Retailers Continue to Gain on Strong Store Brands

November 8, 2011

As retailers finalize third quarter reporting and head into the all important holiday season, chains from all sectors of the industry -- now including CVS and Whole Foods -- continue to credit strong store brands for positive performance.

CVS Nuance image “We saw strength in a number of categories especially allergy, consumables and store brands,” said Larry Merlo, CVS President and CEO. “We recently launched our new proprietary beauty brand, Nuance by Salma Hayek, and its results to date are exceeding plan and our store branded proprietary products made up 17.5 percent of front of store sales in the third quarter, up 50 basis points from last year as consumers continue to be value conscious in this economy.”

Rhode Island-based CVS saw overall revenue increase 12.5 percent to a record $26.7 billion for the third quarter, and posted a 3 percent gain for its retail operations, based in part on the strength of its store brands. Front of the store sales rose 2 percent for the quarter, during which CVS launched Nuance.

That private label launched in August with more than 100 SKUs across four categories -- skincare, cosmetics, haircare and body –and was co-developed with actress Salma Hayek. The products are formulated with fruit extracts, essential oils and botanicals and range in price from $2.99 and $19.99.

Nuance is positioned as a premium brand using “exotic, natural ingredients and ancient beauty secrets with science,” according to the company, but shoppers are still seeking out discounts. “We continue to see the consumer looking for value and remaining value conscious,” Merlo said.

Value Seekers Everywhere
Whole Foods shoppers -- typically middle to upper-income -- are also looking for value-priced products. Store brands are running neck and neck with national brands at Whole Foods as the chain increased the number of SKUs and revamped packaging, said Walter Robb, co-CEO, during a conference call with analysts. “We upped the SKU count from 2,200 to 2,600, and we did some very nice visible repacking in categories like household cleaning. These sales were really jumping.”

Whole Foods 365 During the downturn, private label sales increased three times faster than sales of national brands at Whole Foods, said Robb. Store brands continue to benefit from the momentum being put into building the labels coupled with continued economic pressure. “I think some of that is because of the efforts of the team here to put that momentum there, but I think it does reflect that people turn to private label when they’re looking for value,” said Robb. “I think we’ve got a nice balance going on right now.”

Whole Foods offers less expensive natural and organic staples with more than 2,000 SKUs under the 365 and 365 Organic Everyday Value store brands.

For its most recent quarter, the grocer saw sales rise 12 percent to $2.4 billion. "We are pleased to end the fiscal year on a high note, crossing $10 billion in sales and reporting our eighth consecutive quarter of accelerating two-year identical store sales growth," said John Mackey, co-founder and co-CEO.

In September the Austin-based chain released results of a shopper study that showed a majority of customers would buy organic or natural products if priced competitively to conventional foods and within their budget.

A pricing survey released concurrently showed a basket of popular grocery items costs $5.38 less at Whole Foods Market than at other national supermarket chains. The average total price for the everyday items at Whole Foods Market stores was $36.03 compared to the competitors' average of $41.41.

The retailer compared store brands at other leading supermarkets in those same cities including Kroger, Safeway, Wegman, Fred Meyer and Publix. In most, but not all cases, Whole Foods private label beat both the national brands and competitive store brands on price for comparable items, according to the report.

SBD Views: The central point in this story defines why the current period of store brands growth is fundamentally different from any other time in the history of store brands -- store brands are benefiting from the momentum being put into building the brands coupled with continued economic pressure. Where major national brands are cutting expenses and quality to meet the consumers demand for value, store brands are actually increasing their investment in quality and branding. This compelling dynamic is setting the stage for ongoing growth of store brands share where retailers like CVS and Whole Foods are seizing the day to build store brands – Carpe Diem. -- John Failla for Store Brands Decisions

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Keywords: drug, grocery, private label hbc, private label organic food

Comments (1) - Post a Comment

Excellent summary and encapsulation of a trend that we are not only seeing in store brands but also across other traditional value segments and markets, where manufacturers facing declining profit margins have begun to innovate, invest in quality, and build brand equity. This is especially true in China, where product development budgets were historically dedicated to innovative ways of reducing costs and are now being increasingly allocated toward commercial design and brand development.

Jay Peirce at 5:25pm EST - November 8, 2011

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