ELMWOOD PARK, N.J. — Food retailers that are not among the largest in the country will continue to see a decline in the attention they receive from suppliers in the coming years, as the economy puts pressure on manufacturers’ resources, according to a webinar presented by the Food Institute here last week.
“Suppliers will focus on their 10 to 15 largest customers, and if you are not in the top tier, it is likely you will see decreased supplier investment not only in the form of promotional support, but also in other, softer kinds of investment like personnel and intellectual property,” said Jim Hertel, managing partner at Barrington, Ill.-based consulting firm Willard Bishop.
Other key trends highlighted in the webinar included:
• Despite recent moderation, long-term food inflation is still a very serious risk. This is being driven by ongoing increased demand for proteins in developing countries like India and China, which is expected to continue, and the use of crops for biofuels.
• Retailers will increasingly look to cull unproductive SKUs, especially as private brands expand and deliver strong returns.
• Retailers that are not among the largest will increasingly need to focus on differentiation to succeed.
• Strong price-value positions will be key to success in the coming years.
The presentation, titled “The Future of Food Retailing,” described three clear “winners” in the current economic climate: Wal-Mart Stores; private brands; and limited-assortment stores.
Bentonville, Ark.-based Wal-Mart, the presenters noted, achieved a 12.4% increase in consumables sales in 2008, and could have tremendous influence over the fortunes of some suppliers with its Project Impact initiative (see this week’s cover feature beginning on Page 12 for more about Project Impact).
Limited-assortment stores, meanwhile, including Save-A-Lot, Aldi and Trader Joe’s, and what Willard Bishop terms super-warehouse stores, enjoyed “an explosion of growth” totaling about 14.3%, the presenters said. The store base of limited-assortment players, driven by Batavia, Ill.-based Aldi, is growing by 100-plus per year, presenters said.
“The question of whether this [success] is permanent, I would argue it is still too early to tell,” said Craig Rosenblum, business development partner at Willard Bishop and a co-presenter of the
webinar. “It will be 18 months to three years before we know for sure.”
Private label, meanwhile, is driving profitability to retailers’ bottom lines much more than branded suppliers might previously have realized, the presenters said.
“In reality, private brands are more profitable than
national brands, probably by about 10 percentage points,” said Hertel. He said that although unit sales of private brands were sometimes thought to be too slow to be a threat to national brands, increasing unit movement on some of those private-
label items is driving more total profits to the bottom line than their national-brand equivalents.
As an example, Hertel noted that retailers’ private-label packaged goods have 50% more profit than their national counterparts, and twice the velocity.