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Economy Creates Opportunity for Store Brands

Economy Creates Opportunity for Store Brands

One of the political arguments during the recent election campaign was that the U.S. should not emulate Europe, with its socialized medicine, high taxes and high unemployment.

But from a business perspective, there is at least one area in which supermarket operators on this side of the Atlantic should strive to be more like their counterparts on the opposite shore: the strength of their private-label programs. Private labels in Europe have much higher brand equity, and food retailers there report sales penetration in the 35%-45% range.

As this week's Private Label Manufacturers Association Show kicks off in Chicago, American supermarkets find themselves in perhaps the best position they have ever been to tout the virtues of their own brands, and perhaps increase their sales penetration closer to the lofty levels enjoyed by European operators. Food retailers in the U.S. have been reporting a strong surge in sales of store brands as the weak economy forces shoppers to curb their spending.

Brian Sharoff, president of PLMA, told SN that supermarkets can capitalize on the trend by appealing to consumers under pressure as one aspect of their private-label strategies.

“In areas hit particularly hard by the economy, they can offer private label as a way of showing that they care about budget issues,” he said in the feature, "Private Label Prevails" (see the link).

Supervalu is among those retailers that have aggressively promoted store brands, and it has seen a surge in private-label interest. In a second-quarter earnings conference call last month, Jeff Noddle, chairman and chief executive officer, said the Minneapolis-based retailer and wholesaler has accelerated its forecast for ramping up private-label penetration.

“Our own-brands program is gaining traction,” he said, noting that private-label sales totaled 16% of total sales in the quarter, up more than a full percentage point over a year ago. He now expects to reach 17% penetration by the end of the current fiscal year, four months ahead of schedule. He remains confident that the company can reach 20%-plus penetration in three years, bolstered by the successful introduction of new lines like Wild Harvest and Culinary Circle.

Although the lower ring for a private-label product compared with a national brand puts pressure on top-line revenues in the short term as consumers trade down, the benefits far outweigh the lower ticket. Retail executives say increased private-label sales translate to better margins per item, increased loyalty and increased leverage with branded suppliers.

Over the last few weeks, SN has reported on several new private-label campaigns, including new promotions at Wegmans and Harris Teeter. In addition, Wal-Mart is preparing a revamp of its Great Value private-label grocery line (as reported in the Nov. 3 issue of SN), and IGA has made improving private label a key element of its strategy.

If there is an upside to the down economy, these retailers have found it.