The prices on just about every commodity are going up and, to some analysts, that points to good news for national brands and bad news for private label. The rationale behind that assertion: Large national brands with greater buying power will keep a tighter lid on rising commodity costs, while private label manufacturers that purchase smaller quantities will see costs rise at a faster pace. The end result is that the price gap between national and store brands will close.

RetailWire Instant Poll Results:

Do you see rising commodity prices benefiting national [brands] over store brands; or vice versa?

• Store brands have the advantage (58%)

• National brands have the edge (16%)

• Neither has the advantage over the other (24%)

• Not sure/no opinion (3%)

RetailWire BrainTrust Comments:

“National brands in commodity markets have faced increasing difficulty in justifying their price premium over private label. This trend has accelerated as private label quality has improved. A weak economy and price inflation are likely to lead to lower market shares for brands rather than greater.”

— Raymond D. Jones, managing director, Dechert-Hampe & Co.


“Most major manufacturers already do private label, so some of the ‘advantages’ of national brands over private label, in terms of economies of scale in buying commodities, isn’t as big as might be thought. ...

Price/value is obviously still important for private label, on [the] lower tier, but the real positioning statements today are being made against the upscale private label. There’s a ceiling on private label penetration, of course, and it depends on the local market demographics and the retailer’s positioning.

A few retailers have gone over the edge with too much private label vs. too little on the brands, and have had their fingers burned, so they’ve shifted back to more brands. This isn’t a seismic move by any means, but it’s there, and now a recognized factor.

— Warren Thayer, editor, Refrigerated & Frozen Foods Retailer, BNP Media


“Most private label manufacturers are not as small — or as backward — as some would believe. Most have long-term procurement contracts in place, the same as national brand manufacturers. Even if the price gap reduces, there will be little or no effect — or advantage — to the national brands. As our studies have proven, the price gap is excessive for most private label items. Reducing the gap will not reduce sales.

The current economic downturn is expected to last until the 3rd quarter. This is simply too short a period for significant consumer trade-downs. With the improved private label quality, any trading down will — in the long-term — just wind up increasing private label’s share.

— W. Frank Dell II, CMC, president, Dellmart & Company


Read the entire story and RetailWire discussion at: http://www.retailwire.com/Discussions/Sngl_Discussion.cfm/12781