KROGER EXPANSION MAKES PRIVATE-LABEL BRAND IMPACT

MARYELLEN LO BOSCO

NAPLES, Fla. -- Kroger's recent acquisition of Fred Meyer and subsequent growth in size is the biggest event in private branding in the last decade, according to Mark Husson, senior food retailing analyst at Merrill Lynch, New York.

Husson, who spoke at the Private Label Manufacturers Association's annual meeting and leadership conference, held here late last month, said that as a result of consolidation, the Kroger brand will soon be bigger than Heinz.

"Kroger's private brand program is going to be bigger in dollars than the entire sales of Heinz U.S., even if you take Heinz wholesale sales and gross them up to retail prices," he said. In the last six years, the average percentage of private-label brands at major retailers has jumped from 16.7% to 21.1%, and Husson told the audience that "my general message to you is that industry consolidation in food retailing is going to drive that number faster and faster."

As reported in SN, Kroger has opted for a three-tier private branding strategy, which is a significant departure from its previous position. "Fred Meyer already has this system and so does Loblaw's, but it is unusual," Husson said.

The lowest Kroger tier, now called FMV or full-maximum value, is "a super generic product." Husson said. "The broad band in the middle is local private label products, with the same product inside the tin, while at the top is the premium brand, called Premier Selection, the equivalent of Safeway Select. The three-tier program rolling out in the next 12 to 18 months will be an exciting development," Husson said.

Husson also reiterated that Kroger will maintain its central buying office for private-label grocery in Cincinnati. He added that it is still unclear whether general merchandise and health and beauty care buying will also be done in Ohio, or whether it will migrate to the West Coast.

Husson estimated that one or two centralized buying units for the Kroger company will push through private-label sales of more than $5 billion a year.

Since Kroger will be scarfing up 10 cents of every food retail dollar in America when the new organization is fully operational, "private brand and [national] brand manufacturers will have to cough up some money just for the privilege of doing business with that behemoth," Husson commented.

He also noted that natural-food retailers, such as Whole Foods and Wild Oats, have done an impressive job of creating organic private-label brands, and that Save-a-Lot, a limited-assortment format and a division of Supervalu, now has about 85% of what it sells in private brands. The Save-a-Lot brand undercuts Wal-Mart by about 20%, he added.