Competing More Effectively with Second-Tier Private Brands

July 6, 2010
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According to a just-released report from Barrington, Ill.-based consultancy Willard Bishop, traditional grocery supermarkets could make more effective use of second-tier private label offerings to better compete against supercenters and non-traditional grocery channels.

Traditional grocery supermarkets continue to lose market share to supercenters. To compete, supermarkets must take full advantage of everything private brands have to offer, according to a just-released report from Barrington, Ill.-based consultancy Willard Bishop.

“We are huge proponents of mid-range grocery supermarkets making more effective use of second-tier and even third-tier private label offerings to compete against supercenters and non-traditional grocery channels,” Craig Rosenblum, Willard Bishop partner, tells PL Buyer. “But it must be the broadest array of offerings possible. Commodity shoppers want to see savings available across categories.”

Admittedly, Rosenblum says, grocers have been down this road before.

“Many tried carrying second-tier private label, but dropped it when it didn’t move,” he reports.

Private label’s appeal to consumers will continue to grow, Rosenblum says, “despite reports to the contrary. With the changed economy, if you’re not carrying second-tier private label, there are customers that will leave the store.”

The June 2010 Willard Bishop annual report, “The Future of Food Retailing,” features market share and sales data for the range of store formats found in the retail food industry. In 2009, the traditional grocery channel saw a dollar-sales increase of almost 1 percent to nearly $468 billion. Market share, however, fell almost 1 point to 47.5 percent.

On the other hand, sales in supercenters grew nearly 8 percent to more than $164 billion, with store count increasing nearly 4 percent to more than 3,300 stores in 2009. Market share increased 0.8 percent, approaching 17 percent total.

“Being the neighborhood grocer no longer suffices,” says Rosenblum. “That’s not to say the better experience a shopper has at a grocery [store] doesn’t matter. While research shows shoppers aren’t unduly affected by a 2 percent to 4 percent difference in price, at 8 percent, they definitely notice. Walmart understands this and have had success by being 13 percent - 20 percent below in price versus traditional supermarkets. It’s not likely to go back to the way it was.”

Willard Bishop projects that by 2014, market share for traditional grocery will decrease almost 3.5 points to 44.1 percent, while share for non-traditional grocery will grow a similar amount to just more than 40 percent. Given these kinds of numbers, private label will be important to grocers struggling to maintain respectable profit margins.

“Consumers realize the quality of first-tier private label is quite good,” concludes Rosenblum, “and they see commodities for what they are. ALDI caters to family incomes of around $40,000, but you see luxury cars in the parking lot. They’ve improved the [shopping] experience, sure, but what shoppers see is quality and value.”

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