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Non-Foods Heat Up

April 16, 2010
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Despite the fact that the Great Recession stretched into a second year in 2009, food manufacturers were delighted to report that dollar sales actually edged up a few points over the 52 weeks ending Nov. 29, as cash-strapped consumers opted to cook for themselves at home rather than eat out. Unfortunately, reports Chicago-based Information Resources Inc. (IRI), the gains did not extend to non-foods. Here, dollar sales in the beauty/personal care (-2.1 percent) and general merchandise (-4.6 percent) departments took a nosedive - despite modest price inflation - and sales in the health care segment edged up only 1.2 percent (unit sales were down in all three departments).

“Double-digit declines were seen across major [non-foods] categories, including batteries and lightbulbs,” reports Sue Viamari, editor of IRI’s Times & Trends newsletter. “Consumers have become entrenched in their conservative ways, and they continue to focus heavily on ‘essentials’ such as food/beverage and health and wellness,’” while cutting back on items not considered necessities.

But cutting back doesn’t mean cutting out, she continues, noting that many shoppers simply opted for better-value store brand non-foods instead. As a result, many private label non-food categories saw dollar sales increase significantly over the past 52 weeks, landing a record number on this year’s Private Label Non-Foods Hot List.

Made up of categories worth at least $10 million that saw dollar sales in U.S. food, drug and mass merchandise outlets (excluding Walmart) increase at least 10 percent over the 52 weeks ending Jan. 24, the 2010 Non-Foods Hot List includes a whopping 70 non-food categories, up from just 54 last year (30 of those are on this year’s list, too). Among the most notable qualifiers: both wet and dry dog and cat food; baby soaps and diapers; facial anti-aging and facial moisturizers; and liquid laundry detergent - all categories long dominated by strong national brands.

“The move to private label is being spurred by a number of factors: the economy and consumers’ overall financial position, higher-than-normal CPG prices, increased availability of store brands - and increased marketing support - and a general sense on the part of consumers that store brands are as good or better than their brand name competitors across many CPG categories,” Viamari says.

Departmental Gains

About a third of the Non-Foods Hot List categories fall within the health care department, where the shift to store brands was most profound. According to IRI, private label’s dollar share of the segment jumped from 26.0 percent to 27.9 percent in just one year, thanks to strong gains in big money categories such as antacid tablets (+37.3 percent), 1- and 2-letter vitamins (+25.3 percent), internal analgesic liquids (+22.3 percent), cold/allergy/sinus liquids/powders (+14.2 percent), cold/allergy/sinus tablets/packets (+13.8 percent), cough syrup (+13.4 percent), first aid tape/bandage/gauze/cotton (+11.4 percent) and mineral supplements (+11.1 percent), among others.

“Consumers are becoming more aware of the fact that over-the-counter private label medications contain the same active ingredients as national brands,” Viamari says. “So consumers are rather comfortable making the switch in order to reap considerable savings.”

She added that store brand health care products retail for 46 percent less, on average, than comparable national brand items.

When you’re talking about categories such as blood pressure kits (+174.5 percent), personal thermometers (+70.7 percent), heat/ice packs (+36.8 percent), anti-smoking patches (+23.3 percent) and anti-smoking tablets (+11.8 percent) - where even private label prices range from $7 or $8 to more than $40 - consumers often are willing to make the switch, Viamari says, adding that money-back guarantees now offered by most retailers virtually eliminate the risk associated with choosing store brand products.

The national brand/private label price gap is even wider in the beauty/personal care category, where store brands retail for 64 percent less, on average, than their national brand counterparts. However, given consumers’ strong brand loyalty in categories such as shampoo, cosmetics and toothpaste - as well as branded manufacturers’ continued focus on innovation - private label has been less well-received. Still, store brands managed to grab another tenth of a percent of total beauty/personal care dollar sales, pushing dollar share to 9.5 percent - still lowest among the six major food/drug/mass departments.

Private label posted its biggest beauty/personal care gains in the hand sanitizers (+94.1 percent), women’s gift packs (+79.7 percent), hair accessories (+72.1 percent), dental accessories/tools (+58.0 percent), facial anti-aging (+49.0 percent), eye/lens care tablets/accessories (+27.6 percent), moist towelettes (+26.8 percent) and liquid hand soap (+24.2 percent) categories, but it also performed well in categories that reflected budget-conscious consumers’ increased interest in at-home vs. salon beauty care, including grooming/shaving scissors (+19.8 percent), suntan lotion and oil (+19.3 percent), facial moisturizers (+17.0 percent), and hand and body lotion (+13.8 percent).

Despite a slight decline in overall sales, private label managed to add a tenth of a percentage point to its share of total general merchandise dollar sales as well, falling just shy of the 10 percent mark. Top gainers in the general merchandise department include disposable foil pans (+353.1 percent), shoe laces/accessories (+91.7 percent), plastic bottles (+60.3 percent), cosmetic storage (+50.0 percent), cloth all-purpose cleaners (+38.4 percent) and dishwasher detergent/additives (+36.8 percent). Although larger general merchandise categories can be found further down the Non-Foods Hot List, only one of the six listed among the top 20 did more than $50 million in sales last year, suggesting that retailers are moving their private label programs into lower-volume categories and/or giving their store brands a bigger piece of available real estate, as SKU rationalization kicks into high gear at some chains.

“Many chains have virtually eliminated alternate brands in specialty consumables,” reports Doron Levy, president of Toronto-based Captus Business Consulting. “As raw commodity prices exploded to the upside since 2000, margins have gradually shrunk as vendors have asked for massive price increases. So it only makes sense for retailers to focus on higher-margin private label products.”

SKU Rationalization

According to Levy, SKU rationalization also deserves much of the credit for private label’s recent success in product categories in which store brands already were performing exceptionally well. Although double-digit gains aren’t surprising in categories in which store brand shares languish in the low single digits - including disposable foil pans (+353.1), hair accessories (+72.1 percent), facial anti-aging (+49.0 percent), cigarettes/single pack (+31.6 percent), liquid laundry detergent (+21.9 percent), cigarettes/multi-pack (+10.3 percent) and cigars (+10.1 percent) - such significant gains are somewhat surprising in categories in which private label already owns the lion’s share of total sales.

Nonetheless, 18 categories with private label shares in excess of 30 percent made this year’s Hot List, led by epsom salts (93.7 percent), disposable gloves (63.9 percent), hand sanitizers (51.7 percent), anti-smoking patches (45.8 percent), straws/swizzle sticks (44.3 percent), household cleaning supply containers (44.0 percent), shoe laces/accessories (43.6 percent), anti-smoking tablets (43.3 percent) and personal thermometers (41.6 percent).

“Many of these categories are relatively small as well,” Viamari remarks. “And they’re also low-differentiation ... allowing retailers to make the strategic decision [to limit brand choices] with little consequence.”

However, she says she’s not so sure consumers will be receptive to this trend on a broad scale.

SKU rationalization probably helped drive some of the more significant shifts in category share revealed by this year’s Non-Foods Hot List as well, Viamari continues. Store brands gained - or, in a few cases, lost - less than two share points in 38 of the 70 categories listed, suggesting private label simply mirrored national brand success in those segments (think facial anti-aging, 1- and 2-letter vitamins, water softeners/treatment, etc.). But they enjoyed more considerable gains in the remaining 32 categories.

The Non-Foods Hot List categories in which store brands posted the biggest share gains include blood pressure kits (+20.0 points), shoe laces/accessories (+15.0 points), ear drops/treatments (+9.9 points), heat/ice packs (+7.9 points), household cleaning supply containers (+7.5 points), eye/lens care tablets/accessories (+7.1 points), antacid tablets (+6.2 points), cosmetic storage (+6.0 points), women’s gift packs (+5.5 points) and personal thermometers (+5.1 points).

According to consultant Dan Raftery, president of Antioch, Ill.-based Raftery Resource Network, some of these shifts also could reflect retailers’ recent entry into higher-margin non-foods, particularly inexpensive houseware-type categories that can drive impulse sales.

“Most retailers already offer a pretty good range of private label in OTC drugs and other non-food staples, so there may not be much room for additional private label development,” he explains. “But there are still expansion opportunities in hard goods and housewares - products like household cleaning supply containers that may not be on the shopping list but are inexpensive enough that consumers will pick them up if they run across them. I mean, how many people expect to buy cosmetic storage at the supermarket? And yet, private label sales were up 50 percent last year.”

The Price is Right

The average price of a Non-Foods Hot List item this year is $4.00 per unit compared to just $3.76 a year ago - a 6.4 percent increase. While rising commodity prices (plastics), more concentrated formulas (laundry detergent), hefty new surcharges (tobacco) and natural/organic ingredients (pet food) deserve some of the blame, Raftery said retailers probably are taking higher margins as well in an effort boost private label profitability during difficult economic times. Although most industry pundits claim the private label/national brand price gap still is too wide in many categories, Raftery said retailers need to be careful not to push the envelope too far.

“There is price gap at which there’s no perceived difference between private label and national brands, where the savings aren’t significant enough for private label to win the sale,” he explains.

We’re not there yet, he added, but retailers should proceed with caution.

The biggest price jumps in Non-Foods Hot List categories occurred in the disposable foil pans (+110.0 percent), plastic bottles (+47.2 percent), cigarettes/multi-pack (+26.8 percent), shoe laces/accessories (+25.1 percent), cigarettes/single pack (+23.0 percent), dental accessories/tools (+20.1 percent), eye/lens care tablets/accessories (+19.4 percent), cigars (+16.7 percent), wet dog food (+14.9 percent) and sink sets and cutlery trays (+14.3 percent). Still, private label managed to take share points from the national brands in eight of those 10 categories, suggesting similar price increases occurred on the branded side as well. It seems likely that when national brand prices reach a certain level - or the savings offered by the private label alternative becomes so considerable - consumers feel compelled to give the store brand a try.

The highest-priced items on this year’s Non-Foods Hot List include blood pressure kits ($41.62), anti-smoking tablets ($34.11), cigarettes/multi-pack ($30.58), anti-smoking patches ($27.99), humidifier/vaporizer/air purifier filters ($24.67), facial anti-aging ($11.86), cigars ($11.10), cosmetic storage ($10.13), zinc air batteries ($9.10) and disposable diapers ($9.00), all of which bear watching, given consumers’ willingness to trade down on big-ticket items.

The Take Away

Although many Non-Foods Hot List categories are relatively small, retailers should pay special attention to those with the highest dollar volume, including cold/allergy/sinus tablets/packets ($698.1 million), mineral supplements ($468.9 million), antacid tablets ($329.3 million), disposable diapers ($279.6 million), dry dog food ($232.7 million), first aid-tape/bandage/gauze/cotton ($186.8 million), 1- and 2-letter vitamins ($149.4 million), cold/allergy/sinus liquid/powders ($149.4 million), liquid laundry detergent ($142.1 million), dog/cat needs ($112.2 million), rawhide dog chews ($106.2 million) and dry cat food ($106.1 million).

But big-money Non-Foods Hot List categories that also boast above-average dollar shares - including first aid-tape/bandage/gauze/cotton (35.6 percent), 1- and 2-letter vitamins (32.8 percent), mineral supplements (29.5 percent), antacid tablets (28.2 percent), cold/allergy/sinus tablets/packets (26.2 percent) and cold/allergy/sinus liquid/powders (23.7 percent) - are the private label equivalent of a triple play, boasting double-digit dollar sales gains, high dollar volumes and better-than-average shares.

“Retailers that haven’t maxed out private label opportunities in these categories are missing out,” Raftery says.

However, he continues, retailers shouldn’t ignore opportunities in smaller-volume segments such as, say, liquid vitamins and minerals, oral pain relief, and humidifier/vaporizer/air purifier filters - where low shares suggest plenty of potential for growth and high average prices mean bigger penny profits.

“There are extensive opportunities in non-food categories,” Levy concludes. “Retailers without a strong [private label] showing in this segment should consider rolling out new items to help protect margins.” As long as new store brand entries offer quality and value, he adds, “Consumers have demonstrated they’re willing to try them.” PLB

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