If you can’t fight ’em join ’em … brand names chum it up with private labels

Excerpted from WSJ, “Brand-Name Food Makers Woo Retailers With Displays” By J. Jargon and A. Zimmerman, Feb 18, 2009

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Seeking to combat stiffer competition from cheaper store brands, big-name food manufacturers, including Kraft Foods Inc. and General Mills Inc., are joining forces with retailers to promote their brands alongside private-label goods.

In the past, big food companies didn’t worry too much about cheaper store brands encroaching on their turf, because consumers were more loyal to name brands and generally believed better quality justified their higher prices. But in recent years, retailers have improved their store brands, often mimicking the innovations that national brands have introduced …

As private-label items have improved and the economy has slowed, many consumers are wondering why they should pay more when they view a store brand as equally or almost as good. Last year, sales of private-label food and other consumer products jumped 10% to $82.9 billion in 2007 … Meanwhile, sales of branded products increased just 2.8%.

Now, brand-name manufacturers are trying to boost sales and defend their market shares in part by working with retailers to create special displays that allow name brands and store brands to share the promotional spotlight. Their strategy acknowledges that the rise of store brands has been a boon to retailers, whose overall sales have slumped and whose gross profit margins on store brands typically exceed those on branded items by 10% to 12%.

General Mills, for example, is using in-store grocery displays to promote “full meal solutions” that include its brands as well as store brands … [For example], A “pizza night” display featured General Mills’ Pillsbury dough with the retailer’s store-brand tomato products.

The new collaboration with retailers comes as Wal-Mart Stores Inc. prepares for a relaunch next month of its own private brand, Great Value, with improved packaging and qualityBy raising the profile of its private label, Wal-Mart could undermine some of the competitive advantage that has set it apart from other food retailers … Gains by private-label products have come largely at the expense of smaller brands. To cut costs and make room for a greater assortment of Great Value products, Wal-Mart has begun removing slower-selling brand names from its shelves …

Until recently, Wal-Mart’s private-label brands didn’t pose much of a threat to branded-food manufacturers. The products’ packaging was lackluster and the quality and consistency of many of them was uneven …

At an analyst meeting last fall, Wal-Mart said it would retool its Great Value line, in an effort to spur sales … The company tested 5,000 Great Value products against national brands and reformulated 1,200 of them.

Edit by SAC

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