enough anymore to simply compare a store brand with the national brand, he said. "You also have to benchmark that against other classes of trade at the entity level. It isn't enough to compare ibuprofen to Advil; you've got to understand what the mass merchandisers and everybody else is doing with that retail," Goble said.

Dollar stores haven't affected the sales of private-label products, but they have had an impact on gross profits, said a nonfood executive with a Texas retailer who asked to not be identified. "Where we used to get a 70% to 80% gross, we've had to lower some retails down to a 30% to 35% gross," he said.

"We haven't really felt an impact of dollar products on private-label items," said George Satterwhite, director of nonfoods, Affiliated Foods, Amarillo, Texas. "We were concerned at first that it would cut deeply into the private-label items, but we found that it hasn't. It has just expanded sales in our stores. We haven't found that the consumers are buying the dollar items instead of, but in addition to the private-label items," he said.

"The advent of the dollar store affects all of our business, not just private label," said Larry Ishii, general manager, GM/HBC, Unified Western Grocers, Commerce, Calif. "On the one hand, we don't want to dilute the sales that we have in branded or private-label product, but, at the same time, if we don't meet the challenge of what we call 'value product' in our offerings, then our retailers are going to find that product elsewhere," he said.

However, "the customers who buy 99-cent items are different than the customers that buy the branded and private-label products that we offer in our stores. The 99-cent customer is after a true value" and often a different type of product, as well, Ishii said. "So by offering that kind of product, we are complementing our other programs, maintaining the sales we have in branded and private label."