Vantage Point: Battle with Private Label Brands

In the current environment, now more than ever, shoppers are evaluating branded versus private label products.

A recent study by AC Nielsen, found that globally 69 percent of consumers believe private label goods are an extremely good value for the money, with 62 percent considering their quality to be at least as good as the big brands.

Given this trend, CPG companies are now forced to spend more than ever on Trade Funds to compete (at least at price levels) with the private label brands. These companies are forced to yield on price in many cases to compete with the private label brands in many chains such as Kroger, Safeway, etc.

On the flip side, Kroger, Safeway and others are deploying private label brands so they can effectively compete with Wal-Mart.

Take Kroger for example. It has more than 14,000 private label items and the company recently reported that private label products account for 27 percent of overall sales and 35 percent of total unit sales. Kroger communicates the following strategy: "Kroger brand products are produced and sold in three quality tiers. This strategy fills the needs of all our customers in the various markets where we operate. All tiers are value priced to offer shoppers big savings over other premium, national and economy brand items."

Similarly, other major retailer management has been quoted as saying that they are prepared to cease stocking national brands that do not yield on price. Others have vowed to compete hard against corporate brands for those who won't reduce prices.

Research also shows that Wal-Mart has grown its private label brands from 5 percent to 20 percent in the past five years.

This trend is not only affecting the consumer/shopper, but it is also impacting the investor. In the stock market below from earlier this year, private label brands have recently outperformed the branded companies. (See Figure 1).

According to industry experts, U.S. sales of private-label food rose approximately 10 percent in 2008 while branded products squeaked out a sales gain of 2.8 percent. In other words, recessionary times have motivated shoppers to often look to store brands versus the branded products.

I see this trend continuing well into 2010, and likely beyond, as the quality of private label brands increase.
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About the Author
Tim Vollman has a long history of starting and managing software companies. A 25 year software veteran, he founded TPG Software in 1988. A software /consulting company, TPG Software specialized in Decision Support Systems (DSS) for Consumer Product companies in the areas of Finance, Trade and Consumer Management. 
   Vollman served as president from 1988 through 1998. During the early 1990's, TPG Software provided Kraft Foods, Oscar Mayer, S.C. Johnson, and others with DSS solutions for Consumer and Trade Management. 
   Evolving into a full fledge software house in 1997, TPG Software built the first complete, Web based Trade Funds Management software package. In 1998, they also rolled out its first Web based solution to Barilla of America, a division of Barilla, the largest pasta producer in the world. In 1998, TPG Software merged with ChiCor Information Management Systems, a Deduction Management software company, to provide customers with an end to end Trade and Deduction Management solution. Vollman served as executive vice president of ChiCor until it was acquired by I-many, Inc. in November of 2000. 
   During his tenure with ChiCor, Vollman was in charge of sales and company operations. After the acquisition of ChiCor by I-many, Vollman served as general manager of the Consumer Products Division where he led the Division to 100 percent growth in revenue and 150 percent growth in software. Vollman served as GM from November 2000 until January, 2002. 
   Vollman has a bachelor's degree in Finance from Miami University, Oxford, Ohio with a minor in Computer Science. 
   For more information, visit: www.adessosolutions.com.