PORTLAND, Ore. (AP) – Wal-Mart is stepping up the competition to draw cost-conscious shoppers, promising that store-brand products from cereal to cookies will be tastier, smell better and look more attractive.
The world's largest retailer outlined plans Monday to reformulate hundreds of items in the Great Value store brand that it says is the country's biggest food brand by both sales and volume.
Wal-Mart, responding to the increasing popularity of store-brand products among cash-strapped consumers, is also introducing nearly 100 new products like fat-free caramel swirl ice cream and thin-crust pizza as it tries to better compete with national brands.
“We don't feel we are messing with success, we are enhancing our success,” said Andrea Thomas, Wal-Mart Stores Inc.’s senior vice president of private brands.
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The company is also introducing a consistent design across the line to help shoppers better identify its products and added new elements like labels in both English and Spanish. It declined to disclose sales figures for the Great Value line, which also includes household products.
Wal-Mart's move underscores the importance of lower-priced store brand products and ups the ante in the already competitive grocery industry.
The company's launch of some of its in-house products more than a decade ago put pressure on traditional grocers, said Brian Sharoff, president of the Private Label Manufacturers Association. Grocers took notice and made their in-house brands – traditionally cheaper than national brands but once a blandly packaged and little-marketed product line – an integral part of their business.
Over the years, companies like Costco Wholesale Corp. showed it could be done on a larger scale and Trader Joe's proved a national business could be centered on in-house brands.
But the popularity of store brands has soared recently as the economy tanked, with shoppers looking to stretch their dollars, especially as food prices have soared.
The Private Label Manufacturers Association said a basket of 40 average store-brand products runs about 30 percent to 35 percent less than a basket of comparable national brands.
“Interest is as high among the public as it has probably ever been before,” said Matt Arnold, a consumer analyst at Edward Jones.
Stores are doing more to promote such items as well, moving them from discreet spots on shelves to a featured position at the end of aisles and increasing their marketing. While the margins on such items are lower than on name brands, they have helped drive sales at retailers and earn customer appreciation for their lower prices.
“They are basically the same thing,” Kelsey McCurdy, a 21-year old shopper at Kroger-owned Fred Meyer in Portland, Ore., said of in-house brands, which she often buys.
“I think there is just something that has been programmed into most people's brains that this brand is better than another, we are just kind of brainwashed. … I just try to find the best value for the best price.”
Costco said private label sales hit record highs in its most recent quarter, but didn't break out specific sales figures. Kroger said 27 percent of its sales in its most recent quarter came from its own brands and fueled most of the company's overall grocery volume growth for the year – a trend it expects to continue.
Nearly every grocery chain across the country is pushing its in-house brand development.
Whole Foods Market Inc., which already carried an expansive store-brand food line, expanded its range of personal care products earlier this month. And traditional grocers like Safeway and Kroger report they are going to keep focusing on developing private-label products.
Convenience store chain 7-Eleven Inc. is expected to announce soon that it will roll out more than 100 new and redesigned private label products during the next few months – roughly quadrupling its store brand offerings. The company is moving from Big Gulps and Slurpees to sandwich bags, cooking oil and private label jerky.
Experts say the most popular items for store brand sales are the most basic and often-used goods, like eggs, milk and paper products. But the latest growth in the industry seems to be in unique products that consumers might be more willing to try out, like a specialty coffee, after they've made the leap to a corporate brand with something more staid, like toilet paper.
“I think the price drives the trial and quality keeps them coming back,” said Kevin Elliott, 7-Eleven's senior vice president for merchandising, marketing and logistics.
Analyst Arnold said in order to be competitive, companies need to focus on adding some value to their offerings.
“Innovation and driving the quality gap is everything,” Arnold said. “It can come from innovation or perceived quality, which is just marketing.”
Target's Archer Farms is a good example of that, he said, with unique products like fortified water or butter toffee popcorn in sleek packaging that move beyond necessities to discretionary items, but are priced much lower than a comparable national brand.
Arnold also pointed to companies like Whole Foods, which has had success with its line of in-house gourmet food items at lower prices and Costco, whose Kirkland Signature line has found its way into nearly every aisle of the club.
Wal-Mart's newest products reflect that trend. The company said it tested more than 5,000 of its products against national brands to nail down exactly what consumers want.
The company's new products move far beyond the basic paper towel or milk offerings, with items like organic cage-free eggs. Wal-Mart's Thomas also said the company it is going to sell flavors of some products that national brands may have discontinued but remain popular with its shoppers.
“That is where the challenge to other retailers will be,” Sharoff said. “They don't have to limit themselves to one category. They can go into any category in the store and piggy back on their success.”