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Time for supermarkets to raise their private label game, retailer says

At PLMA show, grocery veteran points to threat of deep discounters

Russell Redman

November 15, 2018

4 Min Read
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Grocery retailers need a strong private brand offering as part of their game plan to compete in today’s fast-changing marketplace, former Kroger and Harris Teeter executive Fred Morganthall said this week in a keynote speech at the 2018 PLMA Trade Show in Chicago.

Even as conventional supermarkets address rising demand for online grocery service and prepared foods, hard-discount grocers Aldi and Lidl are expanding quickly into new U.S. markets, challenging incumbent operators and grabbing market share with high-quality private label products at very low prices, explained Morganthall, who served as executive vice president of retail operations at The Kroger Co. and as president of Harris Teeter.

P1030349_0.png“The deep discounters are clearly a disruption to the traditional grocer. Aldi has 1,752 stores today, and their own-brand quality really is equal to or better than national brands,” said Morgnthall (left). “If you’re a retailer in grocery and you haven’t taken your top 20 or 30 items that you sell today and cut them against Aldi, you’re going to be in for a surprise. It is amazing the quality that Aldi presents today, and they’re clearly a leader in the quality aspects of own brands.”

By the end of 2022, Aldi aims to reach 2,500 stores. The chain also has embarked on major programs to ramp up its selection of fresh, organic and natural items, expand meal solutions and upgrade the presentation of its stores. According to Morganthall, the opening of more than 50 U.S. stores by rival Lidl has pushed Aldi to raise its game. Around 90% of the product mix at both deep discounters is private brands.

“Own brands are going to have up their quality level,” he said. “If Aldi wasn’t as good as Lidl was before, Lidl has forced Aldi to upgrade its quality again. Aldi has looked at every Lidl item that they sell. Kroger and Walmart have both looked at the brands offered by Lidl and Aldi and upgraded quality in line with theirs — and then on price. Not only does Aldi have a great product line and great quality in own brands, but Walmart has lowered its prices to align themselves with Aldi and Lidl, and Kroger has also reacted in their own brands.

“So the entry of Lidl has really brought own brands to the forefront with respect to Aldi, Walmart and Kroger,” he noted. “Own brands have never been more important to those retailers than they are today.”

The top two things in a grocery store that generate sales are produce and private label, according to Morganthall. “If you’re a national-brand or own-brand manufacturer, I urge you to look at your quality. It’s amazing to me today that national brands have allowed Aldi and other retailers to surpass them in quality,” he said.

Private label has also led national brands in the area of innovation, he added. “I would submit to you today that most of the innovation in the grocery business is occurring in own brands and not national brands. As evidence of that, how many ketchups, mustards and mayonnaises have been introduced in the past year, and how many do you really need? That is not innovation, I must say.”

In an earlier presentation at the Private Label Manufacturers Association show, Garett Chau, senior vice president of professional services at Nielsen, reported that private brands have a lot of room to grow in the United States. Private label dollar share is now about 15%, but it has the potential to double in the next 10 years.

“There’s strong reason to believe that there’s only one direction for private label to go in the U.S., which is up,” Chau said, citing strong and growing private-brand offerings at Aldi, Lidl, Trader Joe’s, Costco, Walmart, Kroger, Amazon and other retailers.

Consumer acceptance of private label has risen, he pointed out. Nielsen research shows that 65% of shoppers find private brands as good as name brands, and 43% consider private label quality better.

“We know in the U.S. that over the last couple of years, there’s been improving perception about the quality of private label,” Chau said. “So what does this mean? Within the decade, we will see private label market share in the U.S. hit 25% to 30%. All else being equal, for national brands, that means a distribution loss of 10 to 12 points.”

What’s more, private label’s benefits for retailers are manifold, Chau noted.

“Store-brand strategies are a critical part of how retailers plan to create and capture value in the months and years ahead. Store brands improve margin; they enable differentiation versus competitors, creating a competitive advantage; they allow retailers to better delight their shoppers, since they can tailor products for them; they help prevent leakage [of customers and sales]; and they capture greater share of wallet. They also enable retailers to have more control over their costs, pricing and assortment,” he said. “And the growth trends and trajectory that we see are not cyclical. It’s not a blip on the radar. The trends are real, and they will continue.”

About the Author

Russell Redman

Senior Editor
Supermarket News

Russell Redman has served as senior editor at Supermarket News since April 2018, his second tour with the publication. In his current role, he handles daily news coverage for the SN website and contributes news and features for the print magazine, as well as participates in special projects, podcasts and webinars and attends industry events. Russ joined SN from Racher Press Inc.’s Chain Drug Review and Mass Market Retailers magazines, where he served as desk/online editor for more than nine years, covering the food/drug/mass retail sector. 

Russell Redman’s more than 30 years of experience in journalism span a range of editorial manager, editor, reporter/writer and digital roles at a variety of publications and websites covering a breadth of industries, including retailing, pharmacy/health care, IT, digital home, financial technology, financial services, real estate/commercial property, pro audio/video and film. He started his career in 1989 as a local news reporter and editor, covering community news and politics in Long Island, N.Y. His background also includes an earlier stint at Supermarket News as center store editor and then financial editor in the mid-1990s. Russ holds a B.A. in journalism (minor in political science) from Hofstra University, where he also earned a certificate in digital/social media marketing in November 2016.

Russell Redman’s experience:

Supermarket News - Informa
Senior Editor 
April 2018 - present

Chain Drug Review/Mass Market Retailers - Racher Press
Desk/Online Editor 
Sept. 2008 - March 2018

CRN magazine - CMP Media
Managing Editor
May 2000 - June 2007

Bank Systems & Technology - Miller Freeman
Executive Editor/Managing Editor
Dec. 1996 - May 2000

Supermarket News - Fairchild Publications
Financial Editor/Associate Editor
April 1995 - Dec. 1996 

Shopping Centers Today Magazine - ICSC 
Desk Editor/Assistant Editor
Dec. 1992 - April 1995

Testa Communications
Assistant Editor/Contributing Editor (Music & Sound Retailer, Post, Producer, Sound & Communications and DJ Times magazines)
Jan. 1991 - Dec. 1992 

American Banker/Bond Buyer
Copy Editor
Oct. 1990 - Jan. 1991 

This Week newspaper - Chanry Communications
Reporter/Editor
May 1989 - July 1990

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