While an evolving situation that the newspaper details in a recent issue didn't begin with the recession, it has become more prevalent in the economic downturn.
In a Sept. 5 article, the newspaper looked at how shopping has changed for consumers in the recession. Just as more importantly, though, from the retail perspective, it demonstrated how a chain store operator and its supplier have increasingly come into competition. Kroger undersells national brand products such as P&G's Iams dog food, employing a private label items with a price that can come in at less than half that of the supplier's product. Information Resources Inc., a Chicago-based market research firm, recently stated that store brand prices, on average, come in at about 30 percent less than national brands. For its part, P&G counters with coupons providing big savings on its products, focusing on new premium introductions that normally carry higher prices.
That's not all, though. As early as 2006, even as Kroger and other retailers were in the midst of significant private label expansion, P&G began to experiment with retail, opening a 130-square-foot Olay Store in a Cincinnati-area mall. In 2007, the company began testing two Mr. Clean Car Washes near its Queen City headquarters. Soon after it started thinking of expanding on the idea and purchased the franchise assets of Atlanta-based Carnett's Car Wash, which has 14 locations.
A decade ago, retailers considered private label sales that reached 15 percent of total volume cutting edge and vendors talked about how they wouldn't sell their own products on the Internet except via their traditional retail partners, never mind through actual physical locations. However, business models that have driven the retailer/supplier relationships for decades have come under pressure from a variety of sources, the recession and the Internet among them. Once national brand suppliers developed products and drove them through retail with major marketing campaigns, paying retailers slotting allowances to introduce new items, lavishing bucks on circular space and kicking in few more dollars if something didn't move through stores quite as expected or for any number of other retailer-identified problems.
According to at least one retail reader of this blog, various charge backs by retailers have become more common in the recession, and that's certainly not going to help store/vendor relations. Complicating the picture is the fact that many vendors are shifting their brand position, becoming private label suppliers themselves, a move that can provide new opportunities particularly for medium size and small vendors but at the cost of their potentially becoming dependent on specific retail partners and vertically integrated to the extent that their independence and ability to act creatively is compromised.
In a June conference call, as reported by SeekingAlpha, Kroger CEO David Dillon outlined how national and store brands were evolving in its operations,:
Our corporate brands enjoyed another quarter of double-digit growth in both dollar and unit sales. In the grocery department, the corporate brands represented 26 percent of sales dollars and 35 percent of units sold. As in the third and fourth quarters last year, our overall tonnage growth in grocery was driven by corporate brands. National brand grocery unit sales declined slightly, but at a slower rate of decline than we saw in the third and fourth quarters last year. Based on these results, it is clear to us that the customers continue to look to our own high-quality store brands and the value they offer. And while this shift affects Kroger's identical sales results, since our store brands typically carry retail prices significantly lower than the national brand equivalent, some as much as 50 percent lower, it is a trade-off we are happy to make for the long-term growth of our business.Check out Procter & Gambles conference calls and discussion about what's going on is more complex. P&G executives project a sense that the company only needs to make relatively minor adjustments in its traditional businesses to cope with recent developments in the market while it keeps innovating and creating new brand extensions that better suit emerging consumer needs. Yet, those executives do suggested that the company will look at new opportunities in areas were it might be under involved including drug chains and ecommerce.
So P&G is in the marker for new opportunities. In a retail world that's increasingly dominated by a few large chains, the basis for a challenge to the existing order may not come from the next store concept from a major player or from some independent operator leaping onto the scene as a quick-growth chain but from current increasingly marginalized manfacturers that can use their research, marketing and money resources to develop new ways of reaching the consumer.