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Brands Prepare to Retake Supermarket Shelves

Brands Prepare to Retake Supermarket Shelves

A lot has been made of the role private-label products played during the darkest days of the recession. The numbers support the idea. Sales data from the Nielsen Co. show private-label sales grew 2.5% between February 2009 and February 2010, while brands increased their rings by 0.1% during the same period. The 2008-2009 difference was much greater: 10.1% vs. 2.5%, respectively.

A poll from late last year by the Private Label Manufacturers Association found that three out of four shoppers found store brands to be as good as national brands. Nearly 55% of respondents also said they were buying private label “frequently,” up from three years prior, when the number was 41%.

While store brands were helping consumers save money, they were also allowing retailers to maintain margins. It wasn't too long ago that Kroger Co. reported that unit sales of its own brands reached a record high of 35% of total grocery units. For fiscal 2008, sales of the company's primary brand, Private Selections, surpassed $1 billion, while all Kroger brands totaled $12.5 billion.

Indeed, the recession magnified the ability of private label to avoid national-brand problems during this time, namely deflation and intense promotional pricing.

As the recovery gains traction, the industry is wondering if the pendulum is swinging back in favor of brands. There are early indications that consumers are beginning to trade up in particular categories. The growth thus far seems strictly volume-driven as deflation continues to steer pricing. But that situation may not last much longer.

An analyst who visited this month's Natural Products Expo West — with its 3,000 booths and 55,000 visitors — commented that larger, more established brand names appear to be outperforming their smaller competitors — including store brands.

“Share gains from private label also appear to be slowing, and in some categories reversing,” Edward Aaron, an analyst with RBC Capital Markets, wrote in a note to investors.

Analyst Robert Moskow of Credit Suisse estimated in a recent Wall Street Journal that so far this year, cost inflation among packaged-food companies has fallen by almost half, from 5% to 2.5%. This is reducing the need for brands to play with pricing and giving them a bit more room to outmaneuver private-label competitors, which in turn can only rely on the retailers they serve for promotions.

Perhaps the most direct proof of burgeoning brand demand comes from the world's largest retailer. Wal-Mart announced several weeks ago that it was restoring some national names in the cereal, carbonated soft drink, laundry detergent, pet treat and HBC categories that had been cut earlier as part of the company's SKU-efficiency program, Project Impact. Customers reportedly complained that some of their preferred brands had disappeared from the shelves. If it's already happening at a value format like Wal-Mart, can mainstream supermarkets be far behind?

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