Opportunity Knocks

March 11, 2009
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The past year was not a good one for retail. Unit sales were down across the board, but price increases helped retailers eke out a modest 3 percent dollar sales gain. In the general merchandise department, however, there was no good news to report. In fact, a review by the Chicago-based market research company Information Resources Inc. (IRI) revealed that dollar sales of general merchandise in U.S. food, drug and mass merchandise outlets (including Wal-Mart) tumbled 6.9 percent over the 52 weeks ending Nov. 30, 2008.

Cash-strapped consumers are cutting back on non-essential general merchandise purchases. But when they need batteries, light bulbs or school supplies, more are choosing less-expensive store brands.

The past year was not a good one for retail. Unit sales were down across the board, but price increases helped retailers eke out a modest 3 percent dollar sales gain. In the general merchandise department, however, there was no good news to report. In fact, a review by the Chicago-based market research company Information Resources Inc. (IRI) revealed that dollar sales of general merchandise in U.S. food, drug and mass merchandise outlets (including Wal-Mart) tumbled 6.9 percent over the 52 weeks ending Nov. 30, 2008.

Devin Rainey, director of category development for Arlington Heights, Ill.-based Federated Group Inc., says consumers are making sure they have food on the table.

“They’re scaling back on non-food categories to stretch their dollar in an uncertain economy,” he explains.

Of course, consumers can’t forego general merchandise purchases altogether - they still need to buy light bulbs and batteries from time to time. But in an effort to save money, many are switching to less expensive store brands - when they’re available.

Outside the mass merchandise channel, Rainey says, general merchandise never has been a private label stronghold. But more recent figures suggest the worsening economy is driving a change.

IRI figures for the 52 weeks ending Dec. 28, 2008, found that, although private label dollar sales were down in 12 of 18 general merchandise categories examined for this report, store brands outperformed the category as a whole in two out of three cases.

“Private label generally goes up during economic downturns and then continues to grow even after the economy improves,” claims Peter Murgia, national sales manager at Ivyland, Pa.-based Fox Run Craftsmen. “So if there was ever a good time to get into private label general merchandise, this is it.”

In the pages that follow, PL Buyer takes a closer look at store brand opportunities in several key general merchandise categories.

Gadgets Go Upscale

Although IRI doesn’t track kitchen gadget sales, anecdotal evidence suggests the category is growing, particularly on the private label side.

“I think retailers have finally recognized the fact that when it comes to spatulas and spoons, most consumers feel no brand loyalty,” Murgia says. “It’s more about performance than brand name.”

Despite the economic downturn, one of the biggest trends in store brand kitchen gadgets is quality, reports Joseph Van Houten, president and CEO of ARG Manufacturing, New Britain, Pa.

“Every one of our private label customers wants national brand equivalent or better for their private labels,” he says.

Such customers include Grand Rapids, Mich.-based Meijer Inc., which debuted more than 100 kitchen gadget SKUs under its Grand Gourmet label last spring.

“A lot of our competitors have created low or entry-level-price-point private label programs,” says Kyle Orme, the chain’s former housewares buyer, who now serves as planning manager for seasonal products. “We offer those products, too, but under another brand. For our brand, we wanted a line that reflects our core values: good quality at a fair price.”

Apparently, Meijer’s strategy has paid off. According to Orme, Grand Gourmet has been so successful that the chain recently followed up with a premium tier of kitchen gadgets under the Grand Gourmet Pro label.

One of the keys to Grand Gourmet’s success is the fact that every SKU was designed exclusively for Meijer.

“I really think it’s important to come up with something unique that sets your kitchen tools apart from your competitors’,” Van Houten says.

But it’s not just about differentiating your program from all the others.

“Many consumers want all of their kitchen tools to match,” Murgia explains.

So, if they’re happy with the uniquely shaped or colored private label ladle they bought at your store and want to buy additional items to match it, there’s only one place they can go to get it.

How can retailers make their private label program stand out?

“Color is really hot right now” - especially yellow, red and green, Murgia answers. Comfort is also big.

“We do a lot of soft grip handles - silicone or TPR over molded plastic - because it feels better and allows for an improved grip,” Van Houten reports, citing a trend toward ergonomically correct products.

Another way retailers can drive sales of private label gadgets is to offer a broad enough assortment.

“You don’t have to be number one, but you need a presence,” Murgia says.

According to Van Houten, even basic programs comprise at least 15 or so items, including a can opener, a peeler, a pizza cutter, an ice cream scoop, measuring cups and spoons, and several long-handled tools such as solid and slotted spoons and turners, a ladle and a whisk.

In addition, “almost every [private label] customer we work with has at least three price points - opening, mid and high,” Van Houten says, with the latter incorporating high-end materials such as silicone, stainless steel and zinc alloys. “You want to make sure you have something for every budget.”

Bigger Share in Alkaline

Thanks to increased competition from non-traditional channels, battery dollar sales in food, drug and mass merchandise outlets (excluding Wal-Mart) decreased 0.9 percent to $1.6 billion over the 52 weeks ending Dec. 28, 2008. Although they still represent more than three-quarters of all battery dollar sales, alkaline batteries saw their sales slip nearly 1.5 percent over the past year as more consumers opted for rechargeable NiCd, NiMH and lithium-ion (lead acid) batteries, for which sales shot up 3.2 percent to just over $63.2 million.

Although private label has yet to establish much of a presence in the rechargeable segment, it performed extremely well in the alkaline subcategory, posting a 12.3 percent dollar sales gain that boosted its share more than 2 points to 16.8 percent.

“Private label is growing right now, along with value brands, as consumers look for ways to maximize their dollars when purchasing basics like batteries,” says Dan Marich, vice president of sales and marketing at Rancho Cucamonga, Calif.-based PowermaxUSA. For much the same reason, he continues, higher-count packages that offer more batteries for the money have become increasingly important to the success of any private label program.

Marich also reports growing demand for products that bridge the gap between regular alkaline batteries and high-priced rechargeables.

“Our Ultra Max alkaline batteries are designed for high-drain devices and offer consumers significantly more power than regular alkalines,” he notes, but at a lower price point than rechargeables.

CFLS a Must-Have

“Any product that saves energy is big right now,” reports Alan Feit, executive vice president at Los Angeles-based Feit Electric Co. “But the hottest trend is compact fluorescent light bulbs (CFLs).”

Feit estimates that 25 percent of the market is currently in CFLs, prompting many retailers to begin adding them to their private label lineups. Perhaps as a result, store brand light bulb dollar sales declined only 2.3 percent over the past 52 weeks, helping to boost private label’s share of the light bulb category in food, drug and mass to almost 15 percent.

While consumers might have been willing to shell out an extra buck for a national brand incandescent, Feit explains, they’re less likely to spend $2, $3 or even $4 more for a branded CFL when an equally good private label alternative is sitting right next to it.

Retailers that want to see their store brand sales continue to climb should consider expanding their private label CFL assortment beyond the traditional spiral-shaped lamp.

“CFLs are available in a variety of different shapes and sizes to take over any light bulb application. The technology is the same,” Feit explains. “The spiral is just covered so that it looks like a traditional light bulb or floodlight or bathroom globe.”

Feit also suggests that retailers keep close tabs on multi-pack movement.

“Package sizes have gotten a lot higher in recent years, but we think that, because of the economy, they’ll come back down. People just won’t want to spend that kind of money anymore.”

Candle Turnaround?

A shift toward air-freshening “gadgets” such as plug-ins and oil heaters, as well as reed diffusers and other more decorative options, has wreaked havoc on the candle category over the past couple of years. In fact, IRI figures indicate total candle dollar sales in food, drug and mass slid another 8.5 percent over the 52 weeks ending Dec. 28, 2008, to $669.5 million. Private label sales were off nearly 18.6 percent - almost equaling the loss suffered by category leader Glade (-18.7 percent). But according to industry insiders, the segment is on the verge of a turnaround.

The driver behind the reversal of fortune is Procter & Gamble’s 18-month-old Febreze brand candle. Its sales shot up a whopping 41.2 percent over the past year. Both larger and higher-priced than traditional Glade candles, “dual-core” Febreze candles are on their way to becoming the segment’s new standard.

Until a year and a half ago, every major retailer had a private label version of Glade’s air-care candle, reports Bruce Prince, executive vice president of Star Candle, Ridgefield, N.J. But when the category fell on hard times, most eliminated the store brand version. However, Febreze’s recent success has prompted many to re-enter the category with a private label equivalent.

Prince believes 2009 will be a much better year for private label candles as a result.

“Our version is 30 percent bigger - 7 ounces compared to the brand’s 5.5 - but it’s priced 25 percent less than Febreze: $4.99 vs. $7.99. … It’s all about affordable luxury.”

Other candle category trends to watch include bakery scents, all-natural ingredients such as soy and beeswax that also reduce dependence on foreign oil, and licensed or co-branded products.

Outside the air-freshening candle arena, says Lisa Murphy, special markets product manager at Cincinnati-based Candle-Lite, retailers need to offer a broad assortment of private label candle styles, including (in order of importance) glass-filled, pillars, tea lights and votives.

“Tapers should also be layered into the assortment during the holidays and in areas where entertaining, events and weddings are popular.”

Supply Prices Slashed

Thanks to increased competition from office supply stores, dollar sales of children’s art supplies (-2 percent), office products (-.8 percent) and writing instruments (-3.7 percent) were down slightly in food, drug and mass merchandise outlets (excluding Wal-Mart) over the 52 weeks ending Dec. 28, 2008. However, retailers unwilling to just hand over that portion of their business are using their private labels to beat back the threat.

In the children’s art supply category, for example, store brand dollar sales losses mirrored those of the category as a whole, but unit sales shot up almost 21 percent, as retailers slashed private label prices in an effort to woo cash-strapped parents.

“Many schools now put out lists of supplies students are expected to provide,” explains Jon Mahal, national accounts manager at Bay Shore, N.Y.-based Tape-It Inc. “But many people just can’t afford $6 for a pack of national brand markers,” making store brands a welcome alternative.

And while retailers aren’t necessarily bringing in more dollars with low-priced private label school supplies, they are building equity in their store brand - and good will among their customers, Mahal says. PLB

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