THE NEW PRIVATE-LABEL MODEL

David Merrefield

This is a big week for private labels: Those in the retailing, wholesaling and manufacturing branches of the industry connected with private labels are now gathered in suburban Chicago for the 19th running of the Private Label Manufacturers Association's trade show.

There's no better occasion than the PLMA meeting to take a quick look at private labels to see how they're doing, and at an early indication that private-label development in the United States soon will edge closer to the European model. Indeed, in an interview with PLMA president Brian Sharoff, on Page 35, you'll find Brian asserting that the percentage of distribution of private label in this nation has exceeded France's. European countries have long been considered nonpareil when it comes to private-label merchandising.

A study commissioned by the PLMA shows that total private-label sales in supermarkets increased by 3.1% for the year under study, as compared with the previous year, while branded goods increased by 1.6% in the same trade channel.

Market share of private label is now at 16.1%, up 0.2%, as compared with brand's share of 83.8%, a drop of 0.2%. The recent dollar-share gain caps a fairly steady upward trend that has run for several years. By comparison, the share in 1991 was 13.6%.

These numbers consider full-year 1997 against 1996. The private-label number used here doesn't consider generic sales, which are in free fall -- down 22.7%. The tiny sliver of business retained by generics explains why the share numbers don't quite total 100%.

One important issue spoken to by Brian in the SN interview has to do with whether the recent spate of retail consolidation would drive private-label's numbers even higher than they are now. On its face, that would seem a likely situation since any efficiency-minded retailing group will surely consider sweeping now-scattered private-label offerings into fewer labels, and maybe pump up the importance of those labels.

Brian predicted that private-label's share isn't likely to climb above the 25% mark, although such an increase would represent significant growth.

Here's one way private-label growth may eventuate: National manufacturers are reticent about initiating branded products in relatively small categories, such as natural or ethnic foods, because the cost of wide-scale distribution and advertising would be prohibitive, Brian said.

But, emerging large-scale retailers, such as Wal-Mart, Kroger, Albertson's and Safeway, might be willing to partner with a local manufacturer and give such products a try under regional distribution. Retailers would call the shots about costs, content, quality and so on, then market resulting products under their own labels. This defines the European practice.

Such an arrangement could even lead to increased distribution of private-label products. That's because these retailers will soon be close enough to being national that it would make sense for them to advertise private labels nationally, just as IGA does now.

All in all, it looks like the European model for private label isn't too far off for this country.

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