Costco, Safeway Ensure Private Labels Won't Fade With Recession

According to BNet.com, Richard Galanti, Costco’s CFO said that, when the company sees independent brand testing, its Kirkland Signature products consistently are competitive with any label when quality, value and price are weighed. Once, private labels were considered step-down merchandise that didn’t really deserve the term brand, but that has changed. “I don’t want to be so arrogant about it, but the Kirkland Signature has become a brand,” he said.

According to The Nielsen Co. store brand dollar sales at food, drug and mass merchandise stores grew 10.2 percent last year compared to just 2.6 percent for national brands. Worse for national brand manufacturers, private label dollar sales gained 2.6 percent in units as their own unit sales fell by 2.2 percent. Those trends have continued into 2009, Todd Hale, Nielsen senior vice president for Shopper and Consumer Insight, noted. He added that private label versus national brand growth during 2008 was similar in pattern to what was observed during the 2001 recession, but, back then, retailers weren’t making the kind of strides in packaging, quality, on-shelf presence and all-over brand building – a la Wal-Mart and its Great Value label – that we see today.

Retailers are becoming increasingly aggressive in building store brands. Safeway is among those companies that have been expanding private label initiatives to other retailers, but it isn’t alone. For example, Wakefern, the cooperative that supplies ShopRite supermarkets in the New York Metropolitan area, has opened up its wholesaling services to non-competing retailers outside its own system in significant part to drive sales of its private label products.

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What strategies should retailers put in place when selling private labels?

Private label brands helping Safeway

According to BNet, Safeway has received a lift in their revenue from their private label brands. Not only have they sold more in this time of economic turn down, but they also receive a higher margin on their brands as opposed to name brands.

Safeway's CEO Steve Burd stated, "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."

This isn't the only place its occurring, as companies providing branded products are now facing competition from their customers when their products are on the shelves.