Retailers plan to make the most of a market primed for private-label growth with premium introductions and SKUs priced to fit a broad range of budgets, respondents to the sixth annual survey of Center Store performance told SN.
More than four in 10 (43.6%) will add to or update their natural/organic lines during the next 12 months, 34.5% will introduce an additional tier of products, 23.6% have plans for specialty items, 18.2% for ethnic, and 9.1% have no plans in the works. Other responses (5.5%) include package redesigns and bulk offerings. Percentages reflect multiple answers.
Their strategies come at a time when the proliferation of store brands has resulted in national-brand paring, for some.
More than half (55.3%) of retailer, manufacturer and other industry members polled said that during the past year, national-brand items have been replaced by private labels in at least one of the categories in which they compete. More than four in 10 (41.1%) said they have not been replaced and 3.6% didn't provide a response.
“Whole Foods has replaced our product in two major categories,” noted one manufacturer. “Many other retailers are doing the same.”
Another recognized the practice “in single-brand categories that are not large enough to support two brands.”
Similar efforts may be on the horizon.
Close to half (49.2%) of those polled said they expect future national-brand replacements, 46.2% predict that store brands will not replace national brands, and 4.6% didn't venture to guess.
“We will always have both,” said one participant who expects national brands to stay put. “The space will just get smaller for major brands as times get harder.”
National brands are most vulnerable in commodity- type categories, said another. “Retailers are starting to view these as single-solution categories despite the strength of national brands.”
Suppliers, meanwhile, view strategies like new products (54.8%), trade promotions (43.5%), consumer insights (38.7%), efficient supply chain management (33.9%), and others (6.5%) like “better value positioning” as key to attracting retail customers.
“New and innovative products buy you time before the private-label brands can occupy,” said one manufacturer. “Creative trade promotions can dramatically lessen cost to the consumer. By knowing more of what the consumer is looking for, the manufacturer can custom-tailor programs specifically for them.”
When it comes to making sourcing decisions, price is also influential.
Last year, the majority of retailers (81.2%) polled by SN said that higher commodity costs had either a fairly significant or significant effect on the retail cost of groceries in their store. For many, costs have yet to rebound.
When asked about prices handed down from manufacturers within the past six months, 23.6% of retailers said they had increased significantly, the same number (23.6%) reported a slight increase, 21.8% said they stayed the same, 23.6% reported they decreased slightly, and 7.3% didn't provide an answer.
“Most reductions in price resulted from a reduction in pack size,” noted one retailer.
Changing product quantities — whether they're minimized for those shopping paycheck to paycheck, or increased for bulk savings — have an impact on Center Store sales. Likewise, food price inflation plays a role.
When asked to forecast the change in grocery sales from 2008 to 2009, manufacturers had a more optimistic view than their trading partners.
Nearly three in four (72.6%) suppliers expect Center Store sales to rise, with an increase of between 2% and 3.9% being the most popular manufacturer response (35.5%).
A smaller portion of retailers (56.4%) project an increase in sales, with an equal number choosing 4% to 9.9% and remain the same (both 21.8%).
“We've implemented aggressive merchandising plans to ensure this comes to fruition,” said an optimistic retailer.
“The economy will rebound in late 2009 to even out the year,” said another, while a supplier based his projection “mostly on price increases.”
A change in consumer habits could also spur a sales shift, as more than six in 10 (64%) retailers report that Wal-Mart poses the biggest threat to sales of groceries in supermarkets.
“Every time a Wal-Mart opens, at least one supermarket closes,” noted one retailer.
“Value retailers are killing their competition,” said another.
Dollar stores (13.2%), club formats (8.1%), natural retailers (2.5%), c-stores (1.5%), drug stores (0.5%), and other responses (3.6%) such as value chains like Aldi and some Supervalu banners also pose a threat. Just over 5% of retailers didn't provide a response.
Supermarkets are fighting back with corporate brands.
In fact, more than half of retailers (50.9%) view private labels as the best weapon for fighting competitors for Center Store share, followed by price (21.8%), value-added offerings (clubs, loyalty cards, targeted offers, educational programs, nutrition programs) (18.2%), bulk offerings (3.6%), and other strategies (1.8%) such as “extraordinary attention to customer service” and “giving the customer what they're looking for, and not what you want them to buy.”
Consumers have likewise devised their own strategies.
The most popular is stocking up on sales items, according to 30% of retailers. Commonly practiced saving tactics also include: taking advantage of buy-one, get-one-free offers (20%), purchasing private labels (16.4%), shopping multiple stores (14.5%), using coupons (7.3%), buying in bulk (3.6%), and no response (3.6%).
Retailers are also accommodating shoppers' need to prepare meals at home.
Close to seven in 10 (69.1%) food retailers are cross-merchandising meal components, 54.5% are distributing recipe ideas, 29.1% hosting price reductions on complementary meal components, 14.5% dedicating an aisle to quick and easy meal solutions and 5.5% employing other strategies like offering cooking classes and “explaining, in the most simple terms, how to cook.”
Improved health and wellness positioning is also on the to-do list for most supermarkets in the coming year.
More than half of retailers (56.4%) will bolster their health and wellness positioning within the next 12 months with nutrition shelf tags/signage, 41.8% by growing/updating assortment, 25.5% with newsletter/online information, 10.9% with nutrition and exercise programs, and 3.6% with in-store lectures. With no plans to invest in this area in the coming year, one in five respondents (20%) don't share their ambitions.
Meanwhile, strengthening ethnic marketing isn't among the priorities of close to three in 10 retail respondents (29.1%), but more than half (52.7%) of the grocers polled by SN said they plan to increase their ethnic marketing reach with an enhanced product assortment within the next 12 months. Close to two in 10 (18.2%) will do so through participation in community events, 16.4% will add to their bilingual in-store communications/employees, 10.9% will launch an ethnic private-label line, 9.1% will open a new or additional location under an ethnic format and 1.8% have other ethnic initiatives in the works.
Improved food safety efforts are also on the agenda for some.
The recent salmonella outbreaks linked to peanuts and pistachio products spurred 32.7% of retailers to reevaluate their strategies for ensuring the safety of their private-label products.
“Our research now includes looking into company history and supervisory board status,” said one respondent. “I cannot trust the FDA,” said another.
More than six in 10 retailers (63.6%), on the other hand, have not reevaluated their food safety practices, with one noting “we look to our supplier to do that.”
“Our private label has a great safety record,” said another. About 3.6% of retailers didn't respond.
Just over two in 10 (22.6%) manufacturers reevaluated their national-brand food safety strategies on the heels of the salmonella outbreaks, 72.6% did not, and 4.8% didn't respond.
“The new administration will return to the strict regulations of the '60s and '70s as the pendulum will swing. This is inevitable and will ultimately leave us all safer,” said a respondent whose company took another look at its food safety practices.
Meanwhile, retailers report employing a number of strategies to ensure that recalled food is not consumed by shoppers. The vast majority (90.9%) alert store personnel so that relevant items can be removed from shelves, 43.6% post a recall notice at the shelf from which recalled items were previously merchandised, 43.6% program their point-of-sale system to prevent recalled items from being sold at the checkout, 34.5% post recall-related information on their website, 16.4% access a shopper database and contact those who've purchased recalled items, and 7.3% didn't provide a response.