US supermarkets continue push for private labels with bold new strategies

Posted by Daniel Palmer on 18th August 2008

The battle between national brands and private labels is heating up in America with supermarket chain Publix launching a promotional campaign pitting their home brands against national brands in a ploy designed to highlight the quality of their private labels. Safeway, meanwhile, has sought to take private label products to the next level by selling their own brands to competitors.

Publix, the largest employee-owned supermarket chain in the US, will offer customers a free private label product when they purchase one of four specified national brands for the period of a week.

If a customer purchases Progresso Italian Style Breadcrumbs, Campbell’s Organic Tomato Juice, Hunt’s Tomato Sauce or Hormel’s Beef Roast they will receive the Publix branded equivalent for free. The scheme has been created due to the chain’s belief that their home brand products are as good as the national brands but perceived by consumers to be of a lower quality.

Safeway, one of America’s largest supermarket operators, is, like many supermarket chains around the world, also seeking growth from their higher margin private label goods. Two of Safeway’s private label brands, O Organics and Eating Right, are to be distributed to competitors as part of a national expansion, as US retailers seek to capitalise on increased interest in home brands while the economy is struggling.

Safeway’s strategy with their home brands threatens to become the norm, with supermarkets looking to turn private labels, which were traditionally lacking in marketing support and had generic names, into strong brands in their own right. The company now has over 20 different food and beverage brands.

A key benefit for retailers of owning a brand is that it enables them to reap a higher margin than they would on national brands while selling the goods at a lower price to consumers. It has also led to greater input in the supply chain and consequently provides retailers with a means for expansion beyond the typical avenue of increasing store numbers. “The customer wins and we win,” Woolworths CEO, Michael Luscombe, suggested at an ACCC hearing in May.

Another reason for private label growth, according to Mr Luscombe, is the potential to increase customer loyalty. “What you actually build up is, it’s another loyalty, because the only place you can actually buy those products are in Woolworths,” he said. With this in mind, the Safeway expansion strategy is potentially fraught with danger as the exclusivity of the brand and its connection to Safeway will fade. However, with the extensive range of other private label brands that they control, the company believes that they can gain greater profit by selling some of their products to competitors while keeping a select number of private labels exclusive to their outlets. The success, or otherwise, of this strategy is set to be monitored with great interest by manufacturers and supermarkets around the world.