Wal-Mart and other retailers struggle to tweak private label prices, offerings

From Great Value bacon and eggs to George branded apparel and MainStay home wares, Wal-Mart is the largest private label player in the U.S., according to Walmart U.S. CEO Greg Foran. But he’s not happy with being the largest.

“We can and should do more,” he told analysts Wednesday (April 1) in New York during an update on the retail giant’s U.S. operations.

He told the group he continues to try the Great Value brand for himself having recently eaten bacon and eggs which were “quite good.” He said that’s not the case with all the items he’s tried and one particular area of concern is the lack of price separation between Wal-Mart’s private label to national brands.

With respect to private label offerings at Wal-Mart Foran said: “Our customers love it, and it delivers on our promise, but we are not fulfilling our mission of ‘save money, live better’ if we don’t provide a more competitive price offering in some private label areas. We will sensibly lean into this opportunity, but never compromise on quality.”

Private label is 28% less expensive than similar national brands, according to IRI, a consumer products marketing and strategy company. A price study conducted in March by Raymond James & Associates found Wal-Mart’s Great Value basket to be 21.7% cheaper than the basket with comparable national brands, down from 23% savings in February and a 24.2% savings in March 2014.

PRICE FIRST
Wal-Mart began testing a lower cost private label in late 2013 under the brand “Price First” to better compete with low entry price retailers like the Dollar store chains and Aldi. The Price First products include pasta, peanut butter, baking mixes, mustard and other condiments totaling about 50 items including paper and other consumables that Wal-Mart debuted nationally in more than 2,500 stores late last year.

But on Thursday (April 2) Wal-Mart told The City Wire it is still testing Price First as the retailer continues to try different things and listen to its customers. For the most part, retail experts had approved of the Price First label as Wal-Mart continues to lose some sales to consumers on the most limited budgets.

Jason Long, CEO of Shift Marketing Group, said in 2014 that he would be interested to see if promotion of the lower priced label would ultimately pressure the suppliers of Great Value and national brands. From Foran’s recent comments on price separation, it appears Great Value — which is deemed to be “brand equivalent” – may undergo price tweaking for greater price separation from national brands.

It remains to be seen if this line will be expanded or even kept if Great Value prices are adjusted downward.

KICKSTART GROWTH
A recent report from IRI notes that consumers spend about $120 billion annually on private label products that give retailers an avenue to differentiate themselves in a highly competitive marketplace.

IRI noted that after several years of stagnation in private label sales, retailers and product manufacturers have struggle to find ways to kickstart growth. Whether that’s reworking product formulations like the “Great for You” Great Value products tweaked at Wal-Mart as part of a healthier food push or the successful “Simple Truth” organic line continually growing at Kroger, IRI expects private label expansion this year.

Research indicates that the perception around private label quality continues to improve with more than 80% of consumers convinced that private label products are as good or better compared to national brands, the IRI report noted.

Grocers like Wal-Mart have long offered a spectrum of private label products with a basic, better and best tiers. For instance, Sam’s Choice is deemed a premium tier at Wal-Mart as Kirkland is at rival Costco. Experts agree that truly successful private label launches are those that consumers don’t realize are store brands, such as Target’s Archer Farms.

FRESH AND ORGANIC
One of the emerging trends in private label offerings are in fresh produce as well as organics. 

Wal-Mart corporate spokesman John Forrest Ales said the MarketSide private label sold at Wal-Mart has added more than 50 organic produce items in the past year which are grouped together in the fresh produce area for easy identification.

"Store brands have moved far beyond cheap generic knockoffs to become trusted, quality lines that can compete effectively with national brands. They usually have higher profit margins for retailers than name brands, help differentiate a retailer from competition and help build consumer loyalty," said David Sprinkle, research director for Packaged Facts. 

Researchers said natural and organic private-label brands have been around for a number of years led by Safeway's O Organics and Supervalu's Wild Harvest. Other retailers like Wal-Mart have been playing catch-up through its recent partnership with Wild Oats who is now supplying a line of organic food to Wal-Mart. The Wal-Mart-Wild Oats organic food items such as black beans and olive oil are at least 25% less expensive than the national organic brands the retailer carries. The initiative was expected to cover a broad variety of categories and be available in about half of Wal-Mart’s 4,000 U.S. stores. But so far, it has been slow going, according to Wal-Mart Chief Financial Officer Charles Holley. He said the program is still being rolled out.

Holley added 90% of Wal-Mart customers want access to affordable organic food products. He said because many of them are not willing to always pay a premium, sourcing the products customers want can be challenging. 

Meanwhile, grocers like Kroger and Aldi have developed popular private labels around the wellness focus of consumers. Kroger’s Simple Truth Organics and Aldi’s Simply Nature cross many food and beverage categories and are marketed as “natural, organic and free of artificial ingredients.” Kroger’s investment to build out its Simple Truth line in recent years resulted in $1.2 billion in sales in 2014, the grocer reported in February.