Retailers revisit cheap brands

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Chicago, November 10: : Penny-pinching shoppers are increasingly giving up brand name toilet paper, trash bags and other household goods, leaving manufacturers to rethink how to sell their pricier brands in a tough economy.

At the same time, retailers such as Wal-Mart Stores and Walgreen are emphasizing their own low-cost lines, pressuring the top names in household products to prove why their brands should command higher prices.

For now, shoppers are buying cheaper products mostly where there is less of a personal connection. Kimberly-Clark saw North American shoppers switch to store-brand paper towels from its Viva and Scott brands in the third quarter, while Colgate-Palmolive saw little evidence of its consumers opting for lower-priced goods like toothpaste.

Still, Colgate will increase advertising spending next year to promote its higher-margin, higher-priced goods.

It may be too early to sound the alarm that private labels are dragging big dollars away from household names, which have generally posted sales gains even after raising prices.

"They're just a little more defensive in terms of consumer tradedown versus (categories) like food. It's not to say it won't happen; it's just it's early in the cycle," said SunTrust analyst Bill Chappell.

Major manufacturers and their brand-name goods still control the market, with private label products accounting for 5.4 per cent of total US household care product sales in 2007, up from 5.2 per cent in 2006, according to Euromonitor International.

The rise of private label products has been steeper in areas such as paper products. Private label items accounted for 15 per cent of US toilet paper sales in 2007, up from 14.1 per cent in 2006. Private label products made up 15.7 per cent of US tissue sales in 2007, up from 13.9 per cent in 2006, according to Euromonitor.

Over at Walgreen, sales of items such as its own four-roll packs of toilet paper are "just skyrocketing," President and Chief Operating Officer Greg Wasson said in a recent interview.

"We're going to promote them more and make sure we've got prominent space and location devoted to the products," Wasson said of private label items. "I think you're going to see more and more people willing to use private label than they have been in the past."

NEW SHOPPING PATTERNS

While private label items carry lower prices, leading to lower sales figures, they are typically more profitable for retailers, since the retailers can control the costs.

Wal-Mart, the world's largest retailer, will relaunch its "Great Value" private brand starting in January. Great Value is the largest brand at Wal-Mart, including 5,500 unique items.

"As our customers are looking to stretch their dollars as far as they can, private brands are becoming more and more important," Jack Sinclair, who oversees the grocery business for Wal-Mart's US division, said at the retailer's analyst meeting late last month.

Target is also increasing the focus on its own brands. At its analyst meeting last month, the discount retailer said total sales of Target brand commodities, such as paper towels and tape, have increased at an average of more than 15 per cent each year over the past five years.

"We believe there's an opportunity to go even further," said Kathee Tesija, Target's executive vice president of merchandising.

USING WHAT'S IN THE PANTRY

Kimberly-Clark, Procter & Gamble and others said consumers are using up what they have at home and buying smaller packages rather than stocking up on household goods. P&G said in late October that the shift in shopping patterns appears to be affecting volume in the current quarter.

P&G has held onto consumers with cheaper "Basic" versions of its Charmin toilet paper and Bounty towels, introduced in 2004. While it has Tide detergent and Pampers diapers at the top end, it also sells Gain and Luvs at lower prices.

"While private labels are clearly growing, in 19 or 20 of our top 24 categories they are not impacting us. We are either holding or growing," P&G Chairman and Chief Executive A.G. Lafley said during a conference call last month.

But shoppers have switched from its brands to private label in areas such as feminine care, pet care and batteries, where its Duracell brand lost US market share in the quarter.

Now, companies are responding with advertising and new products to pique consumers' interest.

"History would suggest the players that increase their share, or gain share, are those that advertise and innovate," said Ivan Hindshaw, managing partner at Bain & Co. in Los Angeles. "You have to be able to convince the consumer that you've got something unique and special that's worth paying for."

Clorox is responding to weaker sales of bleach with a new campaign that shows using bleach for more than just laundry, while P&G's value play includes advertisements that show its Gillette Fusion razors cost about $1 a week to use.

Despite the downturn, consumers are still trying out some expensive products. Clorox saw strong sales of higher-end items like its Green Works environmentally-friendly cleaners and Glad ForceFlex trash bags in the most recent quarter.

But companies must ensure the more expensive lines offer some real innovation, said Morningstar analyst Lauren DeSanto.