CHICAGO -- Christian Haub, A&P's president and chief executive officer, delivered a call to arms at the Private Label Manufacturers Association trade show here, urging U.S. supermarket retailers to follow their European brethren in making private-label groceries "the bedrock of their marketing strategies."
Haub, who was elected to his posts in May of this year, addressed remarks to retailers and private-label manufacturers during his keynote address at the PLMA's 19th annual meeting here, Nov. 15 to 17. A&P is owned by Tengelmann Group of Germany, one of the world's largest food retailers.
Haub told the audience that under a new three-year business plan, the chain is committed to growing its own private-label lines to 20% of sales by the year 2000. Quoting a revised mission statement, Haub said: "We commit to providing great value to our consumers by offering a wide variety of high-quality fresh foods, private label and national brands."
Haub questioned why, of all the advanced Western countries, the United States has the lowest share of private-label sales. He noted that this state of affairs can be accounted for, in part, by the strong position national brands have held in the United States and how they helped to create high-low pricing programs. But the power of brands is also eroding to some degree, he continued. For example, television commercials no longer hold channel-surfing consumers in thrall. Moreover, U.S. retailers are involved in more product development and innovation. Finally, new accounting standards are changing the way retailers look at brands.
"The quest for allowances is also starting to be dismantled," Haub said. "By category management practices on the one hand, but also by new accounting standards that require allowance income to be earned by sale of the item or through the term of the contract. This is forcing a closer look at true product profitability. Challenged with this analysis, private label in most cases comes out the winner."
With industry profitability at barely above 1% last year, retailers are being forced to look at alternative ways to drive sales.
"Branding the store with unique, high-quality, low-cost private-label items with better dollar margins is increasingly becoming an attractive alternative," Haub said. European chains that are creating modern networks of food distribution in Asia and Latin America intend to stick to their well-tested formula -- a 40%-plus share of sales in private label as the bedrock of their marketing strategies -- Haub said. The United States would do well to follow suit.
The United States can eventually break the 30% barrier. Private label will not eclipse brands in the United States, he said. Rather, "We need private-label premium brands as well as standard store brands to give our stores a unique marketing personality," Haub explained.
National brands have been aggressively engaged in strategies to take back consumer dollars; now it is the job of retailers and their suppliers to keep the private-label momentum going, Haub said. Consumers are already well-disposed toward store brands, but the industry has to work harder to improve product quality and study consumer preferences as a guide to product innovation.
One key factor in growing private label, Haub said, is developing the premium sector, which helps to brand the store as well as create a positive image for all store brands. "While this segment is not the largest in terms of sales, it creates the most fanatical customer loyalty," he noted. "These value-added retail brands create the halo of credibility for all of our brands."
A&P was the first chain to roll out a premium private-label brand in 1987, Haub said. The proof of the importance of that step is in the fact that major chains followed A&P's lead, so that there are now 83 premium, value-added retailer brands in U.S. supermarkets, mass merchandisers and club stores.
"We now know what it takes to drive value-added product development. With Master Choice [we intend] to give this segment a new kick-start. I urge you to help us grow this segment to even higher levels in the future."
At the same time, Haub stressed the importance of standard private-label brands, which contribute high-volume dollar sales to the bottom line. Indeed, A&P expects the standard store brands to be the main source of the new growth that will help the retailer reach its 20% goal by the millennium.
"We need to be in more categories than we presently are in and to constantly verify that our quality matches the leading brands," he said. "I can't emphasize enough the importance of quality, and the role it will play."
Also important for growth will be creative marketing, including the ability to capture more of the take-away food share. It is predicted that 50% of food consumption will occur away from home by the year 2001, and supermarkets have to fight back with innovative ready-meal solutions on the supermarket periphery. The industry must also be on the cutting edge of trends, such as an aging population's interest in whole health, and natural and organic foods and nutraceuticals.
Haub concluded by noting that A&P had slowed down the pace of private-label growth in the early 1990s and lost its focus on the importance of private label as an overall business strategy. But he assured the audience that "in the future that will not be the case," and stressed the chain's commitment to private-label growth and better and stronger store brands.