Loblaw Launches a New Line of Discount Store Brands

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February 16, 2010

Canadian retail chain Loblaw introduced a new tier of low priced store brands that will be only available at its No Frills discount stores.

Prices for the new line are higher than the chain’s value line, but cheaper than national brand equivalents and are being promoted with in store signage as “discount brands exclusive to No Frills” and “up to 20 percent cheaper than the big names,” according to a report in the Toronto Globe and Mail.

Industry observers say the strategy of introducing an array of brands available only at its discount stores is similar to that of U.K.’s Tesco PLC.

“For Loblaw, it's the potential to make more profit margins,” Tom Stephens, a former Loblaw executive who runs Brand Strategy Consultants, a private label specialist, told the Globe and Mail. “It's more choice and savings for the consumer. But it's a further threat to national brands.”

Because of lower distribution and marketing costs, private label products can deliver profit margins of approximately 40 percent, which is about 10 points higher than national brands, he added.

Stephens also suggested that the chain’s recent move could be a first step in a wider launch of the new discount store brands at other Loblaw banners such as Real Canadian Superstore, Provigo and Maxi.

The new line of products is marketed under various names such as Bijou (frozen juice), Terra (canned vegetables), Cercle (mayonnaise) and Du Matin (jam). A 950-ml jar of Cercle mayonnaise is priced at $3.30 compared to Loblaw’s No Name product that sells for $2.45, and a smaller jar of Kraft Miracle Whip that retails for $4.06, according to the report.

Loblaw would probably ditch weak-performing lines among national-brand producers if its new private labels took off, said.

Jim Danahy, managing principal at consultancy CustomerLAB, said Loblaw will use this launch to rationalize product assortment and get rid of underperforming national brands

Still, in adding new private labels, Loblaw risks pinching sales of its popular President's Choice line, he warned. And it could be confusing for shoppers to be confronted with so many different brands, added

Grocery consultant and former Loblaw employee A.G. Manoian, however, criticized the launch saying that what was really needed is an even lower cost line to compete against Wal-Mart.

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