A&P PRIVATE LABEL STICKS OUT AS NATIONAL BRAND: REPORT

NEW YORK -- A&P leads the way in making its private label a "national" brand, according to a new report by global market analysis firm Datamonitor here.The report, titled "Private Label 2000: Standing Out From the Crowd," examines the changes that have occurred in the private-label food and drink markets to demonstrate that private label is becoming more like a national brand. Reasons include increasing

NEW YORK -- A&P leads the way in making its private label a "national" brand, according to a new report by global market analysis firm Datamonitor here.

The report, titled "Private Label 2000: Standing Out From the Crowd," examines the changes that have occurred in the private-label food and drink markets to demonstrate that private label is becoming more like a national brand. Reasons include increasing retailer advertising of store brands in newspapers, on-line and even on television, and the speed with which retailers offer innovative private-label products, often ahead of the national brands. Besides, private-label manufacturers are entering categories that are traditionally dominated by national brands, such as frozen entrees and health food.

Many private-label brands have gained national recognition -- aside from A&P's Master Choice, Ahold USA's Sensational and Kroger's Private Selections, gained when Kroger bought the Fred Meyer chain last year.

A store-brand program is the most common type of private-label program in 2000, employed by retailers such as Kroger, A&P and Wegmans Food Markets, according to the report. There are also other distinctions within the private-label category, such as "controlled brand," whereby the development, licensing and distribution are managed by either a retailer, such as Loblaw's with its President's Choice brand, or a wholesaler; and "own brand," a term borrowed from the United Kingdom that refers to a commitment to private label. Shaw's Supermarkets and Trader Joe's in the United States are good examples of this approach, the report says, because these retailers claim their entire business is focused on their private-label program. Shaw's, based in East Bridgewater, Mass., says 24% of its stockkeeping units are own brand, and these products account for 40% of the company's total sales.

Datamonitor's research found that the United States' private-label food and drinks market is currently valued at $48.6 billion, which will grow to $67 billion by 2004.

In addition, private-label growth has been driven by retailer consolidation, and A&P, Montvale, N.J., leads the way because its three tiers of private label, Master Choice, America's Choice and Savings Plus, are sold in all of the company's acquired supermarkets, including Super Fresh, Farmer Jack, Waldbaum's and Food Emporium. Previously, these brands were limited to the Northeast, where A&P's stores are. Now, A&P's private-label products can be purchased in Canada, Michigan, Wisconsin and New Orleans, where A&P has 26 stores, as well.

"This example of giving private-label brands wider distribution makes them seem like national brands because the retailer has an opportunity to build a loyal customer base throughout the U.S. and beyond," said Sari Post, Datamonitor's consumer markets analyst.

Her report also cites Cincinnati-based Kroger, the largest food retailer in the United States with $43.6 billion in sales last year. Kroger owes much of its strength to its 1999 acquisition of Fred Meyer stores, Portland, Ore., (including Ralphs, Compton, Calif.; Smith's Food and Drug Centers, Salt Lake City; and QFC, Bellevue, Wash.), which contributed $15.4 billion to Kroger's total sales in 1999.

In addition to more money, Fred Meyer has brought something else to its parent company: a 50-SKU premium private-label line, Private Selection, which includes a wide range of food and drink products. In order to have a strong store-brand presence throughout the United States, Kroger and all of its newly acquired supermarket divisions are replacing their premium products with the Private Selection line, but keeping the mid-price and lower price private label, to capitalize on the loyalty that already exists, the report says.

Ahold USA, Chantilly, Va., is heading down a similar path, putting its Sensational premium private label in its Edwards, Bi-Lo, Tops, Stop & Shop and Giant banners.

There are several reasons for the relationship between retail concentration and private-label share, Datamonitor said. In a highly competitive retail marketplace, large retail chains say they believe a strong store-brand program is the best way to differentiate from the competition. Also, large retailers can easily cover the costs of launching a private-label program, and, finally, private-label profit margins are 27% higher than national-brand margins on average, so there is more cash available to develop private-label programs.

Manufacturers cited "streamlining" of private-label brands as having a positive effect on manufacturing efficiency in the report. When a retailer decreases its number of private labels, there are a smaller number of labels that the manufacturer has to manage, thus resulting in savings for the manufacturer. Savings on the manufacturer's end translate into lower costs for the retailer, because the manufacturers can lower the prices of their goods.