Sunday, August 10, 2003

Private labels As supermarket and drug store chains consolidate, the use of private labels is growing. Private labels are when some store sells Safeway-branded sugar next to Domino sugar, or Wal-Mart tissue next to the Scotties and Kleenex boxes. We've had private branding for a long time, but lately the phenomenon been growing rapidly. It used to be that private labels were perceived as second-tier products, in terms of quality. This was particularly when the ides of "no-frills" shopping was popular, which their utilitarian black-and-white packaging. But that's been changing. Kroger in 1998 introduced its "Private Selection" house brand, billed as premium brands. Kroger divisions carry hundreds of Private Selection brands (from ice cream to deli meats). These are pushed as the equals of the big brand names. As U.S. chains get stronger and bigger, they can support a major private brands effort. These compete for (and win away) shelf space with all other labels Wal-Mart has been in a leader in this area. Their Old Roy dog food is already one of the leaders in the field, and Wal-Mart's own brand "Parent's Choice" goes head to head with outside brands like Similac and Isomil.. Costco and Target, though primarily dry-goods and home furnishing oriented stores, have done the same. CVS aspirin competes against Bayer; Walgreen's bandages compete with Johnson & Johnson's Band-Aids. What's also happening is the creation of various levels of store brands. Safeway, along with its regular store brands, has created one called Safeway Select, which it offers a premium brands; it has over 1,000 products marketed under this label. Kroger's has three levels of stores brands: FMV, guaranteed to be the least expensive on the shelf; Kroger Brand which they claim as equal to or better than the equivalent leading nation brands; and Private Selection, which represent "the best Kroger has to offer." Why go through the bother? It's been reported that Kroger's, for example, has a 35% mark-up on its own brands, but only 25% on national brands. Private brands are increasingly profitable; what's more, they are often manufactured by the same company that they are competing against. While private brands may be bad enough news for food brands trying to get shelf space, the existence of two or three levels of store brand coffee, say, means even less room for the national brands, and particularly for smaller brands. Supermarkets have started marketing private brands with gusto in areas from salad dressing to cereal and from cookies to pasta. In the old days, they just put the store brands on the shelf. Now they are advertising them. As a result, house brands in some chains are reaching 20% of sales, with a few reaching 40% in some categories. The line between branded products and house products is starting to get blurred. For the oligopolies in each category, the store brand is now the biggest threat, more than the products of their more standard competitors. Indeed, the biggest reason for advertising Oreos or Tylenol is not to tell shoppers it exists nor to gain new buyers, but rather to convince shoppers that the outside label is worth the extra money they pay for it over a store brand. 7:06:44 PM

comment []