A Sweet Opportunity
Candy, one of the least-developed private label food and beverage categories, could be on the verge of blossoming for those retailers and manufacturers willing to give some attention to the premium store brand segment. That’s the prediction of Todd Hale, senior vice president of consumer and shopper insights for ACNielsen.
“Private label penetration in the candy category is just under 4 percent, compared to an average of 16 percent for all categories,” he says. “This underdevelopment, coupled with a private label sales growth rate of 7.6 percent vs. a 2.1 percent growth for branded candy, indicates that an opportunity exists, especially for the retailer with a well-developed private label program.”
Confectionery products led all food and beverage categories in terms of new product introductions, according to ProductScan data from Chicago-based Information Resources Inc. (IRI) and released by the National Confectioners Association (NCA). The IRI figures also highlighted the fact that candy shoppers are receptive to new treats; nearly one-quarter of candy sales are attributed to new products that have been introduced in the past twelve months.
In a forecast distributed at its 2006 All Candy Expo, the NCA said that 2006-2007 will include more indulgent delights as “consumers continue to demand high-end chocolates and other sophisticated sweets.” Nutrient-fortified sweets, candy infused with natural fruit juices and dark chocolates made with the finest ingredients and high cocoa content will be a growing presence at retailer outlets nationwide.
While acknowledging that private label is growing, particularly in the non-chocolate segment, Jim Corcoran, vice president of trade relations for the NCA, expects that private label candy has a limited upside. “With most candy purchases representing a treat or a gift, consumers want a known quantity, a brand they recognize,” he notes. “In the candy category, the brand is the product and items are not generally substitutable. What is the substitute for a Snickers bar?”
ACNielsen’s Hale doesn’t dispute the power of candy brands, but points to some other research from his company that has positive private label implications. Even though upper-income households purchase fewer private label products, this demographic group has a higher-than-average category development index for candy of 111. “Consumers who spend the most in the category have the weakest commitment to private label,” he says. “Add to this the fact that the fastest-growing part of the private label industry is the premium segment, and that could suggest an opening for a premium private label candy offering.”
Will brand-loyal candy shoppers flock to a high-end store brand? Not necessarily, but as the NCA/IRI report makes clear, new product introductions are commonplace in the confections category, and consumers are willing to give these new items a try.
Hale believes that the convergence of these factors presents an opportunity for smaller, specialty candy manufacturers, both domestically and overseas, to work with higher-end retailers to enhance an already-strong private label program. PLB
Longs Credits Private Brands
A growing private label program was cited by Steven McCann, executive vice president and chief financial officer of Longs Drug Store Corp., as a positive factor in the retailer’s improved financial performance. Speaking at the Credit Suisse Consumer and Retail Conference, McCann told an audience of financial analysts that: “We are making significant progress repositioning and repackaging our private brand business, and have, over the past couple of years, expanded our offerings to some 2,000 SKUs, up from about 1,650 when we started our efforts in this area.”
Two of the Walnut Creek, Calif.-based chain’s five strategic initiatives — growing front-end sales and improving customer service — influence its private label thinking. “We did a lot of consumer research before we repositioned our private brands and we found that because of who we are and the equity we have with consumers, we had the opportunity to grow both private label items that carry the Longs name and other private labels with their own identity,” McCann said. “We are very particular about what we put our name on and we want to make sure that the consumer connects our name with what we are, which is a drug retailer.”
Currently, private label accounts for 13 percent of Longs’ front-end sales, which is up from just more than 8 percent when the initiative started. PLB
Private Label Grows in Poland
According to PMR Publications, a Krakow, Poland-based consulting and market research firm, private label products in Poland continue to represent a fairly low share of retail sales. However, a recent report by the firm notes that “the number of private label products is booming rapidly, especially in shops that belong to foreign operators,” such as Tesco and Carrefour. PMR estimates that there are now more than 18,000 retailer-branded products in Poland, which represents an 80 percent increase in the past two years.
At the present time, all hypermarket and discount chain operators, as well as nearly all foreign supermarket chains in Poland, have incorporated low-priced, entry-level store brands into their product offerings. In addition, as Polish consumers increasingly demand better quality, many retailers have added mid-level private label brands. PMR did not find any retailers offering a premium-priced own-brand line.
Nonetheless, in Poland, private label brands are overwhelmingly lower-priced items. PMR reports that the average retailer brand sells for about half of a comparable branded product. In some categories, notably bagged tea, toothpaste, shampoo, carbonated beverages and ice cream, the private label items sell at a 70 percent discount. On the other end of the spectrum, the smallest price gaps are found in milk and diapers where store brands are priced about 27 percent less than branded versions. PLB
According to court papers filed by Coca-Cola and Coca-Cola Enterprises, Wal-Mart’s threat to develop its own private label sports drink posed such a “serious risk” that the Atlanta soft drink company agreed that Coca-Cola Enterprises, its largest bottler, would change the way it delivered its Powerade drink to Wal-Mart. Wal-Mart requested that Powerade be distributed through Wal-Mart’s warehouses rather than directly to stores, as had been the practice.
The filing was in response to a lawsuit filed in February in the U.S. District Court in Atlanta by about 60 bottlers that seeks to block the new distribution arrangement, which the bottlers said would hurt their sales of Powerade. The bottlers claim that warehouse delivery of Powerade to large retailers is prohibited by a 1994 agreement they have with Coca-Cola.
Coca-Cola said that it took seriously the “ominous” pressure applied by the Bentonville, Ark., giant that the retailer would launch its own brand unless Coca-Cola agreed to deliver Powerade to its distribution centers.
“This is no mere threat,” Coca-Cola and Coca-Cola Enterprises said in their filing. “This is precisely what Wal-Mart has done with water sales in its stores where the two largest water products are warehouse-delivered, and Coca-Cola’s and Pepsi’s direct-store- delivered water brands are left to fight for third place.”
Coca-Cola also points out that Powerade is not carried by Costco Wholesale Corp., Issaquah, Wash., which has developed its own line of sports drinks under the Kirkland Signature store brand.
Coca-Cola said that Wal-Mart will double its purchases of the sports drink and give it additional shelf space to compete with PepsiCo Inc.’s industry-leading Gatorade brand. PLB