EXECUTIVE ROUNDTABLE

As SN takes its annual look at the overall state of the private-label industry, statistical evidence develops that shows the market is still maintaining the strong growth trend of several years. This continuous momentum has been aided by the increasing dedication of retailers who encourage consumer loyalty by branding their store through private-label lines, which has proven to reflect positively in their financial bottom lines (see story on Page 58). In light of this, SN asked a number of industry sources to consider the factors that have buoyed this industry, as well as proffer their insights into what still needs to be improved upon to ensure that the market continues its upward surge.

way to boost the bottom line.

MARTIN: The changing attitude of consumers toward private label. Prior to the last five years, consumers wholeheartedly embraced only national brands. They were very wary of purchasing any item that didn't have a national label wrapped around it.

RZESA: The widespread development of premium-class private brands.

O'BRIEN: The upgrading of product and packaging quality to more emulate the brands. Also, it is one area that the retailer can differentiate from the competition.

ESPELIEN: Improved quality. The advent of better quality control practices and the consumer's desire for high quality solutions has led to more retailers focusing on providing higher-quality products -- to the benefit of the entire grocery industry.

SN: What is the most significant way retailer consolidation has impacted the private-label industry?

BERNI: Fewer purchasers from larger resources have improved quality and availability. Retailers like Wal-Mart, Kroger, Ahold, Belgium's Delaize and Safeway have enormous purchasing power, therefore lower prices and the ability to innovate and dominate markets.

WYKER: One of the outcomes of retailer consolidation is the sharing of best practices. What you've seen occurring are the retailers with strong private-label programs transferring their focus on private label to the acquired company. The result has been a greater emphasis throughout the industry on generating private-label growth. The consolidation has also forced retailers involved in the mergers to make strategic decisions about the branding of their store brands. Do they keep the acquired company's brand and begin the process of improving it or do they replace it with the store brand of the acquiring company? The temptation is to create a single brand across multiple retail fronts and enjoy the efficiencies of buying and distribution, but there's a genuine risk, since in new markets the brand must build its image from scratch.

MARTIN: Anytime retailers consolidate and they choose to use the same private label, they gain leverage at the negotiating table on costs of goods. Now, with increased store numbers, all carrying the same private label, they can dictate lower prices from their private-label manufacturers. Attaining lower costs on their private-label line means a gain in their bottom line.

RZESA: The elimination of well-known regional and control-label private brands.

O'BRIEN: The consolidation has done wonders for private label. If you read the interviews of the top CEOs, their top goals are to increase private-label penetration, and we are starting to see that transpire.

ESPELIEN: This has pushed the manufacturer to become better -- both in terms of quality and cost control. If a manufacturer cannot deliver the right product at a price that works, they are not being used for supply, which has led to a lot of manufacturer consolidation as well. In addition, retailer consolidation has identified a need from the manufacturers for more and better consumer-centric information.

SN: Is there currently enough collaboration between retailers and manufacturers to most effectively promote private-label lines? If not, how can these relations be improved upon?

BERNI : No, there is not enough. Although everyday communications through technology has improved, and major manufacturers are providing category management for maximization of profits within a set retail area, they need to increasingly develop programs together. Supermarkets often fail to give appropriate weight and credence to their own private label.

WYKER: Retailers really need to take charge and create the collaboration. Private-label manufacturers are ready to cooperate, but it's difficult to make it pay out for a single manufacturer to run a promotional program. Retailers can create efficiencies, and greater impact, by coordinating the support across many categories, essentially creating a private-label co-op program. Most retailers already have communication or promotional vehicles in place that can be easily adapted to support their private label. The challenge is to coordinate the manufacturer support and deliver a branded message to consumers.

MARTIN: It's getting much better but it's far from perfect. Some retailers still have a tendency to focus their efforts more toward national food manufacturers and less toward the private-label sector. This is evident when you walk their store. You will witness numerous end-displays and front-end displays showcasing national brand items. And on the contrary, you will see very little promotion on private-label items.

RZESA: There is excellent collaboration where manufacturers have chosen to develop private brands as a core or adjunct business strategy. There is significant conflict at the category management level between all retailer control labels and brand-only manufacturers.

O'BRIEN: The collaboration varies. We are in constant contact with our customers informing them of new promotional opportunities and unique ways to sell more product. Unfortunately, there are still a lot of private-label suppliers who quote a price and don't call on the accounts once they are awarded the business. With the new bidding process being held annually it's hard to establish a long-term partnership.

ESPELIEN: No. There are some great success stories but there are still a lot of manufacturers that want to sell an item for a price and a lot of retailers that focus on cost over quality. By working together and focusing on consumer needs, both groups will benefit.

SN: What needs to be done for private label to continue to prosper in the future?

BERNI: Five steps should be taken: Continue to capture trends and respond to the public pulse; offer a variety of new products and innovations; promote in-store; advertise in all media, including electronic; provide in-store taste testings and cross merchandising; and assess and improve packaging graphics within a three-year cycle.

WYKER: I think private label is well positioned to continue to grow, but we'll need to adopt more of a marketing approach rather than being primarily merchandising-oriented. This will require retailers to bring in brand marketing expertise and to do the kind of research and analysis that national brands do to understand how to most effectively market to customers.The promotional tools are there; retailers need to figure out how to leverage those to drive their private-label sales.

MARTIN: All private-label lines need to continue to upgrade their packaging so it has a national look to it. The quality must be there in all private-label items. If you have upscale packaging, you better have top-shelf quality. Otherwise, you will not gain any consumer loyalty in your private-label line. Lastly, retailers need to implement on a constant basis, cuttings in their store that compare private-label brands against their national counterparts.

RZESA: Significant retailer marketing, point-of-sale comparison, sampling and aggressive shelf positioning of the control brands. Also, cooperative co-marketing with brands where opportunities exist to bundle offers.

O'BRIEN: This is a tough question! We need to continue to focus on new products, packaging, promotional needs and increasing the awareness that this is the major brand in most categories.

ESPELIEN: Continued focus on quality, more information sharing among trading partners and competitors (the national brands are the store-brand industry's competitors) and a strong store-brand focused organization (PLMA on steroids) that focuses on store brands -- from a manufacturer's perspective, from a retailer's perspective and from a consumer's perspective.

SN: In your opinion, what are the best store-brand success stories?

BERNI : A&P, who moved from 18 private-label brands to three, and Stop & Shop, moving from a rubber stamp look across categories to national-brand premium presentations. Wal-Mart's Ol' Roy dog food is a howling success. In the U.K., Books Chemist chain now successfully offers 60% private-label products.

MARTIN: The best brand success stories are increased sales in your private-label line, which means a better profit for retailers. Each beginning year, retailers should set a goal of how much of a private-label percentage increase they want to see at the end of the year. Along with this objective, they should strategize a plan of how they are going to achieve this percentage increase.

RZESA: HEB, President's Choice.

O'BRIEN: Obviously the best product line successes are the ones that top the category sales. If you mean customer private-label success stories I would say that there are only a handful that have excelled like Kroger, Wal-Mart, Albertson's, Safeway and Topco. Wholesalers have increased their numbers of private-label items but still face the difficult task of getting the retailers to stock them.

ESPELIEN: HEB, Meijer, Kroger from a retailer's perspective; Gilster Mary Lee, Presto, Malt O Meal from a manufacturer's perspective; and any consumer who understands and takes advantage of the high quality products at a measurable savings to national-brand alternatives.