Safeway Attests National Brand Reaction to Private Label

(MoneyWatch)  Safeway didn't have an easy first quarter, one in which currency exchange rates, gas prices and other external factors weighted in, but its results provide more evidence of how important private label is in retailing today.

In fact, Safeway got a lift from private label in two different ways. First, it sold more and, because own brands have higher margins, it profited more from the sales. In a conference call, as reported by Seeking Alpha, Safeway's CEO Steve Burd, noted:

We are outpacing the growth in national brands by 1,000 basis points. And so that says a lot. And I don't see that dissipating. I don't expect that number to be much different in quarters two, three and four. And I'm not sure it's going to be different in 2010.

But that's not all. National brand manufacturers are not only taking notice of retailer private label initiatives, they're taking action as well. Said Burd:

There have been some outright price reductions, but more often than not, we see some additional trade dollars coming our way. It allows a consumer packaged goods company to keep what they would consider their hard earned price increase, but to try to spend some money to get back up some share. And so I think that you will continue to see that happen. We basically are trying to provide value to our consumers. And if today that value is best seen in private brands, then we're going to shop those private brands, we're going to merchandise them and we're going to sell them. We're more than happy to take trade dollars and sell branded items because they still are the lion's share of what we sell. But we've got something to sell and create value for consumers regardless of what happens to price points of consumer packaged goods.

Branded product manufacturers whether Proctor & Gamble, Kellogg's, Coca-Cola or others are in a touch spot. The food inflation that lifted prices in the marketplace last year gave them the first chance in a long time to substantially compensate for costs they had been accumulating. Faced now with competition from their own customers, whose private label expansion is being prompted by the activity of Wal-Mart, Costco, Aldi, and Trader Joe's while coping with a more frugal shopper, national brand producers are trying to defend those price gains but retain consumer relevance, which is being challenged as more people consider the advantages of private label. Trade allowances translate into special prices and product advertising at store level and can generate customer attention that keep shoppers purchasing, all in the hope they will retain a regard for nationally branded items. When the word Coke is replaced by the word cola on consumer shopping lists, branded manufacturers are in trouble, as the alternative becomes the reality.