PRIVATE LABEL MARKET REMAINS ROBUST

STEPHANIE FAGNANI

The proof may not be in the pudding products yet, but it's just about everywhere else: the private label industry is booming.

Bypassing former stereotypes that induced nicknames like 'generic' and 'low-quality,' store brands have established themselves as quality brands, category leaders in some cases. In turn, many retailers have begun to focus creative energies closer to home than they have in the past in an attempt to boost bottom line profits.

According to statistics compiled by research firm Information Resources Inc., Chicago, of 266 categories tracked based on total U.S. supermarket unit sales for the 52 weeks ended April 23, consumers choose store brands as their number one brand of choice in 79, or 29.7%, of those categories (see chart on this page). Among the top private label product lines of choice were crackers, cheese, cotton balls, frozen baked goods, carbonated beverages and dog food.

"The number reflects the decision by the major top 20 supermarket retailers to emphasize their private label programs," said Brian Sharoff, president of the New York-based Private Label Manufacturers Association.

"Kroger has committed 24% of its units to private label. There has been a transition from the last 10 to 15 years when private label was basic private label. In the hands of major retailers, private label is now the retailer's brand," he continued.

In fact, in Kroger's second quarter earnings statement, the retailer credited a solid private label line for its financial success. Kroger added 160 private label items with higher sales margins than national brands during the quarter in an attempt to boost profits, company executives said.

"The market share of private label products continues to increase at Kroger. In the second quarter, private label grocery share was 25.4% in dollar sales, 32% in unit sales for the Eastern divisions. The Western divisions are now at 18% to 20% of grocery sales, up from 16% to 18% at the time of the Fred Meyer merger," Joseph A. Pichler, Kroger chairman and chef executive officer, said during a recent conference call with securities analysts.

Financially speaking, the private label industry has never been more solvent. In both food and non-food segments of U.S. supermarkets, store brands surpassed manufacturer brands in dollar gains from the period between Jan. 2, 1999, and Jan. 2, 2000 (see chart on page 22).

While growing consumer acceptance of private label lines is a factor in these gains, retailers have also been forging into formerly uncharted territory by bringing a number of different product lines into the private label mix.

"Retailers have added a lot of new categories. Dollar gains represent products that weren't private label a year ago," Sharoff told SN.

At Wegmans Food Markets, Rochester, N.Y., the retailer keeps pace with national brand manufacturers while tying into current industry trends, such as the wellness craze, by offering consistency in its multiple private label lines, which include its upscale Food You Feel Good About and Italian Classics lines.

"Private label for us is an opportunity to deliver consistent quality to our consumer," said Peter Hallagan, manager of Wegmans brand. "We want to consistently perform time and again so that when customers try those products there is not elation one day and disappointment the next. They're healthy products and have a healthy identity, which connects to wellness issues. Our goal is to deliver products in private label that even national brands don't have in terms of flavor profile or type."

In addition to new, high quality products, Wegmans tries to keep its store brand packaging modern to keep consumers coming back.

"Wegmans has really been striving for consistency of design among the brands it has and for certain categories it serves. We've moved packaging to those with better functionality and more consumer-acceptable looks," Hallagan said.

In rolling out newer items, Hallagan told SN "We ask 'How can we achieve the consistency of the type of launch that national brands achieve?' You need a full-scale roll-out with all the marketing pieces hitting at the same time."

Like Wegmans and Kroger, Dan Mazur, senior vice president of corporate brands for buying cooperative Topco Associates, Skokie, Ill., said the various retailers his company services, including Giant Eagle, Ukrops and Genuardi's, are very committed to creating more brand equity for their stores through private label lines.

"Generics is a dead issue; private label now means high quality products at substantial savings. It does represent an important part of sales and profit and offers differentiation from the competition," Mazur said. "There has been increasing emphasis on product quality differentiation. Consumers want products that are better than the national brand. There has been better quality in the design area and utilization aspects, like keeping products fresh. There has also been a lot more use of information marketing, through card programs that reward customers," he added.

While private label is clearly defining itself as a top-notch choice for the consumer, the issue of price hasn't been completely ignored, as these labels also offer substantial savings to consumers.

"Retailers need to wonder how to provide value to the consumer. Value for some shoppers is price," said Michael Sansolo, senior vice president, Food Marketing Institute, Washington, D.C. "We can't be all of one thing; we've got to look good, got to taste good and have that all come together with price. Consumers are discriminating -- if they feel the value they've been looking for has been met, you've won them.

"There's a lot of economic disparity in this country and a huge portion that is struggling. For a large group of shoppers the issue is still price," Sansolo added.

Although mass merchandisers like Wal-Mart are tearing up the overseas private label marketplace (see related story on page 28), the genre made the most impressive unit gains in the supermarket channel last year, growing by 20.1%. In drug chain units, private label grew 13.2% in 1999, and in mass merchandise units it grew 12.4% (see chart on page 26).

"We're happy with the growth we've seen. Industry-wide we'd like to see continued growth in quality private label versus price private label. It would help reinforce the image," Hallagan said.

Sharoff told SN the market should remain a robust one for the next several years as retailers continue to distinguish themselves through their own unique brands.

"Over the next 5 to 10 years even smaller retailers will emulate and try to brand themselves. They will need to brand themselves in order to survive," he said.

"The retailer's mindset is on supply chain efficiencies and maximizing profits, not consumer acceptance -- that was last century. The consumer is no longer an obstacle; that part of the battle is over. Retailers are thinking about clear cut profitability of private label in the context of logistical savings," Sharoff concluded.