NOTHING TO SNEEZE AT 2003

DAN ALAIMO

With a near constant influx of new, well-known over-the-counter brands, retailers are finding that private-label versions, which sometimes follow in a matter of months at lower prices and higher profits, are effectively keeping the red out.

Among the strongest-selling categories, retailers said, is cough and cold. And store-branded packages of loratadine, the generic version of Claritin, have been moving rapidly off the shelves since they were introduced to supermarkets around Sept. 1, and to other channels last spring.

"The shift from national brands to private label is greatest in allergy/sinus," said Sue Vodika, HBC buyer and category manager, Bashas' Markets, Chandler, Ariz. "Our customer is willing to trade to private label. It is the strongest category I have."

Claritin became an OTC product in December of last year, and store brands of loratadine started appearing in drug, mass merchandisers and club stores in April. It wasn't until late August-early September that loratadine made its way into supermarkets in a big way. At that time, as a result of a patent decision that went against Schering-Plough, Kenilworth, N.J., Leiner Health Products, Carson, Calif., made the drug available to a wider spectrum of retailers.

"The private label that stands out most is loratadine," said Larry Ishii, general manager, GM/HBC, Unified Western Grocers, Commerce, Calif. "Loratadine has definitely taken the cough and cold category, if not the whole HBC category, by storm. There's no question that it is one of the biggest introductions both from the standpoint of product, and its impact on the category, that I've experienced in the business." Like the other executives polled for this story, Ishii was interviewed during a recent conference of the General Merchandise Distributors Council, Colorado Springs, Colo.

"The Rx-to-OTC part of this business will continue to grow. As time goes on, it will continue to be the most important area for us to keep up with, first as branded products and then as private label, as soon as we are able to market those products that replicate the national brands," Ishii said.

Private label has the potential to be more significant for health-related products because usage of such items is not obvious to other people, said Jim Wisner, president, Wisner Retail Marketing, Libertyville, Ill. "In the end, ibuprofen is ibuprofen," he said. "That is certainly less important on the health care side than in beauty or skin care."

Natural products have potential for private label, as well as smoking cessation items, he said. "If retailers are quick to market and if they continue to improve their marketing as individual retailers and as brand managers, there will be more and more category growth for store brands in the future," Wisner said.

"The way to succeed is to be as quick as possible with new item introductions and to follow the manufacturers' national brands when they change their products," said David Lowe, director of GM/HBC, K-VA-T Food Stores, Abingdon, Va. "We found that if we follow quickly, we can retain dollars or grow the category, and our private-label sales are up in the double-digits."

A private label like loratadine does not cannibalize sales of the national brand, Lowe said. "I think it brings more people to the category." In the grocery environment, shoppers are more likely to try loratadine at $5.99 than Claritin at $8.99 or $9.99. "That is taking grocery dollars away from their budget, and we are trying to help them not to do that," he said.

"Consumers are finding more and more with us that the quality is there. The package is similar -- we tell them what national brand it corresponds to on the packaging -- and it is at a significantly lower price. So if they find that they can save money and get the same result, it adds money to their grocery dollars," Lowe said.

Supervalu, Eden Prairie, Minn., has strict quality specifications, said Doug Schwab, corporate director, wholesale health and beauty care, who is based in Chanhassen, Minn. "We target a national-brand equivalent. We have a satisfaction guarantee, a quality assurance statement; we stand behind all our products," he said.

Once, the industry's approach to private label was to wait for the national brand to build equity before spending money on development, Schwab said. But now, "we're a lot more aggressive as far as getting in on the upside of a product as opposed to waiting until it matures and then getting into a private label," he said.

"In private-label HBC, the key would be to continue to be first in the market. We want to be first in line with store brands after the manufacturer has rolled it out and we want them to continue to be quality -- quality still comes first," Schwab said.

As private labels, "cough and cold, and analgesics continue to grow at tremendous rates," said Jeff Manning, managing partner, F&M Merchant Group, Lewisville, Texas. As to the generic version of Claritin, "that stuff will go huge," he said.

"The future is bright and rosy for private-label HBC -- for the manufacturer, the consumer and the retailer. It's all positive," Manning said.

"I think OTC is the big growth in the category as a whole," said Dan Spears, HBC/GM merchandising director, Ingles Markets, Asheville, N.C. "Claritin is probably the biggest OTC launch that we've had in a long time, and Prilosec will probably be as big as Claritin. When you take those two and put them together, that's quite an increase in the dollar ring in that department. And whatever is hot in OTC will be hot in private label and control labels."

The success of OTC private labels corresponds to how well the national brands are established, said Charles Yahn, vice president, Non-Foods Division, Associated Wholesalers, York, Pa. "If they are established as a true brand, as Claritin is, then people are going to try the knockoff -- if there's a 30% price reduction," he said.

At Associated Wholesalers, "our private label sales are up drastically," by 14% this year, and will be up by more than that next year, Yahn projected.

Personal care items are strongest, such as toothbrushes, mouthwashes and skin creams, he said. "As your brand gets accepted [in these products], then people are willing to try the medications. They've been taking the private-label aspirin for years and now they've decided aspirin is aspirin. So I think the same thing is starting to happen in some of the medications. The knockoffs of the new product are always hot," Yahn said.

"Private labels depend on the new product launches," said Tony Pooler, director of HBC/GM, Save Mart Supermarkets, Modesto, Calif. "Every time we have a market leader, that's an opportunity for the private brand," he said, pointing to Claritin and loratadine as an example.

"I think private label is around to stay," said Susan Spring, buyer, W. Lee Flowers & Co., Lake City, S.C. "There are customers that look for a good quality private label."

Private label "is going to continue to be strong and get even stronger," said George Satterwhite, director of nonfoods, Affiliated Foods, Amarillo, Texas. "And it's going to continue to expand as far as items, categories, sizes and flavors are concerned. But they've got it covered now as best they can."