Private Label Magazine - July/August 2010

Consumables Rule!

By John J. Pierce

Store brands that consumers can eat, drink, clean up with, or use to improve their health and beauty, are the hot ticket items at discount and variety stores. Designer apparel and housewares take a back seat.

Durable goods can wait. As North America struggles to cope with a recession that has taken on global implications, shoppers are looking for values on everyday food, household and HBC items – and a lot of them are forgetting about store loyalty.

The Big Three retail discount giants – Walmart, Bentonville, WA, Costco, Issaquah, WA, and Target, Minnea-polis, MN – are all showing sluggish sales. Once powerful Sears-Kmart, Hoffman Estates, IL, continues to lose ground. Yet Dollar General, Good-lettsville, TN, largest and most aggressive of the dollar store chains, scored a 12.7% increase for the year ended 1/29/2010. Store brands are playing a key role there.

“Improving the consistency, quality, appearance and breadth of our private brand offerings has yielded increased penetration over the past two years, and we intend to continue to drive our private brand penetration going forward,” Dollar General declared in a prospectus for investors and in its 10K filing with the Securities and Exchange Commission for fiscal 2009.

“Generally, private brand items have higher gross profit margins than similar national brand items. Our private brand program complements our model of offering customers nationally branded merchandise at everyday low prices,” the statement continued. “Since 2007, we have added approximately 700 net new private brand items, predominantly in consumables, increasing our total number of such items to approximately 1,300 SKUs. As a percentage of consumables sales, we increased private brand penetration from approximately 17% in 2007 to approximately 21% in 2009.”

Dollar General’s primary store brands are Clover Valley and Sweet Smile in foods and beverages, DG Home and Smart & Simple in paper and cleaning products, and DG Health and DG Body in OTC and HBC products. DG Body has replaced Bodysense over the past year, and Ever Pet has been introduced for pet food and supplies. As a percentage of overall sales, consumables inched up to 70.8% last year, versus 69.3% in 2008, while the seasonal, home and apparel categories all showed decreases.

Even so, Dollar General has expanded its private label presence in the office supply and seasonal realm with its DG Office, Holiday Style, True Living Outdoors and True Living Kids brands. In home products such as kitchen supplies, cookware, small appliances, light bulbs, storage containers, frames, candles, craft supplies and bed and bath soft goods, private brands include DG Home and True Living. And apparel and baby diaper brands are Bobbie Brooks, Open Trails and DG Baby.

Things aren’t quite as spectacular at Fred’s, Memphis, TN, smallest of the variety store chains. But the importance of private label is clearly acknowledged in its 10K filing: “Our Fred’s Brand products include household cleaning supplies, health and beauty aids, disposable diapers, pet foods, paper products and a variety of food and beverage products. Private label products sold constituted approximately 8.2% of total store sales in 2009 compared to 5.9% in 2008 and 3.0% in 2007.”

Naturally, these products offer “higher than average gross margins while providing the customer with lower priced products that are of a quality comparable to that of competing branded products,” the company said. “An independent laboratory-testing program is used for substantially all of the Company’s private label products,” its 10K statement added. “As part of our 2009 strategic plan, we expanded our private label program and plan to continue that expansion in 2010.”

According to a recent survey of 30,000 shoppers by Consumer Reports, some consumers have soured on Walmart and Target, while Costco has won their loyalty. “Costco has earned high marks as a source of a surprisingly large selection of goods, including mattresses, electronics, small appliances, groceries, and books,” said Tod Marks, senior project editor for the magazine.

Walmart was the only chain to receive below-average quality scores in more than half of the product categories. Only about 10% of Walmart shoppers thought the store’s children’s clothing was excellent, for example. By contrast, 46% of Dillard’s shoppers thought its kids’ apparel was top-notch. For all the talk about Walmart’s low prices, moreover, shoppers said prices at 10 other retailers, including JCPenney, Sears, Dillard’s, and Meijer, were at least as good.

Target’s “cheap chic” goods didn’t wow everyone, Consumer Reports said. Despite the chain’s high-profile partnerships with fashionistas Cynthia Vincent, Eugenia Kim, and Zac Posen, survey respondents judged the quality of Target’s women’s clothing and watches and jewelry below average, and the store’s kitchenware, home decor, and men’s and children’s apparel average. That might explain why several of Target’s recent private label initiatives are in the HBC area, with expansion of the Sonia Kashuk cosmetic line and a new line of Shea Moisture products for African American women.

But one of the latest innovations at Target is Giada De Laurentiis for Target, an exclusive line of affordable cookware products and specialty food items. Giada De Laurentiis, an award-winning chef and popular culinary-world personality – and granddaughter of film producer Dino De Laurentiis – has also signed on as “spokesperson for the wide selection of affordable groceries at Target and SuperTarget stores [and] will share her culinary expertise to help at-home chefs find fresh produce and affordable owned brands, while offering expert tips to make cooking approachable and fun.”

Included in the collection are items such as a 4-qt. deep sauté pan, 6-piece ceramic bakeware gift set and a versatile 2-block cutlery set. Food products include five pasta varieties, three types of pasta sauces, fresh pesto, light vinaigrettes and rich coffee blends. Small appliance offerings include a gourmet stainless steel panini grill, and the assortment also features favorite accessories, such as brightly colored aprons. Prices range from $2.79 for pasta and $6.99 for a nylon spoon with stainless-steel handle to $199.99 for a 10-piece Tri Ply Clad cookset that includes an 8” and 9.5” open sauté pans, 1-qt., 2-qt., and 3-qt. sauce pans with lids, and 5-qt. Dutch oven with lid.

“Our guests want kitchen gear that makes their daily cooking easier and more enjoyable, and Giada’s collection delivers,” said Kathee Tesija, executive vice president merchandising, Target. “We combined our design expertise with Giada’s culinary background to create a product collection that pairs utility with great design and affordability.” De Laurentiis’ cookbooks have appeared on The New York Times best-seller list; her latest, Giada At Home: Family Recipes from Italy and California, came out in March.

SheaMoisture at Target is apparently the first private label hair care line for African Americans to be offered by a discount chain. Its shampoos, conditioners and hair treatments are all priced at $9.99, and include such items as intensive scalp elixir, raw shea shampoo and conditioner, Coconut Hibiscus curling shampoo and soufflé, and yucca and aloe volumizing shampoo, conditioner and hair spray. Extensions to the Sonia Kashuk line, meanwhile, include bamboo brushes and brush sets, and a Spring Awakening eye and lip palette that contains three eye shadows in taupe, shimmering champagne and chocolate, as well as three lip glosses in nude, sheer pink and mauve, that can be layered or worn individually.

But Costco has the most ambitious store brand strategy. Since the membership warehouse chain launched its Kirkland Signature brand in 1995, private label has grown to 24% of total sales and the goal is to reach 37%, Richard Galanti, chief financial officer, said at a recent briefing for investors.

Costco plans to introduce more Kirkland Signature consumables over the next six to nine months, according to transcripts of the company’s call with investors to review third quarter financial results. Although Galanti declined to specify the items in development he affirmed: “We’re prepared to try everything. Look for some more branded private label items in lots of supermarket consumables, canned goods and things like that.”

Store brand sales increased 1.5%t compared to a year earlier, but the goal of a 37% share “will take some time,” he admitted. “We tried a private-label mayonnaise two or three years ago, and a peanut butter, and under-whelmed everyone, so not everything works. But most things do work, and not a whole lot is sacrosanct in terms of branded goods… we want to show our members the quality that we can offer and clearly if we can get them to be loyal to the [Kirkland Signature] brand that’s great long-term, and we’re pretty much prepared to try everything.”

Some Costco products have gotten good reviews from Consumer Reports. Kirkland Signature Environmentally Friendly Ultra 2X HE detergent, for example, at 12 cents per load, was found to be both economical and effective, indeed one of the best among detergents with green claims. By contrast, Martha Stewart Clean Laundry Detergent, at 21 cents per load, finished last – doing no better than plain water, and leaving behind more of the wine, chocolate, grass, ring around the collar, and other common stains and soils in top-loading washer tests.

Kirkland Signature Disney chicken nuggets, which come in Mickey Mouse shapes, were tasty, Consumer Reports testers (boys and girls aged 6 to 17) found, although Target’s Market Pantry version got the top price-value rating. Target told the magazine that Market Pantry nuggets are being reformulated; they were already rated as tasty as Bell & Evans’s brand and cost far less. Runner-up Kirkland nuggets are cheap, Consumer Reports noted, “but you have to buy a five-pound bag.”

Those Disney nuggets are just one example of co-branding at Costco, and other examples range from celebrity tie-ins (Kirkland Signature-Martha Stewart frozen entrees) to familiar brand tie-ins (Kirkland Signature-Filippo Berio olive oil, Kirkland Signature-Post raisin bran, Kirkland Signature- Hormel bacon). Other tie-ins are more obscure, as with Nutriveg for frozen vegetables and Rader Farms for frozen berries. Club packs, of course, are the rule for both brands and private label, but not necessarily identical club packs – Kirkland Signature CO Q10 nutritional supplement softgels, for example, are 75 to a pack versus 90 for Nature Made, but the private label softgels are 300 mg each, versus 200 for the national brand. Organic products like salsa are a growing part of the lineup.

Walmart, by contrast, has been less imaginative in its private label strategy. Its big move over the past year has been the makeover of its Great Value brand to make it more visible – while getting rid of some 300 national brand products, including Glad bags. But according to Canadian Business, this approach backfired and cost the company sales, at least in Canada. “While the company has blamed factors such as unemployment and gas prices as the cause of their low sales, they also recognize that they were too eager to axe name brands, and are quickly restoring many of those products to the shelves,” the magazine said.

Without any fanfare, Walmart has taken other initiatives, including expansion of its Marketside brand, originally created for a fresh food-oriented store format that hasn’t gained any traction, to include a range of soups and salads as well as pizza. The Sam’s Choice premium brand has been revived for frozen meats, but some former Sam’s Choice items like Twist & Shout cookies have been relegated to the Great Value brand.

Sears’ Kmart division is trying to make up for the loss of its Martha Stewart franchise with a wave of domestics under the Jaclyn Smith brand long used for apparel – only Smith isn’t exactly a household name any more; it’s been nearly 30 years since Charlie’s Angels went off the air, and her following at Kmart was already mostly among women 35-60 back in 1999, according to Women’s Wear Daily. To hedge its bets, Kmart has introduced another domestics line, Country Living, but it was already hedging them on with an economy brand, Basic Essentials.

Dollar Tree, Chesapeake, VA, has debuted some new brands such as Temmy’s for cereals and cereal bars. At the upscale end of the retail spectrum, Williams-Sonoma, San Francisco, CA, has come out with items like Poblano corn chowder starter, craft steak sauces and margarita mixes as well as designer housewares.