RETAILER FOCUS SHIFTING TO PRIVATE-LABEL SODAS

LUCIA MOSES

NEW YORK -- With the price gap between Coke and Pepsi and store-brand colas widening, some leading retailers will likely shift their promotional focus away from national brands in favor of private label, according to an analyst's report.

Some are even looking beyond the entire carbonated soft-drink category to other beverages that could be better traffic drivers, it stated.

The survey, conducted by UBS Investment Bank, based here, found these opinions by 10 beverage category managers at major retailers represent a shift in attitude since an identical poll was conducted a year earlier. Then, retailers reported they would pursue hot-feature pricing for the category, indicating full price increases were unlikely to be passed on to the consumer.

Looking at all CSDs, most retailers queried said they see store-brand carbonated soft drinks growing 7% to 9% for the next two years or more, with some saying they see private label as having the power to be a destination item that can build their store's brand equity.

Last year, several respondents said CSDs were too important a traffic driver to let their competitors undersell them. This time around, however, some noted they were rethinking using the category as a loss leader, instead looking at faster-growing categories like isotonics, or sports drinks, and water to drive traffic.

Coca-Cola and Pepsi are planning price increases in the coming year, even as volumes remain sluggish. Soft-drink volume declined 4.6% for the four weeks ended Aug. 8, while prices rose 3.5%, according to independent research by Merrill Lynch. During the same period, private-label volume ticked up 5.8%, that report found.

Private-label carbonated beverages represented $13.6 billion, or 6.7% of dollar sales, in supermarkets in 2003, and 11.6% of unit share, said Information Resources Inc., Chicago, as reported by the Private Label Manufacturers Association. Cott Corp., Toronto, accounts for 65% of that share.

UBS said the survey confirmed its belief, also expressed in last year's survey, that private label's share of the category could grow to as high as 20% over the next five years, a view backed up by Costco Wholesale in its fiscal year 2004 earnings conference call.

The vast majority of store-brand beverage purchases are made in supermarkets, although other channels have been eating away at that share, according to a 2003 Mintel International Group report.

Retailers polled by SN agreed that they see more growth coming from bottled water. Yet the embrace of private-label CSDs isn't universal.

Dahl's Food Markets, with 11 Des Moines, Iowa-area locations, has added a private-label water and expanded space devoted to bottled water, in line with consumer demand. However, where soft drinks are concerned, the chain isn't changing its private-label emphasis.

"There is a price gap, but it's no different than it has been the past couple of years," Ross Nixon, the retailer's chief operating officer, explained.

Quality Foods IGA, Schofield, Wis., also isn't upping promotion of its store brand. "You're not going to have any people switching to private label from the national brand," said Thad Streeter, a store manager for the chain's Wausau, Wis., store. Also, the price differential isn't huge, he pointed out. The national brand runs $5.99 to $6.99 for a 24-pack, vs. $5.35 for the same amount for the private-label brand, Jolly Good.

Shelia Kennedy, merchandising specialist at Martin's Super Markets, South Bend, Ind., said the retailer hasn't put a big focus on private label, either, explaining that shoppers are "pretty loyal to the national brands."

Martin's has, however, backed off everyday promotions of the national brands. "It is a traffic driver, but it also is a very big loss-leader category," she said.

In other findings in the UBS survey:

Retailers confirmed others' views that C2 and Pepsi Edge, Coke's and Pepsi's mid-calorie sodas, are flops.

They believed Coke and Pepsi need to expand their premium beverage offerings.

Channel-shifting, diet trends, higher retail prices and lower disposable income were main reasons for weak CSD volumes.

Retailers plan to continue passing on price increases from branded CSDs.