Retailers aren't shedding any private-label tiers because of competition from limited-assortment and dollar stores.
In fact, some are using the growing popularity of these bargain-basement retailers to leverage their own sales of high-penetration commodity items -- like paper products and peanut butter -- through improved value-tier offerings.
For example, Price Chopper Supermarkets, Schenectady, N.Y., recently discarded the Better Value label it was carrying for about a year in exchange for the Always Save label from Associated Wholesale Grocers, Kansas City, Kan. The products are third under the retailer's store-brand umbrella, positioned below the Price Chopper label, which is one tier below the retailer's Central Market Classics upscale private-label line.
"We had one second-label program, and we found that there wasn't a lot of continuity in it as far as packaging, etc.," Regina Tator, category manager of private label for Price Chopper, told SN. "[AWG] uses a bright yellow packaging. It's very distinguishable, and we liked what they were doing. Instead of reinventing the wheel ourselves, we jumped on the bandwagon."
About 170 stockkeeping units from ready-to-eat cereal to pasta occupy this line, which the retailer presents as an everyday-low-price value. According to Tator, Always Save encompasses the same categories as the Better Value label did, and the most noteworthy change is the look of the label.
The restructuring of the value line at Price Chopper was not only prompted by the wavering economy of late, but also by the quest to compete in a saturated marketplace, Tator said.
"We got into this because of the Save-A-Lots, the Price Rights, all those formats coming in," she said. While the value tier is distributed throughout the entire Price Chopper chain, its placement and display signs are contingent upon store demographics.
"If [the store] is in an area that has low socio-economic clientele and we have a price house competitor, then we would devote much more display space to the line than we would in an upscale neighborhood that doesn't have any cost-format stores around," Tator said.
Store location used to be one of the most dependable indicators of what type of shopper would be present in a store on any given day. However, in today's market, retailers across the nation are attracting more and more diverse clientele with their value brands, from low-income families looking for multi-packs of toilet tissue, to more affluent shoppers simply looking for a good deal on a box of rice, sources told SN.
"We'll wear a fancy clothing label because that's what truly matters to us, but we're not too proud when it comes down to things that we truly see as a commodity," said Ralph Jacobson, executive marketing manager, retail industry, IBM Global Services, Los Angeles. "If I need paper towels, I'd rather spend 50 cents on a roll than two bucks. So, that's where we're really seeing the growth more than anything in these value brands of private label."
Jacobson witnessed the public's attraction to store brands firsthand during his days as a stock boy at a Chicago-based Jewel store in the 1970s. From the first box of generic cereal to the licensed line of President's Choice chocolate chip cookies, consumers always responded favorably to the value proposition, he told SN, adding he is not surprised by the current popularity of dollar and limited-assortment stores, or by grocers who are competing with these channels via value brands.
"It's just one more turn of the crank, one more cycle in which the value product is really bring driven," Jacobson said.
The fact that store brands typically deliver higher margins than their national-brand counterparts makes the value tier an excellent weapon for retailers to use against competing formats. The strategy is increasingly tapped not only in saturated market areas, but also during depressed economic cycles.
"Retailers are looking for ways to respond to hard times in certain markets, and it's very interesting that they are trying to do so under their own controlled labels, whether it's a wholesale label or a private label," said Brian Sharoff, president of the New York-based Private Label Manufacturers Association. "They're not falling into the trap of offering brands that no one has ever heard of, or trying to sell branded products at huge losses."
Indeed, Topco Associates, Skokie, Ill., a cooperative with more than 50 retail and wholesale members, reported that many of its supermarket partners have benefitted from pushing the savings aspect of its Valu Time controlled label. Items like soda, mustard and cooking spray have been selling very well over the past two years, according to Dan Mazur, senior vice president of Center Store program management.
"The economy isn't that terrific yet for a lot of people, and I think they're just looking to stretch their food dollars," Mazur said. Topco's members can use the Valu Time program to meet the pricing of the competition's so-called first labels, which often consist of products of a lower quality than what Valu Time offers, he said.
"What we're providing here is a real value because the Valu Time program is, in many cases, just slightly below our first-label product specifications, but our members are able to offer some good retail pricing for those products," Mazur said.
The line consists of more than 500 items spanning the categories like grocery, frozen, dairy, health and beauty care and general merchandise. Perhaps most indicative of Topco's commitment to its value tier are its plans to expand the line by branching out into categories like candy, ramen noodles and even processed meats. Packaging has evolved from its early black-and-white stages to today's more colorful, vignetted look.
"It's the type of packaging that a consumer would not feel embarrassed about showing the product to her family or friends," Mazur said.
Packaging may dress the item up, but product attributes like taste are also an issue, even for value lines. The onus is on retailers and manufacturers to agree on product specifications that protect -- and ideally, enhance -- the repeat sales quotient of the item. Mazur said the Valu Time line meets that criteria and, therefore, appeals to a wide range of retailers and can perform well in a variety of store formats.
"We certainly don't want to lower the quality to the point where a consumer would be disappointed with the product or the taste," he said. "We believe there is room to be able to do that on many products."
Everyone loves a good bargain, no matter where in the world they can find one.
European retailers are experiencing the same economic hardships that domestic retailers have been up against for the past few years. And, like retailers in the States, they are turning to value-based private-label programs to meet consumer needs.
"In the U.S., while the [Bush] administration may be talking about recovery, I think there's still a great deal of uncertainty in retailers' minds about the health of the economy and consumer spending. I think that's one reason in the U.S. why you may be seeing some value lines coming up," said Brian Sharoff, president of the Private Label Manufacturers Association, New York.
"In Europe, we're also seeing a certain amount of concern about the economy. In Germany or France, where the economy is supposedly getting better but there is an obvious problem with jobs, more are shopping at discounters than a year ago and that certainly puts pressure on the retailers [there] to find cheaper alternatives for their shelves," he added.
Carrefour, one of the leading supermarket chains in France, seems to have found a way. The retailer recently rolled out a new private-label line consisting of about 700 stockkeeping units that the retailer is calling "No 1 des prix," which roughly translated means No. 1 Price. This new value line is being offered in Carrefour stores in 15 countries, including Poland and France, and includes Center Store items like ready-to-eat cereal and canned vegetables.
According to images on the retailer's Web site, this line is stocked on the bottom shelves within the grocery aisles and marked with a red label. "Look for the red band with the '1' on it and the message is clear, you will find the product that is the least expensive in the category," reads the site.
"This is clearly aimed at the French discounters; that would be as strong a value-brand concept as anybody can come up with," Sharoff said.
Even more growth in value-based store brands can be seen in developing countries in Latin America and Asia Pacific, where they are pushing value-oriented items like paper products and milk.
"Now with more global retailers going into so many other less-developed countries, that's where we're seeing a huge influx in private-label growth at the very basic levels," said Ralph Jacobson, executive marketing manager, retail industry, IBM Global Services, Los Angeles.
And, where there isn't a value line, there are price wars that preempt the value brand, the PLMA's Sharoff said, citing Netherlands-based Albert Hein's reduction of prices on all merchandise by up to 15% as an example.