RETAILERS' FOCUS ON PRIVATE LABELS RESULTS IN HIGH PROFITS

Private-label goods have long been a part of the mix at supermarkets around the globe as retailers strive to differentiate themselves from their competitors and build loyalty among consumers, who often become attached to such store-specific items. IIn the past few years, however, retailers have begun to emphatically cash in on a multitude of categories throughout their stores, in many cases surpassing

Private-label goods have long been a part of the mix at supermarkets around the globe as retailers strive to differentiate themselves from their competitors and build loyalty among consumers, who often become attached to such store-specific items. I

In the past few years, however, retailers have begun to emphatically cash in on a multitude of categories throughout their stores, in many cases surpassing sales of previously top-selling national brands with their store brands.

This escalating trend is prompting retailers to play a more direct role in the research and development, manufacturing and marketing of their own brands.

And, as industrywide consolidation continues to progress, retailers are expected to penetrate the marketplace with an increasingly wide variety of private-label items that provide manufacturers with a fierce, new competitor in an already aggressive industry.

"Private-label sales are growing throughout the industry and supermarkets have gone from a few profitable categories to cashing in on almost every category in the store," said Dane Twining, spokesman for the Private Label Manufacturers Association in New York.

"In many of these categories private-label growth is far exceeding the entire category and some are even growing at twice the rate of the category -- like beer and ale, isotonics, snack bars, hot cereal, bottled juices and frozen foods like poultry, meat, seafood and pizza, to name a few."

Although private label is superseding other brands in a wide variety of categories, many retailers aren't expecting to knock top-selling national brands out of their No. 1 positions in the stores.

"The major retailers who control the larger share of the supermarket industry are capitalizing on their private labels and are growing them out from grocery categories to almost every category throughout the store," said Dick Furash, former consultant with Deloitte Consulting in Tucson, Ariz.

"Primarily, they are looking to be the No. 2 brand in each category as a good alternative for customers with their price advantage and an increase in quality in the past few years. But, many are actually outselling other brands in various categories. They are making major inroads in categories like soft drinks, laundry detergents and soap, mainly because they have their price umbrellas to work under and they can break into new categories by focusing on price first, then reinforcing quality once the consumer has had the chance to sample their brand."

As retailers focus their attention on defining themselves through their own private-label items, the command manufacturers currently have in the marketplace is expected to slowly diminish and certain experts are predicting an arena where retailers ultimately choose which promotions best complement their own brands, forcing manufacturers to cooperatively contribute promotional dollars.

"It's very clear that retailers are focused, on the move and defining themselves by what private-label items they carry -- they're starting to take control of categories and are actually giving manufacturers a run for their money," said Chris Hoyt, president of Hoyt & Co., Stamford, Conn.

"As retailers continue to consolidate, the demarcation line between private-label brands and national brands won't exist anymore. And, as retailers gain more power, they'll eventually take over promotion responsibilities and manufacturers will be asked to contribute promotion dollars to be part of the retail environment."

While retailers have previously been successful with their own private-label brands in a select few categories like baking goods and canned products, the breadth of categories where private label is now considered a worthy adversary to national brands has grown immensely and is expected to continue to increase well into the new millennium.

However, one category where private label may not fare as well in the immediate future is health and beauty, as consumers are often less willing to choose a private label over a national brand when it comes to personal hygiene and related issues.

"Traditionally, the categories where private label has done well mainly include ingredients like flour, sugar, butter and baking goods -- basically items that are mixed together and not consumed individually," said Neil Stern, partner at McMillan/Doolittle, the consulting firm based in Chicago.

"When supermarkets and grocers get into other categories where the items require promises like toothpaste, deodorant and other health and beauty aids, consumers tend to become a little leery of the quality, and lower cost isn't a justifiable reason to choose a private label over a national brand.

"In the past few years, there has been more private-label penetration in a lot of other categories like laundry detergent, beer and juice drinks, and this expansion into other categories will keep moving throughout the store," he said.

One supermarket that has successfully cashed in on a multitude of categories throughout its stores is Shaw's Supermarkets, the chain based in East Bridgewater, Mass.

"Our Shaw's Own Brand products represent nearly 40% of our overall sales and they cover every single category in the store, with one of the best categories being the cereal aisle," said Bernie Rogan, spokesman for Shaw's.

"In some areas, we clearly outsell the national brands, like with our eight SKUs of the SafeScience brand, and developing products like these has actually begun to stimulate national brands to develop new products to compete with us. The national brands are responding to a lot of the fine tuning private labels are doing with not only price, but quality."

While some are leading the industry with overwhelming results from their private-label lines in nearly every category, others are continuing to build on the basics. Many of these chains attribute much of their private-label success to quality, price and a virtual makeover of product packaging.

"Overall, about 80% of our private-label branded products are doing really well, mostly in the basics like sugar, rice, pinto beans, liquid detergent and refrigerated products like biscuits and margarine," said Lupe Anguiano, grocery and bakery buyer for Handy Andy, the supermarket chain based in San Antonio. "In the past, everyone had to have Procter & Gamble national-brand items, but there have been a lot of strong private-label programs being developed lately and consumers are taking a great interest in the quality, but also the great prices of these store brands. The products themselves have also become more appealing -- in the past, there were generic labels, but now private labels look just like any other brand on the shelves," Anguiano said.

Even small chains are getting in on the action, developing their own private-label goods and, in many cases, relying on existing brands to help lure consumers to their stores. By creating their own line of products, retailers are not only building equity in their brands and encouraging customer loyalty, they are also becoming more profitable by eliminating some of the costs of dealing with nationally branded manufacturers.

And, while some foresee retailers running the show, others are predicting that manufacturers will respond by taking a more proactive approach to their newest group of competitors.

"Since we are a smaller chain, we have some of our own private-label goods that are doing well -- things like cheese, eggs and our Naturally Water product. For other categories like sugar, fruits and vegetables, garbage bags, fabric softeners and detergents, we piggyback on controlled-label brands like Flavo-rite and other warehouse brands, which helps to save money on brokerage fees and other costs," said Ross Dixon, vice president of merchandising for Dahl's Food Markets, the 11-store supermarket chain based in Des Moines, Iowa.

"It looks like private label will keep growing in the future and supermarkets will definitely make a name for themselves, but national brands have a lot to lose if they just stand by and watch, and it's difficult to believe that they'll do that."