Private Labels Paying Off

Excerpted from the Chicago Tribune, “Shopper Pick Up Store Brands” and “Private Labels Part of Grocer’s Strategy”, both  by Mike Hughlett, November 21, 2008

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The economy—a roiling caldron of evaporating jobs and soaring food prices—has caused shoppers to migrate to cheaper store brands at rates not seen since the last recession in 2001 … Back then, they shifted right back to name brands when the economy perked up.

But this time, the shift may be more permanent, potentially benefiting food retailers at the expense of packaged-food manufacturers. Since the last recession, supermarket chains have poured millions into beefing up their private labels, launching new brands, improving packaging and bolstering quality.

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Shoppers increasingly find little difference between name brands and store brands, which typically cost 25 percent less. The upshot: When shoppers switch, they may be more likely to leave a name brand behind permanently.

And a successful store brand can lure customers from one chain to another, experts said. The O brand, which Safeway has put on more than 300 organic items, from fresh produce to cookies to frozen pizza, has changed some consumer’s shopping behaviors — giving them less incentive to shop at chains that focus on organic. Says one, “Now I don’t have to go to Whole Foods or Trader Joe’s.”

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Store brands are looking and functioning more like name-brand products and are becoming more important to conventional grocery chains as a tool to help battle tough competition from both discounters.

There are myriad reasons for the store-brand offensive. First, supermarkets reap higher gross profit margins on their own brands compared with name brands—about 8 to 10 percentage points higher.

Then, there’s the Wal-Mart factor. The grocery behemoth and other discount grocery concepts continue to snatch market share from higher-price conventional chains. But because private-label products are less expensive, a robust private-label program can improve a traditional grocer’s “price image” to cost-conscious shoppers.

Edit by DAF

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Full articles:
http://www.chicagotribune.com/business/chi-fri-private-labels-consumersnov21,0,3045032.story

http://www.chicagotribune.com/business/chi-fri-private-labels-stores-nov21,0,7919897.story

 

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