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    PRIVATE LABEL: <br />A License to Thrill at Retail

    Grocery retailers haven’t been spared the devastating effects of the economic downturn. The March 2009 voluntary Chapter 11 filing by Bi-Lo, a 215-store grocery chain based in Mauldin, S.C., illustrates the extraordinary lengths to which grocery retailers must go to refinance debt and secure their operational positions.

    Grocery retailers haven’t been spared the devastating effects of the economic downturn. The March 2009 voluntary Chapter 11 filing by Bi-Lo, a 215-store grocery chain based in Mauldin, S.C., illustrates the extraordinary lengths to which grocery retailers must go to refinance debt and secure their operational positions. According to Bi-Lo president and CEO Michael Byars, “In a normal credit environment, we would have expected to refinance the maturing term loan on reasonable terms in the ordinary course of business. Unfortunately, the current credit environment is very challenging.” Bi-Lo plans to keep its stores open and maintain operations without interruption throughout this process.

    At the same time, a few key grocery retailers uniquely supportive of licensing are demonstrating what it will take to survive in this economic climate. These retailers share one commonality: their innovative use of brands to generate traffic. All are using private-label programs, corporate brands and trademarks, and licensed properties to create innovative direct-to-retail exclusives that are generating excitement and demand from consumers.

    The Changing Grocery Retail Landscape

    In a category dominated by private label, the grocery retail landscape is being shaped by a number of important health-and-wellness trends, including organics, locally produced foods and the move to smaller-footprint “local” markets led by the United Kingdom’s Tesco. Grocery retailers, however, haven’t embraced the licensing-in strategy that we see in department stores. Instead, they have been investing in their store brands with such great success that store brands are no longer perceived as second-rate knock-offs, and some are even licensed out to other retailers.

    Safeway’s success with the O Organics line highlights the grocer’s strategy to build private-label brands that can stand alone. O Organics, now the biggest organic brand in the country, generated $400 million in sales in 2008. Similar to Pleasanton, Calif.-based Safeway’s previously launched Eating Right brand, research shows that consumers think the brand is indeed a stand-alone brand, which was always the intent. Safeway brought in execs from leading CPG companies like Procter & Gamble and Nestlé to create the look of a national brand, and then hired DDB in Chicago to develop print and television advertising to drive awareness. Even more interesting is Safeway’s recent move to “monetize the brands” through partnerships to sell the line in Asia and South America as well as through a partnership with foodservice giant Sysco Corp. What started as a way to stave off competition from Whole Foods Market is now being actively promoted and marketed like licensed brands. About half of the O Organics and Eating Right lines are available to other retailers through Safeway subsidiary Lucerne Foods, Inc.

    The success of private-label brands at grocery has been unmatched. According to the Private Label Manufacturers Association (PLMA), private label increased by $5.4 billion last year to an all-time high of $74.2 billion.

    The rapid growth of private label is no surprise to Monrovia, Calif.-based Trader Joe’s, more of a specialty-food store than a chain grocery, which is filled with private label offerings. Owned by Aldi, Trader Joe’s manages to sell twice as much per square foot as other grocery stores with only 2,000 products per store, vs. 30,000 for the competition. Legend has it that its all-specialty-product, all-private-label formula was modeled after Stew Leonard’s, a Norwalk, Conn.-based specialty grocery.

    Aldi, which some predict to be the next Wal-Mart, is the third-most respected brand in Germany, after Siemens and BMW. The company’s American division, headquartered in Batavia, Ill., plans to have 1,000 stores in the United States by 2010, owning 2 percent of the grocery market by that time. Because each Aldi store only has 700 Aldi-exclusive products as compared to 150,000 products at a Wal-Mart Supercenter, Aldi has extreme control over quality and price. Experts say that Aldi is more efficient than Wal-Mart and estimate sales at $4.8 billion in North America, growing 8 percent a year since 1998.

    Hannaford, a division of Brussels-based retail conglomerate Delhaize, has 165 stores in the northeast and is the largest certified-organic supermarket in the region. Its “Guiding Stars” nutrition-labeling program is a patent-pending credit and debit system for evaluating foods and grading them with one, two or three stars for good-, better- and best-for-you foods. The program has demonstrated the demand for better awareness of healthy food options with its selection of higher-rated foods outpacing lower-rated foods by as much as four to one. Scarborough, Maine-based Hannaford is increasing its efforts to make the program widely available through the launch of a subsidiary, Guiding Stars Licensing Co., incorporated in 2008, to market the Guiding Stars program to other grocery retailers, food manufacturers, restaurants, convenience stores, hospitals and schools. Even relatively small retailers can use the program to differentiate their brands from the competition based on health awareness.

    While the headlines for grocery retailers have been bleak, innovative retailers are successfully connecting with customers to meet their needs in a challenging environment. 2009 will provide yet more fascinating examples of retailers getting back to basics, exciting consumers with their unique private-label products, and adding value to the relationship through innovative shopper-centric programs to differentiate from the competition.

    Sean Heitkemper is VP, business development at Louisville, Ky.-based IMC Licensing, an agency specializing in consumer product brands that has worked with brands like SC Johnson, Chiquita, Duncan Hines, TABASCO, Valvoline, General Mills and Borghese.

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