business news in context, analysis with attitude

Advertising Age reports that in an effort to streamline its SKU count, “Walmart has sent Glad and Hefty bags packing from its food-storage shelves ... In food bags, Walmart has consolidated nationally with one brand, SC Johnson's Ziploc, and its own private label, Great Value, wiping Glad and Pactiv Corp.'s Hefty off its shelves, according to a person familiar with the matter. (Pactiv confirmed the move for its brand, while spokespeople for Walmart, Clorox and SCJ declined to comment.)

“In trash bags, Glad and Hefty have retained their places on the shelves, two people familiar with the matter say, but Hefty now has a smaller assortment limited to its CinchSak line. This position was most likely preserved, says Consumer Edge Research analyst Bill Pecoriello, by Pactiv Corp.'s agreement to take over all private-label manufacturing for Walmart's Great Value trash and food bags.

“The clearest winner in the Walmart bag war - besides the retailer's own Great Value - appears to be SC Johnson's Ziploc, with mixed results for Glad, owned 80% by Clorox Co. and 20% by Procter & Gamble Co., and Pactiv Corp.'s Hefty.”

And, Ad Age writes, “Similar decisions are likely to play out across other categories over the course of the year, as Walmart steps up efforts to streamline brand assortments, often to the benefit of its fast-expanding Great Value brand and national brands that survive the vetting.”

The Wall Street Journal also reports on this trend, reporting:

“Private-label sales accounted for 13.4% of a basket of U.S. groceries in 1994, but likely reached a new high of 17.5% in 2009, fuelled by tougher times, says Robert Moskow of Credit Suisse.

“The key question is whether Americans will stick with generics if the economy improves. In some consumer-product categories such as razor blades, differences in quality are noticeable. A better shave is probably worth paying for again as soon as it becomes affordable. But for many commodity-like products, second-best has proven good enough. Private-label products account for 26.2% of ketchup and condiment consumption in U.S. households, up 4.2 percentage points from 1994, according to Consumer Edge Research. The firm found that 63.3% of shoppers were ‘very satisfied’ with generic condiments, nearly the highest rate of all categories surveyed.

“Spices could be in the same boat. Like ketchup, spices can be hard to distinguish from premium alternatives, apart from packaging. Spice manufacturer McCormick saw private label's share of its markets rise to 14.5% in 2009 from 13.5% in 2008, Mr. Moskow says.

“The shift appears have jolted even brand-focused Wal-Mart into action. The retail giant has scrambled to accommodate consumer tastes by offering more generic foods in recent years. McCormick generates 11% of its revenue from sales to Wal-Mart, mainly by selling brand-name spices. But Wal-Mart has considered switching to private-label spices, testing the idea by replacing McCormick products with generics in some stores.

“True, McCormick's sales at Wal-Mart may not be wiped out altogether if such a switch gathered pace. The company also produces private-label spices that could replace some of its brand-name products on Wal-Mart's shelves.

“Even so, McCormick's margins could take a big hit. The company's generic spices sell for 30% to 40% less than its regular products. On the cost side, materials and packaging expenses are probably only slightly lower for private-label spices. And the company could hardly risk cutting its advertising budget.”
KC's View:
This is ironic, to say the least.

Come with me now back to April 1, 2004, when we had our annual April Fool’s Day gag on MNB. And this is what we wrote:

Wal-Mart announced today that it has decided to significantly cut back on its SKU count in nonfood sections where, according to one senior executive, "it just doesn’t matter."

The Bentonville Behemoth said that starting today, April 1, it will only carry two brands of laundry detergent - Tide, and a new private label brand, "Roy's Best Shot," which is named after founder Sam Walton's dead dog. These two brands will be carried in just two sizes apiece - a two-gallon jug, and a one-gallon jug.

Once this roll out is completed, the anonymous executive said, the same philosophy will be applied to other categories in the traditional supermarket mix where taste is not an issue: toilet paper, paper towels, napkins, dishwasher detergent, and the like.

"It's really very simple," the executive told MNB in an exclusive interview conducted in the deserted parking lot of a Kmart. "We think there are simply too many products out there, so we're just going to carry the number one national brand in these non-taste categories, and our own label. Do you seriously think for a moment that anyone will stop shopping at Wal-Mart because we have an edited selection in these products? No way. They will choose between the national brand and our brand, which will be about half the price."

Asked if the company was concerned about the impact on all the other laundry detergents that counted on Wal-Mart for a significant percentage of their sales, and now could be facing financial ruin, the executive snorted. "Heck, no," he said. "If it weren't for us, they'd have been out of business years ago.

"What none of these manufacturers seemed to comprehend," he added, "was that while everyone was worried about us putting a lot of smaller retailers out of business, they should have been figuring out how to keep us from putting manufacturers out of business."

I was trying to be funny, but I also was trying to make a serious point. And go figure, for once in my life, I may actually have gotten one right. (Though I did take the Saints in the Super Bowl, so I’m feeling pretty good this morning.) My recollection is that at least one or two people accused me of being irresponsible by giving Walmart ideas, but I’ll resist the impulse to suggest that this all started with MNB...

The broader trend is not necessarily a revolution in SKU count, but a creeping evolution that could change the complexion of both the supermarket and CPG industries.

Think about it. The growth of formats such as Aldi and Trader Joe’s shows that people are willing to shop at stores that offer limited selection. Supervalu is putting ever-greater emphasis on its Save-A-Lot format, which mirrors what Aldi is doing. Club stores such as Costco, Sam’s and BJ’s continue to be highly formidable competitors. And just a couple of weeks ago, at the panel I moderated at the excellent marketing conference held at Northwestern University’s Kellogg School of Management in Chicago, there was considerable discussion of the likelihood that in some stores, secondary and tertiary brands would be threatened as the retailers focus more on primary and private brands.

As Buffalo Springfield sang

There's something happening here
What it is ain't exactly clear...

And added:

There's battle lines being drawn
Nobody's right if everybody's wrong...