Battle Of The Brands


Published: April 30, 2000
Section: BUSINESS, page D1
© 2000- Landmark Communications Inc.
A look inside Angela Castillo's shopping cart, as she took her maiden voyage down the aisles of Ghent's new Harris Teeter a few weeks ago, might lead one to believe that her next stop was a television commercial for the store.

One loaf of Harris Teeter sandwich bread. One box of Harris Teeter sandwich bags.

Four cans of Harris Teeter canned peaches.

One bag of orzo under the store's newest private label – H.T. Traders.

"I try to buy the store brand if it's a standard item. It's usually less expensive," Castillo said.

The same is true for Anne Rowland.

"I tend to buy the same stuff over and over, and I usually buy Richfood," she said. But there are exceptions. When it comes to soup and salad dressing, it's Campbell's and Ken's brands. "It's what I grew up with. It's what my mom always bought. I trust it."

Though house brands have been around for decades, a new private-label push has emerged among Hampton Roads retailers, and not just in the grocery stores.

It's in the glass cases of Fink's Jewelers and David Nygaard fine jewelers. And it's on the racks at Dillard's and Nordstrom.

Store brands, also called private label merchandise, are anything sold under the retailer's name. These goods account for one of every five items sold in U.S. supermarkets, drug chains and mass merchandisers. Private labels are a $43 billion industry, up 5 percent over 1998, according to the Private Label Manufacturers Association, a New York City-based trade group of 3,000 manufacturers.

Though private labels date back to the 19th century – when retail pioneers such as A&P carried nothing but house brands – the trend really took off in the 1970s.

With the nation knee-deep in recession and inflation skyrocketing, retailers, grocers in particular, started offering generic products for customers who put low prices above quality or nutrition.

The generics, best known for the trademark black-and-white labels that told little more than the name of the product, often were put into their own section of a store, away from the national brands.

As the economy improved, retailers had the systems in place to develop this business and make it more lucrative.

Because the grocers didn't have the expenses of national ad campaigns, they could sell the goods for less. Even at the lower costs, however, the private-label goods had a better profit margin, and they acted as advertising for the grocers.

One more challenge remained.

Grocers realized that "unless the quality and image of the product improved, it was going to die a slow death," said Tad Black, vice president of grocery merchandising with Farm Fresh, the Norfolk-based grocer with 36 stores.

The private label manufacturers and suppliers also improved the marketing and packaging of those products. Often, private label products are manufactured by the same companies that make the goods for the national brand companies. Eventually consumers began to think of them as more than just the cheapest version on the shelf.

In 1989, Loblaw, a Toronto-based chain of stores, started shipping its President's Choice premium private label brand to the United States. That move jump-started the premium private label brand business, products that have no comparable national brands or are head-and-shoulders above other store brands.

Now, with the convergence of retail channels – the prevalence of grocery items in drugstores and discount department stores, for example – retailers have a chance to build store brand names as powerful as Nike, Tide and Disney.

"Branding is the magic word in everybody's lexicon these days, but it's a very hard thing to do and takes a long time," cautions Paul Kelly a branding consultant in Chicago. "There's so much noise in the marketing environment that to break through and say 'I've got something new here' is hard. You've got to be very consistent with it. If it's a premium private label, you can't compromise on quality, and there's always that temptation.

"A recession helps the private label business, because a lot of it's economically driven. It's kind of a testament to the power of private label that it's continued to grow" even as the economy has been so good, he said.

In the supermarket industry, private labels make up about 20 percent of annual sales, up from 18.4 percent in 1994. Between 1998 and 1999, private label sales grew 3.2 percent, outpacing sales of national brands, which grew by 2.1 percent.

In January, Harris Teeter introduced H.T. Traders, a premium private label of specialty items such as breadsticks and Kalamata olives, and Alfredo pesto sauce. The Charlotte, N.C.-based chain intends to expand into Tex-Mex foods, and introduce a new line of private label candy products this month. Harris Teeter has 1,356 private label products, which account for 18 to 20 percent of annual sales.

Though Wal-Mart Stores Inc. touts "Brand names at Every Day Low Prices," the chain carries about 1,000 private label products.

"First and foremost, we're a branded retailer, but private label is certainly a business we've seen an excellent customer response to," said John Bisio, a spokesman for the retailing giant based in Bentonville, Ark.

"We don't do private label for private label's sake," he said. But they do use it for products where the national brands don't offer a lower, or "opening," price point.

Wal-Mart's private lines include Great Value groceries, Equate health and beauty products and Sam's American Choice.

Ol' Roy Dog Food, named after founder Sam Walton's Springer spaniel, is the best-selling dog food brand in America, Bisio said.

Farm Fresh switched most of its private label brands toRichfood from Farm Fresh, when the Richmond-based wholesaler bought the grocer in 1998. However, Farm Fresh brand milk and other commodity items are still available.

Soon, Farm Fresh stores will add Home Best brands, the private label health and beauty care product line of SuperValu, which acquired Richfood last year.

Private label sales constitute 15 percent of Farm Fresh's annual sales.

Even in departments such as meat, deli, bakery and produce, which aren't dominated by national brands, Farm Fresh is using branding to distinguish itself.

The grocer carries Boar's Head meats exclusively, and its fresh bread program is sponsored by Pillsbury. Farm Fresh also promotes Dole pineapples, Tysons Chicken, Certified Angus Beef and other national brands in those departments.

Beyond the grocery aisles, some local retailers have introduced house brands as a way of setting themselves apart from competitors.

Marc Fink, president of Fink Jewelers, a Roanoke-based retailer with nine locations including one in MacArthur Center, trademarked his Quality Cut and Superior Cut diamonds, in 1993.

"You need to separate yourself from the pack," Fink said.

Fink says that sales of those diamonds make up a large percentage of total diamond sales, and estimates that he has sold more than $100 million of trademarked diamonds.

Two years ago, Virginia Beach-based jeweler David Nygaard started branding watches and carrying them alongside Rolex, Chopard, Vacheron and other big names. More recently, he created three premium-cut private-label diamond brands, Star Fire, Hearts Amore and Ageless Fire.

Each jeweler has agreements with suppliers to cut diamonds to certain specifications, and only those diamonds will bear the trademarked name.

"It's a natural extension of the way consumers buy," said Caroline Stanley, director of marketing and communications with the Jewelers of America Inc., a trade group based in New York. "The names Mikimoto, Rolex easily connote a value when you purchase it. It seems that just now that it's being picked up at a jewelry level everywhere else."

Nygaard stresses that his brand represents not just the name on the diamond. It's the live jazz music he brings into the store on weekends. It's the fresh lemonade and coffee he provides for customers.

At Nordstrom, house brands are a hallmark. They make up 20 percent of annual sales for the Seattle-based department store chain, with men's dress shirts being the hottest house brands.

The company has cut the number of private label brands to better position five brands that are exclusive to Nordstrom, including Classiques Entier, Halogen, Preview, Faconnable, Talora and Calloway Golf clothing.

Last month, Dillard's introduced a new line of menswear designed by Daniel Cremieux. This is an exclusive agreement between Dillard's and the designer, and Dillard's is banking on $70 million in sales from the collection this year.

The Cremieux line joins the host of private labels in Dillard's departments. Preston & York, Roundtree & Yorke, Copper Key and others account for about 20 percent of sales.

"We're trying to fill a need," said Julie Bull, a Dillard's spokeswoman. "First, we want to be a place where customers can get quality brands. If we can't fill their needs with our branded vendor options, then we're going to come in with private label."

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