PRIVATE PACE

Supermarkets are no longer the only place consumers can go when they want something private.While mainstream retailers still lead private-label categories in both breadth and variety, other channels continue to pick up market share year after year.According to Homescan data from market research firm ACNielsen, Schaumburg, Ill., supercenters and warehouse club formats gained bigger pieces of the private-label

Supermarkets are no longer the only place consumers can go when they want something private.

While mainstream retailers still lead private-label categories in both breadth and variety, other channels continue to pick up market share year after year.

According to Homescan data from market research firm ACNielsen, Schaumburg, Ill., supercenters and warehouse club formats gained bigger pieces of the private-label business from 1997 to 2003. Meanwhile, supermarkets lost share during the same period (see chart on Page 42). Supercenters increased private-label share the most, from 4% in 1997 to 12% in 2003, placing the channel directly behind supermarkets.

Malcolm Webster, director of marketing for Thrifty Foods, a 17-unit grocery operation in Victoria, Canada, isn't at all worried.

"The mass merchandisers, drug stores, club stores and the like are focusing their position on variety, price and value," noted Webster. "Wal-Mart, for example, has been successful as a result of offering known and trusted brands at great prices. The alternate channels' challenge to conventional supermarkets today is far more along the lines of offering the national brands at better prices."

In fact, Webster said he views the entry of some of these other, larger channels into the private-label arena as a benefit to smaller grocers like Thrifty Foods.

"There are many more manufacturers today offering private-label programs than there were 10 years ago. This is in part a result of the expanded demand for private label across all channels," he stated.

Rising consumer awareness of the value and quality of store brands is also a factor. According to "Store Brands Come of Age," a report from the New York-based Private Label Manufacturers Association, approximately 70% of consumers report they are more aware of store brands than they were five years ago. More than ever, the success of store brands today depends on the intentions of consumers and their choice of a shopping destination. Experts pointed out that a quick stop at a convenience store doesn't foster comparison shopping -- one of private label's biggest windows of opportunity -- like a pantry-stocking, weekend trip to a club store.

Indeed, c-store shoppers are looking for a quick fix. This typically takes the form of a single-serve item with an easily recognizable label. That, coupled with space limitations inherent in this channel, can make carrying a private-label line more of a hindrance than a windfall.

"The challenge for c-store retailers is that they need to be large enough in either volume or store count to justify the expenses [and] effort of developing and marketing a private-label brand," said Jeff Lenard, spokesman for the National Association of Convenience Stores, Alexandria, Va. "[C-stores] have to already have a strong image for their overall offer and its quality, since that will influence perceptions of their store-brand products."

Further complicating private-label development in the c-store channel is that nearly 60% of all c-stores are owned or franchised by someone with only one unit, Lenard added.

Yet shoppers at giant club stores may specifically be looking for economy-sized products at low prices. Here, private label's capacity to capture sales moves to the forefront. At Costco, Issaquah, Wash., the retailer has experienced great success with its Kirkland brand, represented in the food and nonfood categories. A company executive told SN Kirkland fulfills those exact needs of quality and value.

"I would say we are distinctly different than our competition when it comes to private label," said the Costco executive, who requested anonymity. "We're very selective as to what items we put under our private label; we're very quality-focused. Our membership base is prepared to buy into quality if we can give them a real value."

The dollar store format gives another vantage point of private label at work.

"Dollar stores demand the value of the brand to appeal to their clientele. That's very important given their socioeconomic target," said Don Stuart, partner at sales and marketing consulting firm Cannondale Associates, Wilton, Conn. "Convenience: It's in and out. It's quick, fast. [Consumers] are not going to shop around for price."

Drug stores face space and convenience hurdles like those found in the c-store business, and private-label success in this channel can mostly be seen with over-the-counter medicine and health and beauty care products. At Happy Harry's Drug Stores, Newark, Del., store brands will represent only about 10% of front-end, non-pharmacy sales by year's end. Packaged goods will account for less than 1% of that merchandise, Jon Rudden, the chain's vice president of merchandising, told SN.

"The drug store industry is primarily appealing to the customer looking for convenience and quick meal solutions," Rudden asserted. "The food customer entering Happy Harry's is only looking for what we have convenience-wise and what we might have to assist them in a meal solution way." Rudden said that, overall, milk, bread, snack foods, microwaveable meal solutions and beverages are the biggest contributors to weekly consumable sales, along with drug and c-store staples, candy, gums and mints.

However, as consumers blur channels, the food industry is mixing its operations up. GetGo, a joint venture between Giant Eagle, Pittsburgh, and Guttman Enterprises, an operator of gas outlets in the area, is just one such example. The concept offers a hearty mix of national brand and Giant Eagle store brands in a convenience/gasoline store format. According to Derek Gaskins, Giant Eagle's marketing manager for GetGo, about 5% to 10% of the consumer packaged goods now sold at the stations are Giant Eagle brands. However, the company is looking to exponentially expand that offering.

"Giant Eagle corporate-brand products are a key component of the GetGo strategy and offer our customers a point of difference from our c-store competition," Gaskins said. "Traditionally, the convenience store arena has not been a very successful atmosphere for offering and building a private-label line, which is largely the result of limited retail space and time-pressed customers looking for the more highly recognizable national brands."

GetGo leverages its proximity to the well-respected, corporate Giant Eagle name in going after its customers and "provides a high-quality, corporate-brand alternative," Gaskins added.

Still, industry sources predicted supermarkets will remain ahead of the pack in the race for private-label sales for some time to come.

"We're going to see continued growth in private label in mass, drug and club," said Cannondale's Stuart. "I see grocery stores, broadly speaking, leading the way with more targeted offerings at specific consumer groups or specific needs."

While acknowledging that private label has an important role in all classes of trade, particularly since it can represent a stronger gross margin proposition than ones realized on national-brand products, Rudden of Happy Harry's readily admitted the grocery channel will always have the upper hand.

"I do not believe Happy Harry's or our industry poses a great threat to the supermarkets," he told SN.

Supercenters and Club Stores Increase Their Share of the PL Business

97 Share of PL $ business; 03 Share of PL $ business; 03 Percent of Channel $ Sales Done Through PL

$2MM+ Grocery: 80%; 69%; 10%

Mass Merch: 6%; 7%; 3%

Supercenters: 4%; 12%; 5%

Drug Stores: 4%; 4%; 4%

Warehouse Club: 1%; 4%; 3%

Dollar Stores: 0%; 3%; 10%

Conv/Gas: 0%; 0%; 1%

Other Outlets: 5%; 1%

Source: ACNielsen; Total U.S.; Homescan; all CPG coded product groups included.