Loblaws wouldn't be 1st store to prioritize its own brands
Why losing French's likely made financial sense and 3 other things you never knew about private labels
Store brands — also called private labels — can mean big profits for grocery stores.
With the middleman cut out of the process and little money usually spent on advertising and marketing, gross margins for retailers on these products can be about 10 percentage points higher than on premium brands.
Retailers also like producing these items because they build brand loyalty. If you fall in love with Sobeys Compliments' peppercorn barbecue sauce, you're going to be out of luck finding it anywhere but Sobeys.
Loblaws scandal not so scandalous?
Loblaws private label brand, President's Choice, made headlines for a possible sales-boosting manoeuvre this week.
After the chain announced it would no longer be selling French's ketchup and then hastily reversed the decision due to a public outcry, an internal memo was leaked to The Canadian Press. It suggested Loblaws decided to stop stocking French's ketchup because "it is cannibalizing the sales of PC ketchup and has had little impact to Heinz ketchup."
Loblaws said the memo was sent by a mid-level employee and called it "misinformed."
However, if Loblaws was trying to ditch another brand in order to push a private label product, it certainly wouldn't be the first retailer to do so.
In 2010, according to a Canadian Business article, Walmart quit selling Hefty and Glad food storage bags, continuing to sell only Ziploc products alongside its house Great Value brand. A year beforehand, the CVS drugstores in the United States opted to ditch Energizer alkaline batteries, choosing to carry only Duracell and their store brand.
Here are three more things you need to know about private label brands.
In a sluggish economy, private labels are important
With the dollar low and the price of produce and other imported foods sky-high, "the market itself is creating an uptick in private label sales," Jim Danahy, CEO of retail consulting firm CustomerLab, told CBC News.
For cash-strapped shoppers, buying generic can be a smart choice. According to the Private Label Manufacturers Association, consumers on a trip to a regular supermarket can reap savings of roughly 33 per cent by choosing house brands.
Not only are more people buying house brand products when the economy's sluggish, but stores also have a newfound need for their private label lines to be successful.
Danahy says that even with high retail prices, grocery stores are often losing more money from imported produce than they're able to pass on to customers.
Because sales of house-brand products lead to more money in the retailer's pocket, "private label is an important tool for them to recoup some of these losses," Danahy said.
Store brand doesn't (always) mean low quality knockoffs
Higher quality (and often higher priced) private labels have been growing steadily for decades now. These product lines tend to use better ingredients, and often offer unique items instead of or in addition to copies of the name brand stuff.
When President's Choice was launched in the 1980s as a higher end store brand, it was a game-changer, Danahy says. It's since been joined by lines such as Compliments at Sobeys and 365 Everyday Value at Whole Foods.
"It is a long-term sustained trend where major retailers are offering more variety in their premium private label lines," Danahy said.
Danahy says that in many categories, most Canadians now see President's Choice as equal to major premium brands. With its lower cost,it has become a major draw for shoppers. The idea is that "you don't have to compromise," he said.
The company has even launched an ultra-premium line, the gourmet-inspired PC Black Label, which sells upscale products such as pure maple syrup, Thai purple rice, and beet and goat cheese cappellacci.
Private label products can be closely tied to their premium counterparts
Certain national brands quietly produce the products they specialize in for store brands in the same facilities.
For instance, the McCormick spices and Reynolds Wrap aluminum foil companies also produce private label products for retailers. (And really, how different can aluminum foil actually be?)