In Weak Economy, Store Brands Prosper

Store brandsEven as the economy shows signs of recovering, local retailers are expanding their selection of store brands and working to persuade more customers to try ? and stick with ? their products.

Store brands have been around for decades, offering goods similar to nationally recognized brands such as Heinz and Tide at lower prices. But they’ve come to make up a larger portion of retailers’ sales as consumers traded down to save money ? often up to 30 percent, compared to national brands.

Retailers are ramping up private label offerings, trying to cement the recent gains and sell customers more of their goods ? such as Bi-Lo’s “Southern Home” and Food Lion’s “Home 360.”

Food prices are expected to rise this year as a result of higher oil costs and poor harvests. The U.S. Department of Agriculture is forecasting that production of staple crops wheat and corn won’t meet global demand.

Neil Stern, a senior partner and retail consultant at McMillan Doolittle in Chicago, said that store brands have usually become more popular during down times and have kept their appeal.

“We see these spikes up, and then as consumers have more money again, they tend to stick with their (new) habits,” Stern said. He thinks the market share of private brands will continue increasing.

“Private labels 10 to 20 years ago certainly had a stigma of being lower priced, but lower quality,” Stern said. But better packaging, ingredients and marketing have helped erase that stigma from many customers’ minds.

Salisbury, N.C.,-based Food Lion this month announced a monthlong promotion to drive sales of its house brands, and Matthews, N.C.,-based Family Dollar said it’s entering a long-term partnership to boost the assortment and quality of its private brands.

Both companies use Marketing Management Inc., a Fort Worth, Texas-based company that develops private brand products, labels and marketing strategies. MMI also sources the products’ production through a network of manufacturers.

Brianna Trice of Huntersville, N.C., said she buys store brands whenever she can to save money, especially since the recession.

“At first I was concerned that some of the products wouldn’t be the quality of name brands, but as I continued to try new items I found they were just as good,” she said. “I have found myself buying them especially for canned goods, tomatoes, beans and soups.”

Though Trice likes store brands at Harris Teeter, where she does most of her shopping, she admits she’s skeptical of other chains’ quality. She estimates she saves about 30 percent on her food costs by buying store brands.

National brands still do a good job of differentiating themselves from the competition. And even as some observers say brand loyalty is declining, Stern said no one should underestimate the power of habit and familiarity.

“If I’m a consumer and I know Tide cleans my clothing, I’ll probably stick with Tide instead of paying a little less,” he said. “I really want my deodorant to work. Am I willing to try something else and risk the personal embarrassment?”

Analysts say there are limits to private labels. In Europe, where grocers are more consolidated and have developed private brands aggressively for longer, store brands account for about 35 percent of all sales.

Still, analysts say sales of store brand items have grown to about 20 percent of the American market. According to Nielsen data, store brand percentage of sales in dollar amounts increased to about $90 billion, or 17 percent of the total in 2010, up from 15 percent in 2005.

And in a recent Nielsen survey, about 60 percent of consumers said they bought more store brands during the downturn, and more than 90 percent of those said they would continue buying store brands.

Companies have invested more in their private brands, improving packaging and quality. They’ve rolled out normal, premium and economy varieties of their brands, and even offer organic varieties of store brands.

Wal-Mart, the nation’s biggest seller of a private brand through its “Great Value” label, recently announced that it will lower sodium and trans-fat contents in its house products ? a move that could appeal to health-conscious consumers.

And in a sign of just how ubiquitous private brands are becoming, the Walgreens pharmacy chain recently started selling its own private label beer for 50 cents a can.

A study of 21 private label foods by Consumer Reports last year found only seven national brand products were appreciably better than their store brand counterparts. For the other 14 categories, store brands were better than or equal to national brand quality.

Locally based chains are stressing that message and hoping to keep customers as the economy rebounds. Bi-Lo wouldn’t say what percentage of its sales came from store brands, but says it has increased over the past couple of years, a trend the store hopes to continue.

“We’ve seen over the last year, as there have been very slight improvement in the economy, customers beginning to migrate back to the national brands,” said John Gianakis, a vice president at Bi-Lo. “Then as soon as gas prices started to spike, we saw them migrate back to our brands.”

A Harris Teeter spokeswoman said the company’s private label offerings have expanded to 2,800 items, and the chain aims to keep offering more store brands. And this month, Food Lion is offering customers up to $10 in free groceries if they use their MVP cards and buy store brands, in a bid to encourage more customers to “Switch and Save.”

Family Dollar plans to add to its store brands

Family Dollar, which recently said no to a $7.6 billion takeover offer from a New York hedge fund, announced this month that it’s hiring Texas-based MMI to accelerate the expansion of its private label business. The company will have a team on-site at Family Dollar’s Matthews headquarters to help the retailer decide which private labels to carry, how to produce them and how to convince consumers they’re worth trying.

Overall, private brand sales at Family Dollar have increased from 19 percent of sales in 2009 to 22 percent last year. In consumable goods such as foods, the share has gone up from 10 to 14 percent.

In the next few years, Family Dollar wants to increase sales of private label consumables to 20 percent of its total, and overall private label goods sales to 25 percent.

To help keep national brands happy and not worried they’re being pushed out, Family Dollar is emphasizing that as it opens hundreds of new stores and adds about 500 items to existing stores through renovations, there’s room for everyone’s sales to grow.

Private labels such as Family Gourmet have grown in importance as the retailer tries to boost its profit margins while also increasing the share of consumable goods it sells ? which typically have lower margins.

“When I joined the company, there was no dedicated private brands team,” said Mary Rachide, who has been in charge of developing private brands with Family Dollar for two years. “It’s about improving the customer experience, and margin. At the end of the day, we make more selling a private brand.”

Source: McClatchy-Tribune Information Services.