SCOTTSDALE, Ariz. -- The drama of new and improved store brands contesting with national brand groceries is not limited to the supermarket stage, but will be played out in the growing supercenter arena as well, said retailing experts at the Private Label Manufacturers Association Leadership Conference, held here in mid-March.
The meeting's goal was to explore what the next moves would be on the part of private-label suppliers, national branders and retailers. The supermarket/discount hybrids being opened by Wal-Mart and Kmart surfaced repeatedly, cast as likely formidable and creative forces in merchandising, and likely to be courted by both sides of the brand equation.
"These guys are using branded products to make a point, that they are a better place to shop than supermarkets," said Sydney Doolittle, founding partner and president of McMillan/Doolittle, a retail research and consultancy firm based in Chicago. Doolittle was a speaker at the conference.
As supermarket retailers are "establishing their dominance" over the food industry, in part by wielding successful store brands, "the big packaged goods companies have aligned themselves with the alternative classes of trade," said Burt P. Flickinger 3rd, management consultant with A.T. Kearney in New York, who delivered the keynote.
Flickinger said the discounting giants, particularly Wal-Mart, are "outstanding" merchandisers.
"Wal-Mart does a fantastic job with national brands and its own labels. Fifty percent of its business will be in food and beverages at the end of this year," said Flickinger. "People say the great thing about the clubs and the Wal-Marts is they are all branded, but that is changing. There is a huge place for exclusive brands on all those retail properties."
He urged private-label manufacturers, "Do your homework on how you can participate in every single channel of trade."
Doolittle agreed that store brand suppliers had "better figure out how to get their product into supercenters, since a lot of your customers are going to lose business to them."
He said the concept is already successful, in that the expansion of it is absorbing two thirds of the working capital of Wal-mart and Kmart.
He said the food industry will be faced with 1,000 of such stores. "This will happen. Food brands will establish the value image of these stores, sold at 10% to 15% less than supermarkets."
To take a merchandising snapshot of the supercenter's challenge to grocery stores, Doolittle's firm did a market basket survey comparing the latest Dominick's store near Chicago to a Super Kmart a quarter mile away. The researchers took 180 branded items from each store, 157 of them identical.
"The Kmart supercenter, opened already two months, was 19.1% lower than Dominicks. If they can drive volume on the supermarket side, then they have a whole general merchandise store to make up their margins. If they can get $1 million a week in a store, they will have it made and grow fast. The supercenters need to be watched and feared -- and worked with to build brands in the future."
