PRIVATE GAINS IN HBC

MICHAEL SLEZAK Additional reporting Joel Elson

At a time when supermarket margins, dollar volume and unit sales in health and beauty care are under siege by mass merchant competition, private label has become the strongest weapon for fighting back.

Retailers polled by SN said by putting muscle behind their private-label HBC in selection and promotional activity, they have experienced growth and profitability unattainable on branded items -- growth that mass merchants have not been able to squash.

Additionally, the move to value pricing by branded HBC manufacturers in an effort to fend off private-label competition is yet another signal of supermarket private-label HBC strength.

Sales statistics from supermarkets also show the recent boom for HBC private label. Towne-Oller &

Associates, New York, a subsidiary of Information Resources Inc., Chicago, reported private-label HBC sales at food stores had increased 19% over the 12 months ended May 30, 1994, to $1.074 billion. For the same period, sales of branded HBC products rose a mere 3% to $13.041 billion.

"It's the growth center in units and in profits," said a buyer at a Midwestern chain with sales of more than $1 billion, who wished to remain anonymous. "With private label, you are presenting a value to the consumer, plus it is more profitable for the retailer. And that's the name of the game."

Dan Dailey, senior HBC buyer at Carr Gottstein Foods, Anchorage, Alaska, said, "We consider private label very important to our HBC growth and profitability, and would rate the line at 10 in a scale of one to 10 for both HBC growth and HBC profit."

Despite mass merchants' efforts in building their own strong private-label programs, supermarket retailers said they are confident their own store brands will continue to flourish.

Their confidence is based upon the fact that consumers don't seem to shop and compare prices of private-label products as they do with branded items. Therefore, Wal-Mart Stores, for example, isn't as likely to lure shoppers away from the supermarket HBC aisles with its Equate line of private-label HBC.

"Customers don't compare private label, they compare national brands. The mass merchants are competition to consider with regard to private label, but not on the scale they are for national brands," said Dan Van Zant, HBC and general merchandise buyer-merchandiser at C&K Market, a 30-store chain based in Brookings, Ore.

Also, there appears to exist more of a fair product cost to all classes of trade dealing in private label. Unlike nationally branded manufacturers that offer lower product costs to mass merchandisers because of tremendous volume buys, the cost of private label to supermarkets seems to be more on par with the cost to those other alternative channels of trade.

"It's not tough to compete with a Wal-Mart or a Kmart" on private label, explained Allen Karpe, director of pharmacy/HBC at Valu Food, Baltimore. "We buy just as cheap as they do."

Jan Winn, director of HBC and general merchandise at Big Y Supermarkets, Springfield, Mass., added that her store has "not seen any inroads in our private-label HBC by other retailing formats. They seem very weak in this area."

The strategy of supermarkets turning to private label in their battles against Kmart, Wal-Mart and other mass merchandisers was an inevitable one, said Brian Sharoff, president of the Private Label Manufacturers Association, New York.

"Mass merchants have sucked out a tremendous amount of product from food retailers in HBC, because when a mass merchant lowers prices on a national branded item, supermarkets can't compete," Sharoff explained. "Now food stores have to produce something of equal quality at a low price. That's where private label comes in."

With the surge in private label, however, brand-name manufacturers have felt the pinch of competition and, as a result, have made an effort to position themselves as value-priced, too.

Food retailers say this method has met with varying degrees of success.

"The private labels are still increasing their market share," said Karpe of Valu Food. "The private label is still priced low enough to offset [the recent price cuts by] branded manufacturers."

Dailey of Carr Gottstein Foods agreed: "Manufacturers can't get their prices low enough to fend off private label's advances. There's no way they can do it. We promote our private label strongly, and a manufacturer would have a lot of trouble trying to come in and knock off private-label HBC."

One anonymous source from a large Northeastern wholesaler said branded manufacturers have stopped diverter activity and taken control of their inventory since switching to everyday low pricing, but have not managed to stop private-label growth.

The buyer from the Midwestern chain said branded manufacturer price cuts have had little effect on private label.

"The price cuts might switch someone from a Listerine to a Scope, but it won't hurt store brands. If you do have someone who's into store brands and sees their value, they'll keep buying store brands. These branded manufacturers do cut back prices, but it's not that significant," said the source.

Van Zant of C&K disagreed, however, saying national-brand products can stifle private label in some areas.

"The national manufacturers have been quite successful in their attempts to fight the private-label companies. A prime example is with private-label toothpaste," he said. "I'm considering eliminating private-label toothpaste from our set because it has slowed way down with Aqua Fresh taking their cuts in cost and retail. They are now comparable with private-label price and they are a nationally recognized brand. So we're seeing the effects."

Winn of Big Y said, "P&G has been extremely aggressive in attempting to win back private-label HBC shoppers. They have, for the most part, eliminated off-invoice allowances and have made everything a value price. They are competing very hard for the private-label customers and their dollars."

One fact is certain, though: Food retailers continue to step up their efforts to produce and promote private label. Promotional techniques that are traditionally successful with national brands are now being used to boost profitable private-label HBC, retailers said.

In essence, supermarket executives are acting as brand managers for their stores' private-label products. Newspaper ads, shelf talkers, off-shelf and endcap displays are a few of the techniques crucial for maximizing the powerful punch private-label HBC is capable of, they said.

"Just look at the economy. If a product says it has the exact same ingredients as the national brand, which a lot of private label is doing, it's a great savings to the consumer, and there's a lot of gross profit there for retailers," said the buyer at the large Northeastern wholesaler. "So you're crazy not to push your private label and advertise your private label."

Specifically, "complete sign programs are an important tactic to implement and they will bring the consumer to the shelf," the source said. "We always advertise private label because it brings up your gross on your ads. Everybody should do more."

Other retailers are spotlighting private label in their promotions as well.

"We advertise at least once per week on private-label [HBC] in the in-store ads because we make more profit on those items," said Valu Food's Karpe. "We have our own in-house private label. We try to touch upon every category every week. A private-label shaver, toothpaste, mouthwash, toothbrush, cotton, cotton swabs. Each week we'll feature about three different items. We try to cover a range."

Charles Yahn, vice president of general merchandise at Associated Wholesalers, York, Pa., said his stores are "pushing the house brand hard by running ads that stress the amount shoppers save over major brands. We also use compare-and-save signs at the shelf.

"In our case we're not trying to switch shoppers back to national brands. We use a lot of coupons and buy-one-get-one-free for many private-label HBC items and especially for analgesics," he added. "We also highlight the 500 and 100 counts of aspirin and ibuoprofens, which are a good selling size."

Van Zant of C&K Market said that on a quarterly basis his chain "runs a full page ad in the newspaper featuring private-label HBC. And we'll have an ad on a private-label HBC item every other week. At least twice a month there's one or more items we'll promote or advertise in addition to our full page ad. And private-label sales just keep increasing."

The source from the Midwestern chain said promotion is essential to the success of private label.

"One way to promote your private-label HBC is to let the consumer compare [price]. In ads you might say, 'Store brand nasal spray -- compare to Afrin.' The customer knows Afrin is $5.69 and the store brand is $2.99," said the source.

The source added the reason chains are upping promotional and ad spending on private label is "because with the national brands, many of them aren't profitable to promote."

"Why would you put [branded] toothpaste out there when you're losing money on every tube you sell and you're saying, 'Come to my store to buy it,' " said the buyer.

Winn of Big Y said she agreed that the profitability of promoting store brands is an opportunity too important to pass up.

"If you're not being very aggressive promoting [private-label HBC], you will see it just sitting on the shelf," she warned. "If you want to be in the driver's seat with the store brand, you do your best to keep your share, as we've been doing at Big Y. We have store-brand private-label endcaps, which we change with the seasons, and we're very aggressive with this."

Van Zant of C&K said his store uses plastic shelf extenders to increase private-label HBC visibility. His chain also merchandises private label next to national brands to highlight its value to the consumer.

Retailers generally said they pull in profits of between 25% and 50% on their private-label products.