Push Back on Private Label

The rise of private label products produces an unfair competitive advantage with retailers who end up competing against manufacturers and marketers--

Or so claims a white paper by the CIAA (the trade association for agricultural and food companies in Europe). The paper is in response to the European Commission's paper denouncing high food prices (both papers were provided to BSLG clients and subscribers to our weekly food industry newsletter). With private label purchases as high as 40% in some countries of the EU, manufacturers are objecting to the pressure they're under, and claim that the existing laws on competition are inadequate. They cite other retailer abuses, including late payments, pressure to deliver product at prices set by the retailer (welcome to Bentonville, now please check your wallet and your dignity), and the move by large retail chains into non-food areas such as banking & other financial services, insurance and travel, all of which strengthen their bargaining position and make them able to drive unfair bargains.

Other forms of anti-competitive activity cited by the CIAA include cartels, purchasing agreements between competing buyers, resale price maintenance, certification schemes, tying, and single branding. Some of this anti-competitive activity is barred by law in the U.S., though recent administrations have shown no inclination in recent year to prevent or take-on monopolies or mergers that reduce competition. Grocery retailers in the U.S. have also looked at non-food retailing and services, especially in the area of health & wellness.

The in-store pharmacy is nothing new, but recently chains have begun moving beyond just another department to focus them as central to their overall marketing strategy by setting up "wellness programs," lobbying prescription drug customers (e.g., courting Medicare patients), offering generic drugs at below-market prices, etc. Wal-Mart has taken the lead in this, as in other areas, especially given the current administration's push for e-scripts and electronic record-keeping. President Obama believes electronic medical records will save money and prevent accidents like drug interactions or incorrect dosages, and he's offering money to physicians to purchase the hardware and software. Wal-Mart is, no surprise, embracing this program and offering sweet deals to physicians who sign with them. The pay-offs are direct and potentially huge, with consumers herded to Wal-Mart pharmacies by their doctors.

The mega-retailer's strategy in this segment is having a ripple effect, as the retail chain Wegmans has announced a rollback in prices on 400 generic drugs. Safeway has said it will push its O Organics and Eating Right house brands even more if food marketers don't bring down prices faster now that energy and commodity prices have dropped.

But Safeway's righteous anger is diluted by the fact that they have been trying to get traction for their private label business with other retailers, so far with little success. Spartanburg, SC-based BI-LO is promoting house brands by saying they will discount them 30% since buying locally saves the company transportation costs. Back in the U.K., Tesco and ASDA are playing a game of one-upsmanship by slashing more prices in order to lure in the other's customers. Tesco began by reducing prices on 3,000 items, so ASDA has raised the ante to 5,000 of its SKUs.

Excerpted from BSLG's weekly subscription news reader service Food Business News. To subscribe or for information about licensing, contact Broad Street Licensing Group (tel. 973-655-0598)