National Brands Prepare for War With Store Brands

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June 30, 2009

By Maureen Azzato

National brands "have been put on notice" and are acknowledging the impact of store brands on their business as their sales volumes decline, while share of store brands are increasing, retired PepsiCo executive Carla Cooper told attendees at a recent conference.

"National brand sales are up, but [unit] volume is down versus private brands," Cooper said during her presentation titled, "Not Without a Fight" at the recent Food Marketing Institute's Private Brands Summit in New York. "It is clear to them that business as usual will not work any more. The rise of store brands raises everyone's game."

Consumer packaged goods (CPG) companies are fiercely competitive, she warned, and war jargon such as "doing battle, outflanking and victory" are terms commonly used in the board room and in marketing meetings.

"Welcome to the war, and you are now the competition," Cooper said to a room full of 350 grocery retailers and suppliers. Don't expect that the national brands "will be kinder and gentler because you are customers as well as competitors. They want to ensure victory against all competitors, including you."

In order to win, CPG companies will go back to the fundamentals of branding and marketing and category management, Cooper said, adding that they will respond by executing flawlessly on the four Ps -- product, price, promotion and placement.

They will also continue to innovate "and try to one-up store brands by reframing their products," she said, pointing to Kraft Foods as an example, which in Cooper's opinion has done a good job of expanding on their brand franchises with line extensions such as Oreo Cakesters and vanilla cookie sandwiches, as well as Wheat Thins Sublimes and its many new flavors.

Aware of store brand packaging copycats, several aggressive CPG companies also are redesigning their packaging to better distinguish their products in the eyes of consumers and so they visually pop off the shelf.

When it comes to pricing, however, store brands have the advantage because they have no advertising expenditures and have several pricing tiers available to them such as premium, value and organics. On the other hand, CPG companies have very sophisticated pricing models that help them determine the price point at which unit volume will decline and the rate of decline.

"A short-term profit hit will be worth it to them in the long run," Cooper said. "They don't need to match [store brands on price]. There is "an acceptable price gap" between store brands and national brands, she added.

While CPG companies have the advantage in products and promotions, in Cooper's estimation, retailers have the upper hand not only in pricing, but in placement because they ultimately control the shelves and the distribution of products to their stores.

"National branded manufacturers are not going to just roll over and take it. They will fight back," Cooper said by increasing trade promotions, taking temporary price reductions for several months and offering more coupons.

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• PLMA Live: Nielsen V.P. Says Store Brands Will Remain Strong After the Recession

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