Wal-Mart is improving the variety of its private-label store brands, as 64 percent of its consumers note that they always or often buy a store brand instead of a national one. Wal-Mart’s Great Value store brand has become the largest food brand, by both sales and volume, in theUnited States.
Yet even for Wal-Mart, store brands cannot be just minimally packaged, bland-looking items on the shelf anymore. Wal-Mart originally developed store brands in the grocery sector and offered them at lower prices than national brands. As other grocers have followed suit, the private-label business has drastically increased. Kroger’s private-label business is now 27 percent of its sales. The Costco and Trader Joe’s business models center on store brands, and 7-Eleven is developing 100 new and redesigned products, increasing store brand offerings by four times. In addition, 7-Eleven is engineering store-brand products for everything it has in its stores, from cooking oil to beef jerky.
Private-label products cost 5–15 percent less than their comparable national brands. The margins on these products are higher than those on national brand products, and the overhead and marketing costs are lower.
In testing, Wal-Mart compared 5,250 Great Value private-label products with leading national brands and wound up with 100 new products and changes to 750 products to improve their quality (e.g., crispier cereals). In 2007, Frito-Lay and Hershey partnered with Wal-Mart to launch more than 80 new products, including thin-crust pizza, fat-free caramel swirl ice cream, and organic cage-free eggs.
In efforts to make the products more attractive and unique than national brands, Great Value all-natural ice cream, for example, offers unique flavors like mocha mud slide and cake batter. The company is working closely with customers to gather feedback and thereby develop new and improved products. The labels display both English and Spanish and an updated, consumer-friendly image.
Commodity goods like milk and cheese have long been popular private-label purchases, but now private labels are popular for products that consumers may want to try, such as specialty coffee. Product trial is risky for consumers, so when a private-label version appears at a lower price, the risk decreases.
- Why is Wal-Mart focusing on its private-label business?
Associated Press, “Wal-Mart Adds Products as Store Brands Boom,” Boston Globe, March 17, 2009; Boyle, Matthew, “Wal-Mart Gives Its Store Brand a Makeover,” Business Week, March 16, 2009.