Grocer's Profits v. New Consumer Foods

BRAND-NAME BATTLE Grocer's Profits v. New Consumer Foods

The rise of supermarkets, which now sell 68% of all U.S. groceries, has brought some potent new weapons to an old competitive war: the fight between the national name brands (sold under a corporate trademark) and the private labels (groceries processed for individual stores or chains). In the past three years, the private labels have increased their share of the market for many items--instant coffee from 12% to 31%, frozen vegetables from 38% to 53%, margarine from 58% to 71%, etc. Even such an advocate of national brands as the National Tea Co. (1958 sales: $794 million) is reluctantly turning to private labels in hopes of boosting its profit.

Although many private brands sell at lower prices, they are really a long-range detriment to the consumer, charges Henry Abt, president of the Brand Names Foundation. Says he: "Private labels ride the coattails of makers' brands. No private label past or present has ever pioneered a new product or improved an existing one." National food brands last year spent $105 million on research and development of new products and $476 million to advertise them. An estimated 33-c- of every dollar spent in supermarkets goes into products that did not exist ten years ago.

"National-brand advertising draws the customer into the supermarket," says the marketing director of a national dairy-product maker. "But once in the supermarket, the customer can be subtly--or not so subtly--pressured into buying the same kind of food under a private-brand label."

Supermarkets often shunt private labels to bottom shelves, place their own house brands at eye level. National brands are often stocked in insufficient quantities, and money from national-brand cooperative advertising has been known to find its way to advertise private brands in local newspapers.

The shift to private labels has often been aided by the national-brand makers, who offered profit margins so small that supermarkets were forced to turn to private brands. "Take the case of detergents," says pro-national-brands Paul Willis, president of Grocery Manufacturers of America. "There's as much as a 40-c-difference in price on some sizes at the distributor's level." The reason: manufacturers with more capacity than orders take on a job of putting out a big-volume private label without allocating their production costs realistically.

So tough has the competition from private labels become that some national-brand makers turn out both, in the hope of lowering overall production costs and gaining a more favorable reception for the manufacturer's name-brand products. In many cases the quality is exactly the same, but the price is lower. B. T. Babbitt, cleaning-products maker, markets its Glim liquid detergent to some distributors to retail for 69-c- per 22-oz. bottle. It also supplies them with the identical product under the Sparkle label to retail for 49-c-. But in many a private brand, the lower price reflects not only the dropping of advertising and research costs but a difference in quality that is greater than the difference in price. Instead of creating new products and new markets, private brands merely scramble to copy new products of national brands. So accustomed have national branders become to private-label imitation that they accept it almost philosophically. Says Durkee Famous Foods Vice President Harvey Slaughter: "We have 25 people working up new items to go out under our own label, but within six months, private-label processors copy the product, and we are forced to make them available ourselves under private labels."

But there is a hard core of national brands that the private labels have never been able to copy successfully. These include Campbell's soups, Heinz's Ketchup, Gerber and Beech-Nut baby foods, Betty Crocker and Pillsbury cake mixes, Kellogg and Post cereals, General Foods' JellO, and Hellmann's mayonnaise. Explains Pillsbury Co. Vice President James Rankin: "Where much research, refinement and technology are needed, the private brands lag behind. Because we keep up quality and are always sure of enough research on new products and enough advertising to tell the public about them, we have no fear of private labels."

Others are not so optimistic. The supermarkets and chains have become so powerful that they are often in a position to force a middle-sized producer to turn out a private label for his product for them at a lower price, or they will not buy from him at all. The real fear is that the supermarkets, in their increasing competition with each other, will put such a premium on profit margins that they will squeeze out more and more name brands to the ultimate harm of the consumer, who has benefited most from the new products that have been developed.

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