business news in context, analysis with attitude

Responding to the series of stories that we’ve been doing about the growth of private label, one MNB user wrote:

The trend you are talking about could ultimately backfire on the private label category itself within traditional grocers. Walmart didn't become (in such a short time) who they are by selling product at large margins. Therefore, the large margins chains now rely on for profit from private label will be under increasing pressure from the Walmart private label program. I would also think many operators will be looking at the ultimate bottom line instead of the bottom line while protecting their private label sales.

Think about it, Walmart can take an item and make it a national distributed brand in a short amount of time with very little marketing funds. I see this as a strategy to capture more sales from every trade segment.

I agree that Walmart is doing precisely that – playing a market share game that will work to its advantage in the long run.

We had a story yesterday saying that the Private Label Manufacturers Association (PLMA) released a new study saying, not surprisingly, that shoppers can save roughly 30 percent on the average supermarket bill by purchasing own label products rather than national brands.

My comment:

Not be overly cynical here, but it seems likely that if the same study were conducted, say, by the Grocery Manufacturers Association (GMA), the price differential might be a little less dramatic.

Still, the trend seems clear, both from this story and reports like the one we had yesterday about Walmart upgrading its Great Value line. Private label is gaining momentum…and one wonders to what extent retailers are going use this trend to build their own margins and heighten their leverage over manufacturers.

MNB user Bob Anderson wrote:

First for the record the PLMA number have always been fair and honest. As well Brian Sharoff is a great leader who has always made sure that what he or his team comments on is the correct. Also, all you have to do is go look at the quotes by the CEO of Kraft and General Mills to see that private label is eating into the business. In addition they have stated in may formats that their sales have been rising by raising cost... so no, this gap number looks real good.

With that said I'm sure the GMA has their own set of numbers.... Their numbers in fact may look "less dramatic " due to all the high low pricing and coupons..... Either way I don't think there is much argument that store brands are gaining sales and share. As my Dad told me, there is their side, your side and then there is the truth.

I wasn't doubting the veracity of either Brian Sharoff or PLMA…just acknowledging that numbers can be challenged.

We’ve been writing about Walmart’s new Great Value packaging and graphics, which led MNB user Craig Espelien to write:

I could do an entire column on label changes but there are a few important points to consider:

• Most manufacturers amortize the cost of a redesign over three years – so, unless Walmart has a different program, they could have made more changes than once every sixteen years and never impacted cost of goods.

• Family look design (like what the new Great Value appears to be) screams “value/price” to the consumer and actually detracts from the quality perception of the product (not an issue for Walmart – but sort of an issue for many retailers).

• Consumers shop each category differently and have a different set of expectations in terms of product performance and labeling/branding that will set up different purchase triggers. A family look design violates a basic marketing tenet – sell the consumer what they want to buy (but in Walmart’s case, this style of design reinforces their price perception – but perhaps they do not need to do that as they already own price).

• Walmart is large enough to command true product development and have been striving to get there for many years. They have always tended to default back to “me too” national brand style products as too many consumers see a “value” line of private brand as only needed for trading down in cost. Traders Joe’s has done this differently – but again their go to market approach and consumer value proposition is “Innovative Value” while Walmart’s is “Price”

Anyway, I am, as I think you may have noticed, I am a student of how the consumer says they will behave and how they actually behave. Branding and marketing – especially private branding – are much more complex than just a simple (or even massive) label change.

Another MNB user wrote:

I don’t get it… but then WM is smarter than me. Certainly the GV Branding is really plain and generic looking…. surely not to be confused with Safeway’s “O” or Albertsons “Wild Harvest” that was moving away from Generic “Store Brand” to UPSCALE store brand… implying quality + store brand. Perhaps the thinking is that in these stressed economic times, people will look that the generic labeling and think “low cost”, but will they equate it with what we’ve been moving away from in the last 15 years? (Cheap but not quality) As I said, WM is smarter than me. I just don’t get it. OK… personally, it wouldn’t draw me to purchase where “O” and “Wild Harvest” have. PERCEPTION… what an interesting thought!

I keep thinking that while retailers and manufacturers debate the efficacy of Walmart’s private label program, the Bentonville Behemoth is just going to go out there and sell more stuff.

Responding to a story yesterday about a study that looked to quantify the impact of the recession on consumer behavior over the next five years, one MNB user wrote:

>b>Most everything I read indicates we just don’t know what the future will bring and when it will be brought. To do research during these times will surely produce results that reflect current unknown fears about the future, lack of trust, etc…but are they reflective of how the consumer will behave in the future? Let’s retake the consumer’s behavior pulse periodically to determine behavioral changes at various points in time…but, let’s not say that today the consumer knows how they will behave in the next five years. These times are not rational, currently consumers are not rational and we all know business is not rational. I totally agree things will change…we just don’t know how…yet.

And finally, regarding an observation that bigger manufacturers may be better than smaller manufacturers when it comes to detecting and labeling allergens in their products, one MNB user wrote:

Bigger companies are no safer than smaller ones. I read this article, too, and thought it looked like another example of needing to look behind the curtain to see who has supported or funded the study just because of the bigger and smaller comparison of safety. I have seen smaller companies put an additional tag on a package where a larger company cannot see this as feasible. I have seen smaller companies reformat labels much easier and quicker than larger companies and I also understand an overhaul of packaging is not cheap and sometimes out of reach for the small company.
KC's View: