Wegman: Price and Quality Challenge National Brands, Creating Premium Store-Brand Opportunity

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June 22, 2009

By Maureen Azzato

By their very nature, national brands are trying to meet the needs of the mass market -- the average customer. As a result, national brand quality has declined and suffered further from price pressures from store brands on one front and the likes of Wal-Mart on the other.

This is the main dynamic at play in the marketplace that is creating a niche for retailers to win with store brands, Danny Wegman, CEO of Wegmans Food Markets Inc. said during his keynote address at the Food Marketing Institute's Private Brands Summit last week.

Wal-Mart also has changed the focus of national brands because they are the largest customer to almost every consumer packaged goods company, he added.

"What's happened is that over time the quality of many national brands have come down, which is the pressure of doing business in a very cost intensive environment," Wegman said. "Furthermore, as the pressure increases on national brands because of private brands and that price gap, they are continually forced to look at the quality of what they are putting into their products."

Without questions store brands are growing universally across all channels of trade, but it is not just the economy driving the surge, according to Wegman.

"We really believe that our customers have made a permanent change in how they view Wegmans' brands and are willing to try our brands like they never were before," he said. "I do think the economy has really driven our customers to make different decisions and give [store brands] a try. However I think there is more to it than that."

While traditionally store brands have been below national brand average in quality and price, Wegman said his company sees that changing.

"At Wegmans we look at customers in terms of food interest. It determines how we select our products, where to put our stores and how we think about our business," he said. In order to serve the needs of "food-interested customers" Wegman said his company must deliver quality that his above average, better than national brands.

"We're not content to be down at a national brand average. That's not going to help us serve our customers. We need products that are better than average and we need suppliers who can innovate and help us get there. "

In order to continue to innovate in the future, scale is the biggest challenge faced by Rochester, N.Y.-based Wegmans, which operates 72 stores in the Northeast. Admittedly, the grocer is able to innovate in certain categories, while others prove more daunting.

"We need partners to provide scale for manufacturers to take risks," said Wegman. "To get something that we want, we have to get other retailers together [who like us are more focused] on quality than price. So it's a different type of thinking."

Wegman went even further, suggesting the company would also partner with competitors "because I think we can differentiate ourselves in some other ways."

In the past, cost was the main point of discussion between retailers and suppliers, however there was no cost transparency, which Wegman said is critical.

"We believe our suppliers need to make a profit as much as we do or they won't be there any longer. We believe in true partnering -- in common measures and common goals. We need to work on the supply chain. In particular we need improved relationships with senior management."

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