Over the past few years, U.S. consumers have increasingly demanded and retailers have increasingly offered private label packaged goods. The following factors have fueled this growth.

In order to maintain market share, retailers have been placing increased emphasis on offering low prices on nationally advertised brands and deep discounts on multi-packs. The resulting squeeze on margins has led them to use store brands to try to maintain profitability. For retailers, private label offerings typically generate higher profit per unit sold than do the more expensive branded items. This wider margin is now being tracked electronically. Therefore, product movement data generated by the retailer's scanner can be the end for slow-moving brands and create more shelf space for the more profitable private label. A recent survey of U.S. stores polled indicated that their top management is more committed to private label now than ten years ago, while only 1% said they are less interested.

Store brands are becoming an integral part of the marketing strategies of many retailers, not only because of higher margins but also because of their ability to make the store more price-competitive in important product categories, and to enhance store identification. Such in-house brands are a means for a chain to distinguish itself from competition and enhance store traffic. Many retailers want to be viewed as offering considerable savings as well as variety. Through its own brands, a chain has more control over category price fluctuations and can also contribute its own product concepts and marketing ideas.

Private label is seen by many stores as a tool for asserting leverage over the national brand manufacturers in terms of price, service, and product development. As a retailer grows, it seeks alternative sources of supply because of the increasing market share concentration of branded products, as well as the shrinking number of dominant companies in nationally advertised product categories. Also motivating the retailer to give more shelf space to store brands, were the aggressive branded price hikes implemented over the past few years in such highly visible categories as cigarettes, food (cereal and colas in particular), and over-the-counter drugs. These above inflation rate price increases were difficult to justify to consumers.

Over the years, the consumer has become smarter about shopping, less brand loyal, and less status conscious. Greater attention is given to studying price, ingredients, and nutritional content in order to determine any differences in value, with the ultimate goal of spending more judiciously. As a result, the power of name brand products has lessened, as well as the former stigma associated with private label products.

back to top

The product quality and variety of private labels have risen sharply since the early 1980's due to consumers' increased focus on price/value, demands from retailers, and the directives of more sophisticated management from private label.

Shifts in demographics are, in part, responsible for the rising popularity of store brands over the past few years. With worries of decreasing discretionary income, the consumer has been forced to closely monitor spending habits. Further, the 18-29 age group, which presently numbers 46 million and is expected to reach 62 million by the year 2005, is known by advertisers as the "no brands generation" or the "X-Generation." This young group is ethnically and culturally diverse and is seemingly less brand-loyal in terms of most consumer goods (one exception appears to be in athletic equipment). Also, this group poses accessibility problems for national brand advertisers since their television viewing and reading habits are different from older population segments.

Consumers are also being pressured by employers, insurance companies, and pharmacists to be extremely cost-conscious and to use generic prescription pharmaceuticals when possible. This experience is reflective of increasing consumer acceptance of private label OTC medicines.

In addition to management development, the company adopted a group of initiatives to
focus and enhance the business as listed below:

• Focus of product lines into categories with significant quantity and volume potential in an effort to enhance margin contribution.
• Expand market share through improved product quality and image.
• Reduce costs through automation, volume purchasing, and employee involvement.
• Develop customer service programs.

Management believes that improved product quality and image comparable to branded items would assist retailers in expanding consumer acceptance of store or controlled brands.

Management is committed to achieving superior customer service as a sustainable competitive advantage. The company has been involved in the concept of electronic data interchange ("EDI") since the mid-1980s, and is aggressively pursuing opportunities to improve service through the development and implementation of these systems to make order processing and confirmation more efficient.

back to top