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APRIL  2016

Waitrose Stages Huge Own Brand

Rollout for New Premium  Range

United Kingdom researcher, Kantar Worldpanel,  according to one report, has indicated that over the past three months own brand premium sales have increased by 4.4% versus a quarter percentage dip in budget brands. Taking note of this, Waitrose (part of The John Lewis Partnership, London) this month has  launched its biggest own brand rollout since 2009. It's  focused on consolidating its three premium product ranges (Seriously from Waitrose--deserts, menu from Waitrose--restaurant quality ready meals, and from Waitrose) into a single, new brand, Waitrose 1, which is designed to raise the quality bar in premium foods. For the past year, the retailer has worked with 70 suppliers in developing this range:  This included adopting existing dishes and products as well as introducing new and improved items. The new brand, initially covering some 500 products, will be increased to 800 items this year.  The last comparable launch came with the debut of essential Waitrose, a great value grocery range (now a ₤ 1 billion brand).

The package design for Waitrose 1 is starkly different from the black background with colorful product photography used in its existing premium brands. The new look features the Waitrose name positioned vertically next to the '1,' which is integrated into the background color box that highlights the product description. Overhead, a simple drawing  enhances the imagery.  One reviewer indicted the objective it to intrigue the customer by eliminating photography altogether.


Albertsons  'Knocks Off'

Safeway's Signature Range


On April 4, Albertsons Companies, Boise, ID, formally announced its launch of the Signature brand, covering multiple product categories, into all 2,286 of its supermarkets operating under 18 chain store banners. This new identity will appear under six product sectors: Signature SELECT, Signature Kitchens, Signature Farms, Signature Cafe, Signature Home, and Signature Care. Presumably, this brand consolidation will eliminate store banner private brands and other store brand identities at the different chains.   Interestingly, all of the new Signature identities have been part of Safeway's  corporate brands program for years, including Signature SELECT, which originally debuted as Safeway SELECT in 1993. (Since early in this Century, Safeway had been consolidating more than 70 of its corporate brands under the Signature brand as well as a few other own brands, such as Essential Everyday, Culinary Circle, and Wild Harvest.)

Albertsons noted that its new Signature brand, appearing on every product offered with a money back guarantee, will cover more than 4,600 items.  The range encompasses: prepared foods, pantry staples, fresh produce, personal care items, household cleaning supplies, paper goods, etc.  The Signature brand will be sold at these stores: Albertsons, Vons, Jewel-Osco, Shaw's, Acme, Tom Thumb, Randall's, United Supermarkets, Pavilions, Star Markets, Carr's banners and, of course, continue at Safeway.  (Albertsons merged with Safeway on Jan 30, 2015.) For marketing support, Albertsons has recruited the actress Tiffani Thiessen, a Cooking Channel host, to promoted the Signature brand on social media, offering tips and recipes using Signature brand products.


MARCH  2016

Emergence of Major Food Retail Expected in Mid- 2016

Ahold Delhaize merger approved by Ahold stockholders on March 14. This will join two global retailing giants who together will represent a $72 billion+ player on the world stage  (based on their 2014 reported sales results). This combined retail enterprise will cover more than 6,600 stores located in the U.S., Europe, and Asia. Together, they inevitably will be marketing their own global exclusive brands throughout their operations.  Separately, Ahold and Delhaize have been aggressively transferring their own brand success in Europe to their U.S. operations. This is expected to accelerate when operating more on a global scale.


Acquisition of The Fresh Market Made by Investment Group

Apollo Global Management, New York, agreed to pay $28.50 per share in cash (valued at $1.4 billion) to acquire The Fresh Market, Greensboro, NC. As of March 14, this specialty grocery  retailer operated 186 stores in 27 states. Its fiscal 2016 results through the first three quarters showed sales of $1.3 billion, up 5.1% over the comparable fiscal period a year earlier. Kroger reportedly had been bidding on this retailer last month.



Woodpeckers Tap Into Grated Cheese

To Find  Extra (Hidden)  Cellulose Content 

(We couldn't resist the above NYC Daily News-type headline)

Our news summary last month (January) about ingredient statements being put under the microscope has lately added a new product focus: Too much cellulose content in Parmesan cheese. The FDA allows up to 4% by weight of this filler and anti-clumping agent. (It has been described as ground up plant fiber added to grated cheese.)  Bloomberg News in testing different store-purchased brands of grated cheese found some products with double the FDA acceptable content. Two culprits: The private label brands,  Walmart's Great Value  100% Parmesan cheese with 7.8% content and, in the Chicago market, Jewel-Osco's Essential Everyday 100% grated Parmesan cheese with 8.8% cellular content. When informed of this finding, the latter retailer reportedly immediately pulled the product from its store shelves. Walmart unfortunately is now facing a lawsuit in a New York district court over mislabeling its product "100% grated parmesan cheese." Bloomberg gave passing grades to Kraft brand with 3.8% content; while Whole Foods' own brand, 365, registered only 0.3% content. If the Bloomberg tests are correct, there obviously should be a 'woodpecker' assigned to the private label sector.


Another Famous Industry Icon Crumbling

The sad fate of industry pioneer A&P, after 152 years in business ending in bankruptcy last year, is well-documented. On its heels, we now see another recognized industry icon, Sears, over the past 10 years, heading downward, that is, going out of business. Sears like A&P started as a mail order business in the 19th Century, 1886 or 23 years after the startup of A&P.  About 10 years ago, in its fiscal 2006 financial report, Sears recorded revenues of $53 billion. Its latest fiscal report, ending January 30, 2016, posted sales of $25.1 billion--52.6% less that that earlier report or 19.6% lower than its 2015 fiscal year. Sears blamed the decline to its recent strategies of streamlining operations and making itself more member-centric (i.e., investing more in online retailing, etc.). Also, in October 2014, this retailer had deconsolidated its Canadian business (a $2.1 billion loss) and in the fourth quarter of 2014 had spun off its Lands' End apparel business (a $222 million loss). Additionally, Sears put a number of Kmart and Sears full-line stores on the chopping block for a $1.5 billion loss during the year. In fiscal 2016, Sears domestic comparable sales dropped by 9.2%, or off 7.3% at Kmart stores and down 11.1% at Sears stores. On the bright side, its sales in home appliances, mattresses and seasonal categories were up; but declines came in: consumer electronics, apparel, grocery, household and drugstore categories. Critics say Sears is losing its older customer base and not attracting younger shoppers.


Buying 'Frenzy' in the UK?

Last October 2015, we reported on the Walgreen Boots Alliance, where Walgreen has emerged as the first global pharmacy-led health and wellness enterprise. Walgreen, Deerfield, IL, which in 2012 began its takeover of Alliance Boots with its operational headquarters in the UK, completed the merger last year.

In January 2016, we reported on Wesfarmers, Perth, Australia, buying Homebase (owned by the Home Retail Group), the UK's second largest DIY retailer, thus extending the Australasia conglomerate's  reach far beyond 'down under' shores. Wesfarmers  paid A$705 million ($485.2 million) to acquire the 265 Homebase outlets in the United Kingdom.  In fiscal 2015, Homebase generated ₤ 1.5 billion as the UK's second largest DIY retailer.

This month, a bidding war has erupted over acquisition of what's left of the Home Retail Group,  which is primarily Argos, the UK's leading digital retailer. Negotiations started months ago when Sainsbury's made an offer. But now the South African retail group, Steinhoff has stepped  with a 8.5% higher bid than Sainsbury in its offer to buy Home Retail.  Home Retail Group has given both bidders until March 18 to commit. HRG besides Argos has 49% interest in HH Retail Limited (jointly with Haier Group of Hong Kong a major appliance manufacturer), which is looking to develop multi-channel general merchandise outlets, under the Argos brand, in China.

Steinhoff (newly listed in our retailer/wholesaler database) is an integrated retailer that manufacturers, sources, and retails furniture, household goods, and most recently general merchandise (clothing, footwear, and home products) in 30 countries, controlling more than 40 retail brands throughout 6,462 retail outlets. In March 2015, Steinhoff acquired the general merchandise group, Pepkor Holdings Proprietary, boosting its combined revenues to ₤ 11.3 billion. The South African retailer is now committed to building its general merchandise business. Argos, whose fiscal 2015 sales totaled ₤ 4 billion had 46% of its sales internet led.

It will be interesting to track the development of these emerging global retailers and especially how they market their own brands, which now have taken on more of an international footprint. Homebase, for example, has a number of successful own brands: Alba, Habitat, Hygena, Schreiber, etc. Wesfarmer plans to rebrand Homebase, adopting the Bunnings banner, which has a history dating back to 1886. Together, there will be a uniformity of own brand identities.


Sysco Buy UK Distributor

Frustrated from its attempted takeover of US Foods, Sysco, the country's leading foodservice distributor, turned its sights to Europe, agreeing this month to acquire the Brakes Group, a leading European foodservice distributor, owned by Bain Capital Private Equity. The deal, valued at $3.1 billion, includes repayment of Brake's $2.3 billion financial debt. The London-based distributor reported fiscal 2015 revenues of nearly $5 billion ( 3.3 billion) up by 6.5% from the previous fiscal period. Brakes, which will stand alone within Sysco, supplies fresh, refrigerated and frozen foods and non-food products and supplies to more than 50,000 foodservice customers. Its portfolio covers more than 4,000 own-brand products. Customers include; pubs, restaurants and hotels, schools, hospitals, and contract caterers.



Ingredients Technically Scrutinized

(Reported Jan. 30, 2015 on line by mike.hughlett@startribune.com)

Chobani in a recent ad campaign, criticizing two of its competitor for containing artificial ingredients (see news item below), has been barred from advertising its message by preliminary injunctions issued by David Hurd, a judge for the U.S. District Court of Northern New York. Chobani likened Yoplait Greek 100 yogurt (General Mills) to bug spray because it contains the preservative potassium sorbate; while competitor Dannon’s Light & Fit yogurt was cited for containing sucralose, an artificial sweetener processed with “added chlorine.” Lawsuits by both competitors convinced Judge Hurd that these competitors could be “irreparably harmed” by Chobani’s ads and that Chobani would have a “substantial likelihood of success on the merits of its false advertising claim,” according to Hurd.  He reasoned that potassium sorbate, tested and found to be "nontoxic, is a “minimum risk” ingredient in pesticides and is generally recognized as safe for human consumption by U.S. food regulators. Likewise, Dannon's ingredient, sucralose, already approved as an artificial sweetener in diet soft drink, Hurd argued, is chemically different from the chlorine used as bleach in pools. While Chobani was "disappointed” with the court’s decision, its marketing strategy will continue to focus on its product, made with natural ingredients, versus other products with artificial ingredients.  


Two Belgian Diaper Manufacturers

Eyeballing  U.S. Market Entry

Two major Belgian diaper manufacturers, who have strong commitments to supplying private label disposable baby care, feminine care, and adult care products to retailers, may jump into the U.S. market this year.  In the first quarter of 2016, Ontex International N.V., recognized as  Europe’s leading manufacturer of private label hygienic disposable products, expects to close its acquisition of Grupo P.I. Mabe, S.A. de C.V., the second largest  Mexican manufacturer of hygienic disposables. Mabe, which exports its products to more than 40 countries, has established a strong presence in the United States. The second Belgian producer, Drylock Technologies N.V., was formed in 2011 by the former owner of Ontex, Bart van Malderen.  Van Malderen developed a fluff-less, paper thin diaper (about 3mm  thick versus the standard 8 mm thickness of competitors) without using cellulose or wood pulp, glue, chemicals, or fluff pulp in the absorbent core of the diaper. The patented design (almost as thin as underwear) featured 15 grams of  powder inserted in the diaper and distributed at high production speeds to allow for even distribution and super absorbency. Drylock markets its range of hygienic disposables to some 28 Western European countries, China, and Russia. In 2012, the German discounter, Lidl  adopted this technology within its Toujours range of disposable diapers in Germany. The line since then has been introduced in Lidl stores in the United Kingdom, France, and elsewhere. It's likely that Lidl's plans for entry into the U.S. this year (markets from New Jersey down to Georgia) will include the Drylock feature in its Toujours diaper range. Drylock also has applied this technology to its incontinence products and feminine care products.  (Details for Ontex and Drylock are found in our Manufacturers' database.)


Coupon Tracker Buys into Online Grocery Analytics

Jan. 21, 2016--The 40-year-old Willard Bishop, LLC, a consulting firm based in  Barrington, IL, has been acquired by Inmar, Winston-Salem, NC, a technology company recognized as an established source for Coupon Trends and Shopper Promotions. Details of this takeover were not disclosed. The latter firm, founded in 1980 initially in the business of coupon processing, expects to benefit from Willard Bishop's data analytics and information focused on food retailing. Long associated with studies in the private label industry as well, Willard Bishop's practice areas include: Activity Based Costing and Pricing / Channel Development / Collaborative Performance / Customer Relevancy / Demand-Side Optimization / e-Commerce / Localization Strategies / Product Positioning. The company produces a Super Study e-Commerce Report focused on online grocery shopping.


Wesfarmers (Australia) Joins the Global Retailers' Club

After its successful 100-year development principally  in Australasia, Wesfarmers Ltd., Perth, Australia, overseeing diverse business (mostly in retail) now appears to be looking abroad as part of its growth strategy. While its coal mining business already operates as an exporter to global markets, the conglomerate's primarily retail business has been kept indigenous to Australia and New Zealand.  That began to change, however, in December 2014, when Wesfarmers acquired the Workwear business of Pacific Brands (an apparel manufacturer) for A$180 million. The takeover included the production and supply of industrial workwear, corporate wear and uniforms throughout Australia, New Zealand and into the United Kingdom and the United Arab Emirates. Besides marketing iconic workwear brands, the acquired business also included a network of 63 retail stores (53 of them franchised) under the Totally Workwear banner. (Wesfarmers oversees a network of 3,252 retail outlets under different banners, including Coles, the leading supermarket chain--see listing in out Retailer's Database.)

On Jan. 18, 2016, Wesfarmers took a giant leap onto foreign soil, paying A$705 million ($485.2 million), to acquire the Homebase, a Do-It-Yourself chain of 265 outlets in the United Kingdom.  In fiscal 2015, Homebase generated ₤ 1.5 billion as the UK's second largest DIY retailer. Homebase stores, owned by the Home Retail Group (also in our database), are now scheduled to be re-branded and upgraded under the Bunnings banner over the next few years. Wesfarmers for fiscal 2015 reported "extremely positive" growth for its Bunnings business, positioned as the market leader of home improvement and outdoor living products in Australia and New Zealand.  The 236-store Bunnings chain (up by 29 trading locations for the year) registered a total sales gain of 22.4% and an 11.1% increase in earnings for fiscal 2015 versus fiscal 2014.



GMA's New Virtual Label Digs Into Product Attributes

Last month, the Grocery Manufacturers Association, Washington, a group of its member companies, and retailers launched aan innovative transparency initiative, called SmartLabel, which is designed to help consumers discover detailed information about FMCG products purchased at retail in such categories as: food, beverages, personal care, household and pet care products. It serves as a virtual label, which leverages digital technology and smart devices to inform consumers about hundreds of product attributes going well beyond the label.  (This could circumvent some of the problems encountered when consumers for reference have only a package ingredient statement--See article below.) In food products, for example, SmartLabel provides data on nutrition, ingredients, allergens, third-party certification, etc.; while non-food consumables relate attributes about ingredients, usage instructions, advisories, and handling information, etc.. Consumers can get this information by scanning a QR code on the package, use a web search engine, visit a company website, or eventually tap into an app scheduled for launch in mid-2016. For the non-technical shopper, participating retailers plan to allow for access at their customer service counters, via a connection to: www.smartlabel.org.

SmartLabel features a landing page showing ingredients and attributes--now at 50 but with a potential for close to 200 attributes, including artificial preservatives and the like. Some 90 companies, different reports indicate, support this initiative; while 30 already have committed.  It's estimated that nearly 30,000 products will use SmartLabel by the end of 2017. Hershey Company, for example, now lists numerous, searchable products.


Ingredients Statement Put Under the Microscope

In the trend toward encouraging more transparency in the supply chain, product ingredient statements have come under greater scrutiny and, via marketing strategies, have become more of a bone of contention--sometimes leading to lawsuits. Last September, leading litigation experts met for a Food Advertising and Litigation Conference hosted by the Food and Drug Law Institute (FDLI), a non-profit, Washington-based organization concerned about food and drug law issues. Panelists at the Conference addressed litigation trends in food mislabeling. They warned that companies proceed with caution when marketing claims of healthiness (i.e., 'all natural'), citing quantity of ingredients (i.e., 'rich in antioxidants), or issuing incomplete competitive claims (i.e.. 'x fewer calories' and 'x less grams of fat.').  One expert, Bruce Silverglade, a partner at Olsson Frank Weeda Terman Matz PC, noted that companies in the past would receive a warning letter from the FDA, which was simple to resolve. Today, since consumers are more aware of food labeling and of ways to pursue advocacy and activism, those FDA warning letters can turn into action or class action suits by State Attorney generals.

 Last October, Oregon's Attorney General Ellen Rosenblum filed a lawsuit against the retailer GNC Holdings, Inc., Pittsburg, a specialty retailer of health and wellness products, citing its sale of dietary and nutritional supplements that contain two ingredients, picamilon (a synthetic chemical) and BMPEA (a stimulant), which are not approved for sale in United States. GNC did not list them on its ingredients label. Its products instead were labeled as containing botanical Acacia rigidula, which had been spiked with BMPEA.  Some countries reportedly use picamilon as a prescription drug for neurological disorders. The World Anti-Doping Agency, looking to protect athletes, has banned BMPEA. Upon learning  that the FDA did not consider BMPEA and picamilon as legal dietary ingredients, GNC stopped selling them.

The onus of ingredient definitions falls on the FDA, which reportedly has stumbled over the term natural food, including foods that often has been processed far from Mother Earth.  Ingredient statements also have gained in marketing strength by having less or no particular ingredient, i.e., salt, sugar, fat, preservatives, etc.  It becomes confusing when a product is labeled 'free' of a certain ingredient. For example, there's really no clear way to identify gluten-free foods. In a recent survey, the NSF International, Ann Arbor, MI,  found only 35% of 1,012 Americans surveyed could correctly identify gluten as a protein in wheat, barley, rye, etc. Numerous consumers also misidentified rice and potatoes as containing gluten; while 41% of those surveyed did not know that beer and 58% that salad dressings contained gluten. Product ingredient labels do not always clear up the mystery. 

This month, January 2016, the market's leading brand, Chobani, positioned its Simply 100 Greek yogurt (100 calorie) deeper into this conundrum. The product is billed as the first 'light Greek yogurt made with only 'natural' sweeteners, such as Stevia, monk fruit, and evaporated cane juice; it also boasts on its packaging that the yogurt has no artificial preservatives and contains 75% less sugar than regular yogurt. Chobani promotes its natural and healthful properties (protein and fiber), while mentioning that 'only natural non-GMO ingredients' are used and certified as such.  Armed with this arsenal of ingredient information, Chobani has now launched a multi-media campaign, starting on Jan. 6,  featuring some ads that looked like an attack on its two major competitors.

A New York Times full-page ad, for example, refers to "bad stuff' (artificial ingredients) in yogurt, citing examples like potassium sorbate as a preservative in Yoplait Greek 100: "That stuff is used to kill bugs'; and sucralose as a sweetener in Dannon Light & Fit Greek: "That stuff has chlorine added to it!"  Its brand's message: Chobani Simply 100 contains no artificial sweeteners or artificial preservatives. Almost following the script outlined at the FDLI conference, the competitors took legal actions.  Dannon responded with a cease-and-desist letter, demanding the Chobani campaign stop, claiming its ads are "false, misleading and deceptive" and adding that sucralose is FDA-approved and has been in use for 15+ years as a sweetener. Yoplait owner General Mills, calling the ads "entirely misleading, filed a law suit in the US District Court in Minnesota, according to ADAge (a trade publication). Chobani counter-sued in the New York District Court, arguing that its campaign was not false or misleading.  


Trader Joe's Tuna 'On the Hook'

"Trader Joe's private label products promise great quality fare for exceptional, everyday prices." Trader Joe's with more than 80% of its stock in private label stands squarely behind that quality promise for its private label products. But what about quantity wise for those products? That question is being contested in a class action lawsuit filed on Jan. 5 by a consumer, Sarah Magier, in the US District Court Southern District of New York. This action centers on the 5-ounce Trader Joe's can of tuna, alleging (after several tests on a number of cans) that they contain less than 3 ounces of tuna--even below the federal mandatory standard of 3.23 ounces.  Ms. Magier's complaint, including accusations of fraud, deception, and illegal practices, asks for hundreds of dollars in damages plus legal fees. While this $9.4 billion retailer can well afford that penalty, it may, if the action is ruled in favor of the plaintiff, harm its private label reputation. Hopefully, Trader Joe's, if judged at fault, will tighten its quality standards of excellence to include more stringent quantity standards.

Other retailers, too, might consider extending their private label quality mantra, 'as good as or better than,' to include 'as much as or more than' which equate with the promise of value for less money spent.


Glim Outlook for V&D in Holland

In business for 128 years, V&D (Vroom & Dreesman), a chain of 67 department stores in The Netherlands--the largest retailer in that sector--filed for bankruptcy late in December 2015. Its checkered history, since 1887, has included a number of ownership changes, the most recent in November 2010, when its parent, Maxeda Retail Group B.V. (listed in the Retailer's database), sold the business (including its restaurant chain La Place) to Sun Capital Partners, Inc., Boca Raton, FL. Subsequently, this private equity firm struggled in building the V&D retail business, barely added five stores to its portfolio until its bankruptcy last month. Sun Capital recently had cut its financial support, leaving V&D to face stiff competition from online retailers plus a weakened Dutch economy. V&D now looks to restructure itself with new investors, which also could lead to a revival of its private label lines, including the LIV brand.  


Talk About A Big Mac(Donald's)!

In the retail sector, the trend continues toward downsizing stores; but in the foodservice business, market leader, McDonald's, while having phased out of super-sizing some of its menu items, still likes things 'big.'  In Orlando, FL, McDonald's operates its largest outlet--a virtual, 12,000-square-foot entertainment center--the largest within its worldwide chain, or three times as big as its typical building at 4,000 square feet. The Orlando Sentinel newspaper has reported that this Colossus of McDonald's is now being increased to 19,000 square feet and will include some of the extras already inside the existing building and presumably some surprises, too. The new store, scheduled to open this spring, will be multi-story, featuring a Play Place for children, more than 100 arcade games, a 500-gallon aquarium, self-service kiosks, its Macdonaldland mascots in animatronics, a bowling alley, and an enhanced Bistro Gourmet menu. Once arriving at Orlando Airport, tourist can forget heading directly to Disney World. The McDonald's in Orlando promises to be another wonder in the away-from-home eating experience.


December 2015




The private label business sometimes becomes very complicated by virtue of its definitions. A simple description would be that manufacturers, generating 50%+ of their sales from what they produce or process, own their regional or name brands. Their customers--retailers, wholesalers, distributors, co-ops, marketers, etc.--can contract with manufacturers to own and control their own brands, which are called private brands or private labels.   Since there is no standard definition that differentiates brands from private brands, some industry players choose to identify their business their own way. One recent example is found in our Retailers-Wholesalers database:  CROPP (The Cooperative Regions of Organic Producer Pools), La Farge, WI, a dedicated organic farmers cooperative serving 1,800+ farmer families, distinguishes its private label business (finished dairy products and raw materials)  as labels that are owned or controlled by its retailer customers. CROPP's  two own brands, Organic Valley dairy and Organic Prairie meat products (plus a licensed brand, Stonyfield Farm Organic), are collectively identified as its branded business. Under the simple definition above, the co-op's two brands are really private brands.

(While CROPP's ownership of dairy and meat brands can be defined as private brands­--under the control of the co-op and not necessarily the farmers who process the products--these branded products are not exclusive, that is, they are marketed like a manufacturer's brand and carried by competing retail/foodservice operations in the marketplace. Perhaps the factor that distinguishes private label is its exclusivity in the marketplace and not just ownership. On the spinoff of DPI Specialty Foods from the Irish Dairy co-op--see item below--DPI no longer held an exclusive on the co-op's own brands. DPI as a food wholesale distributor, in fact, now represents only brands owned by manufacturers/processors.)


This may all sound academic except when you follow CROPP's latest marketing strategies in reacting to a decrease in its branded sales; while its private label business continues to grow. The latter produces less profits for the co-op, which registers on its financial report. The co-op's response: bolster its branded business by introducing five new brands: Organic Balance and Organic Fuel milk protein shakes in 2014; and starting in 2015, Grassmilk Yogurt, Good To Go single-serve milk, and Mighty Bar Organic meat snacks. This month (December 2015), CROPP reported its total sales topped $1 billion: a 4.6% increase over 2014; while 2014 registered record profits of $14.5 million versus $5 million in 2013.  The question arises: Does its continued spurt of growth come from higher brand or private brand sales?


Arbor Investments Builds its Private Label Portfolio

Chicago-based Arbor Investments, a private equity firm, this month took control of a majority stake in DPI Specialty Foods, Ontario, CA.  As one of the largest U.S. specialty food distributors, this sales, marketing, and logistics provider  represents revenues of $1 billion+. Its offering covers more than 40,000 skus of specialty foods from ambient, to chilled, to frozen products--branded and private label.  This 30-years-plus business evolved as a subsidiary within the Irish Dairy Board Co-Op Ltd., Dublin, which last April had rebranded itself Ornua Co-operative Limited. The new name, which refers to the Irish Ór Nua, meaning 'New Gold,' reflects the co-op's interest in exclusively representing dairy farms in Ireland and their domestic and export dairy products. DPI Specialty Foods' product range now extends far beyond dairy into gourmet, natural, organic, gluten-free, local and ethnic foods, both perishable and non-perishable being sourced from five continents.  Ornua retains a minority interest in DPI (now listed in our Retailer-Wholesalers database).

Arbor Investments last August took over Hudson Baking Company LLC, Hudson, WI, a producer of premium marshmallow crispy dessert bars, brownies, cookies, and other baked goods.  The business has been integrated into Arbor's baking platform, which includes Le Petit Pain Holding (New French Bakery, Minneapolis, and Best Maid Cookies Co., River Falls, WI), which oversees the two bakery operations: take-and-bake-and-fresh artisan breads and gourmet cookies--both involved in private label as well. Hudson Baking business now is being extended to include customers of Petit Pain Holdings. (In late 2013, Arbor acquired another  bakery: PBF Pita Bread Factory, Burnaby, BC, a producer of fresh and frozen premium baked foods (pita bread, tortillas, bagels. naan, cookies, and pies), also serving private label customers.)


November 2015

Kroger to Merge with Roundy's, Inc.

In its strategy to spread its store imprint on new market, The Kroger Co., Cincinnati, announced on Nov. 11 its agreement to take over The Roundy's Inc., Milwaukee, paying a 65% premium on the latter's latest share price, the deal which includes Roundy's existing $646 million debt is valued at about $800 million. Roundy's, tracing its history back to 1872,  closed 2014 with net sales of $3.9 billion +2.8% over the previous calendar year; but its primarily market, Wisconsin saw net sales dip by 3.7% to $2.8 billion. As a result, the Midwest supermarket retailer suffered a total net loss of $309.9 million for the year versus net income of $34.5 million in 2013. Operating in Wisconsin and Illinois, Roundy's oversees 90 Pick 'n Save, 29 Mariano's, 25 Copps, and 4 Metro Markets. The takeover expands Kroger's  portfolio by 151 stores and 101 pharmacies and into new geographies including Milwaukee, Madison and Northern Wisconsin. Additionally, Kroger adds 34 Mariano's banner stores in the greater Chicago market as well as two distribution centers and a commissary. Kroger and Roundy's together will operate 2,774 supermarkets across 35 states and the District of Columbia.


A New Private Label World Leader Emerges in Manufacturing

Today (Nov. 2), TreeHouse Foods, Inc., Oak Brook, IL, which 10 years ago did not exist, announced its agreement to acquire most of the private brand business at ConAgra, Omaha, recently listed by that company as a discontinued operation (see news items in previous months). TreeHouse, which reported calendar 2014 net sales of $2.9 billion (+28.8%) and net income of $89.9 million (+3.3%), will pay nearly $2.7 billion (including $1.8  billion in new debt and about $1 billion in equity stock issuance, which will require amending its $1.4 billion credit facility).  The ConAgra package is referenced with $3.6 billion in reported sales for fiscal 2015 (ending May 31) and some 32 manufacturing plants in the U.S., Canada, and Italy. Bottom line for TreeHouse, upon completion of the takeover in 2016's first quarter: Its annual sales will jump to nearly $7 billion  with a total count of more than 50 manufacturing facilities.  TreeHouse, primarily a private label grocery producer, will become one of the world's top five private label manufacturers and the largest  private label food and beverage manufacturers in the U.S. Its product portfolio will increase by 10 complementary dry and refrigerated grocer categories. ConAgra, in turn, will keep its private label operations connected to its Consumer Foods business: canned pasta, cooking spray, peanut butter, pudding/gels, Gelit frozen pasta products as well as HK Anderson and Kangaroo brand equities.


Snyder's-Lance Adds Snack Food Manufacturer

Snyder's-Lance, Inc., Charlotte, NC, agreed on Oct. 28 to a cash and stock merger with Diamond Foods, Inc., Stockton, CA (a leading snack foods producer), a deal valued at $1.9 billion, which includes $640 million  in debt. While both companies are now focused on marketing their own brands, private label remains a factor in this transaction. In February 2015, for example, Diamond Foods acquired 51% interest in Yellow Chips, a manufacturer of vegetarian potato chips, based in the Netherlands. Snyder's-Lance will increase in annual revenues by $2.6 billion as a result of this merger. (Diamond's net sales in fiscal 2015 were flat at $864.2 million.


October 2015

Welcome to Another $100 Billion+ Retailer/Wholesaler

On October 27, 2015, Walgreens Boots Alliance, Deerfield, IL, announced its acquisition of Rite Aid Corp., Camp Hill, PA, in an all-cash and debt financing deal valued at $17.2 billion, which is subject to shareholders and regulators approval--expected by the second half of 2016. Walgreens, still digesting its absorption of Alliance Boots, starting at the end of 2014, reported its fiscal 2015 net sales at $ 103.4 billion (+35.3% over the previous year), which included eight months of business at Alliance Boots. Net earnings, too, were very impressive: $4.3 billion (+111%).  The company reported overseeing 12,755 stores, 8,051 in the U.S. and 4,582 in the United Kingdom plus six other countries (Mexico, Chile, Norway, Rep. of Ireland, The Netherlands, and Lithuania). The Retail Pharmacy USA division represents $81 billion in fiscal 2015 sales, followed by the Pharmaceutical Wholesale division sales of $15.3 billion, and the Retail Pharmacy International sales of $8.8 billion.

The Rite Aid acquisition encompasses, as of its fiscal 2015 year, 4,570 stores in 31 states and the District of Columbia, representing  revenues of $26.5 billion (+3.9%) and net income of $2.1 billion (+742%). Rite Aid, too, has been acquisition hungry, having acquired Health Dialog, Boston, a healthcare coaching service, and RediClinic, Houston, TX, a healthcare clinic service, both in April 2014. Some 17 days before its fiscal year close (Feb. 28, 2015), Rite Aid announced its planned takeover of EnvisionRX, Twinsburg, OH, a pharmacy benefit management firm, its revenues at $5 billion.

Once the dust clears with the Rite Aid takeover, Walgreens Boots Alliance should be accountable for total sales of nearly $150 billion, bringing the company near to or more than its chief competitor in the U.S., CVS Health, Woonsocket, RI . The latter reported its revenues for fiscal 2015 up by 9.9% to $139.4 billion.  

It's interesting to note that Rite Aid has in recent years been aggressively building its private brand business, now representing 18.5% of its font-end sales. The company has stated that its looking to create "a world-class private brand."  Under the Walgreen Boots Alliance umbrella that may be closer to fruition. The latter company already manages a number of global health and beauty brands in its international division, such as No7, Botanics, Liz Earle, and Soap & Glory.  In the U.S., there also is strong support for its own brand appearing in the Walgreens and Duane Reade drugstore chains: NICE!, DeLish,  and Well at Walgreens. Additionally, the company has a new R&D and manufacturing capability via the Boots Alliance operation.  And under its pharmaceutical wholesale division, the Alliance Healthcare brand is distributed in 12 countries  while the company also has a viable Alloga brand provided to pharmaceutical manufacturers under contract.


September 2015

The Worst of Years at Tesco


Early this month, Tesco PLC agreed to sell its largest overseas asset, Homeplus in South Korea for $6.1 billion (£4.2 billion) cash to the private equity firm, MBK, Seoul, leading a consortium of investors (Canada Pension Plan, Temasek Holdings*, etc.), which presented the winning bid. The deal, scheduled for completion in 2015’s fourth quarter, follows Tesco’s Fiscal 2015 £6.4 billion (cashless) write down as a result of the worse financial results in its 96-year history. Those results came from a fall in its property value for its UK stores (suffering from falling footfalls in its town superstores), stiffer competition from discount retailers in its European markets, and a 5.3% decline in trading profits in its Asian business, resulting from weaker store sales in South Korea, Thailand, and Malaysia. Homeplus reported recent revenues off by 4% versus the previous year, while it turned unprofitable. Tesco, which plans to pay down its debt and revitalize its UK business with the Homeplus cash, also is looking to sell its data analytical business, Dunnhumby. The Homeplus selloff follows Tesco’s earlier divestments of its businesses in Japan and the United States, and its reduced exposure in China.

(*Temasek, based in Singapore, holds a 25% stake in A.S. Watson Holdings in Hong Kong, also listed in the SOURCEBOOK database.)


August 2015


The 127-year-old Belk Inc., Charlotte, NC, the largest family owned department store chain in the U.S., has agreed to a $3 billion stock deal, where the private equity firm, Sycamore Partners, New York, a specialist in retail and consumer investments, will take control of the fashion retailer sometime this fall. Operated by the third generation Belk family (owning some 70% of the stock), Belk reported 2014 revenues of $4.1 billion (+1.8% over the previous year) and net income of $146.1 million (-7.8%) from some 297 stores in 16 southern states. Sycamore Partners already controls a number of specialty apparel retail chains, including Aeropostal, Hot Topics, Coldwater Creek, Nine West, Talbots, etc. They encompass more than 2,000 stores mostly in the U.S. and in Canada. It's likely that Belk, which already stocks brands from the Jane Group, which Sycamore acquired in 2014, will add other brands from the specialty chains owned by the investor.  


July 2015



This month, J Sainsbury's of the UK for £125 million reported selling its pharmacy business available in nearly half of its Sainsbury's supermarkets (281 outlets) to pharmaceutical wholesaler and retailer Celesio AG, Stuttgart, Germany, which owns the UK-based Lloyds Pharmacy chain. Up to 2,500 Sainsbury's Pharmacy staff will transfer over to Lloyds Pharmacy.  A month earlier, we reported that in the U.S., CVS drugstores agreed to acquire Target's pharmacy and clinic business for $1.9 billion. That will affect some 1,660+ Target pharmacies in its stores across 47 states.  



Stereotyped as a high-priced specialty retailer, focused on natural and organic foods, Whole Foods Market, Inc., Austin, TX, has announced plans to roll out a new retail chain, called "365 by Whole Foods Market."  Its first store, a 30,000-square-foot supermarket with a wine bar, will open in 2016 in Silver Lake, CA (near Los Angeles), followed by four other stores that year, then doubled in number in 2017. Besides California, units will open in Washington, Oregon, and Texas.  The new value-oriented concept reportedly will feature Whole Foods'  365 exclusive brand products, all priced competitively against Trader Joe's. . (One comparison shopping report on similar products showed Whole Foods' own brands just 2% higher than Trader Joe's--noted for its lower priced, mostly private brand groceries. )  In fiscal 2014, Whole Foods reported its exclusive brand sales at $1.8 billion (13% of total retail sales), covering some 4,400 skus, mostly under the 365 Everyday Value and Everyday Organic brands.




Two food brand/private label manufacturers, Post Holdings, Inc., St. Louis, and Treehouse Foods, Inc., Oak Brook, IL, late this month  reportedly have been joined by two investment funds, Apollo Global Management, and Cerberus Capital Management LP, in an auction sale now being conducted by ConAgra Foods, Omaha,  for divestment of its private brand business, worth about $3.5 billion (see news item below in June 2015).  The private investors each have or have had interest in retail properties. Apollo in October 2012 sold its majority interest in Smart & Final Holdings to Ares Management. Cerberus Capital, controls AB Acquisitions LLC, the owner of Albertson's LLC and New Albertson's Inc. Last January 2015, AB Acquisitions merged with Safeway Inc. Reports indicate that ConAgra  does not want the private brand business broken up, but sold whole.


THE RISE (by Retailers)  & FALL (from Manufacturers) OF PRIVATE LABELS

There's no question that private labels are firmly established worldwide and, supported by retailers, continue to grow especially in emerging markets.  Our concern, however, focuses on the changing strategies of some manufacturers who produce private labels. The question we pose: Are major players abandoning the private label segment of their business in favor of more profitable branded business? Historically, the name brand manufacturers have eschewed private labels, a few of them only allocating a portion of their business  in that sector--either at the request of their major retail customers or to fill in production downtime. With the growth and consolidation of the retail industry, some dedicated private label manufacturers appear to be increasingly disenchanted with their commitment to this business. A number of factors contribute to their changing mindset, such as the improving economy (higher-priced brands produce more profits), industry consolidation (fewer but larger companies answerable to shareholders), and the recent weakening of private label sales in mature markets. Whatever their past sentiments were concerning private label business, today the bottom line results for a number of manufacturers is their ultimate concern. Some examples follow:

(1) ConAgra, Omaha, through its November 2012 acquisition of Ralcorp, became the largest private label packaged food producer in the United States.  Last month, however, ConAgra reported that its Private Brands business  lost $25 million and with adjustments in net expenses its profits plunged by 30% in the current quarter. The company's new CEO in pronouncing ConAgra's private brand business  a "distraction" and a "suboptimal use of company resources" announced divestment plans of this business segment. (See analysis below in June 2015.)

(2) Recent diversification moves and emergence into the international stage have completely changed Perrigo, Dublin, Ireland, the world's largest manufacturer of store brand OTC (non-prescription) pharmaceutical and infant formulas (and one of the original architects of the  private label pharmaceuticals). Over the past seven years, this company has completed 19 mergers and acquisitions–the largest finalized in December 2013 with its $9.5 billion cash and stock acquisition of Elan Pharmaceuticals, a neuroscience-focused biotechnology company  (researching drug treatments for diseases such as Alzheimer's and Parkinson's).  As a result, Perrigo has relocated its headquarters from Allegan, MI, to Elan's headquarters in Dublin, Ireland.  In fiscal 2013, Perrigo  picked up the Sergeant brand of  pet care products (flea and tick products, plus health and nutrition treats). With Elan's assets in hand, Perrigo now collects royalties on the global sales of the Tysabri prescription drug brand ( its rights sold by Elan to the biotechnology firm,  Biogen Idec Inc.) for the treatment of multiple sclerosis .

In March 2015, Perrigo completed its takeover of Omega Pharma Invest N.V., Nazareth, Belgium,  a major branded OTC healthcare producer, supplying 35 European countries and some select emerging markets. Its 2013 sales total  €1.2 billion. Perrigo's annual sales now climb to $5.7 billion with Omega. Omega allows Perrigo to expand its European market for OTC branded drugs (vitamins and dietary supplements, etc.) while offering potential for store brand OTC product development in markets where those products are weak. Omega also establishes Perrigo as a major global player in the branded consumer health products business.

In April 2015), Perrigo received an unsolicited proposal from Mylan N.V., Hertfordshire, England/Pittsburg, PA, a global generics and specialty pharmaceutical company, looking to acquire all Perrigo's outstanding stock. If consummated, the deal would have created a $15.3 billion+ company based on 2014 pro forma sales. (Not bad for Perrigo which reported net sales of $2 billion in fiscal 2009.)  Mylan-Perrigo together would offer critical mass in specialty brands, generics, OTC, and nutritional products. Perrigo, while receptive to the" right offer," rejected the Mylan bid , believing that it undervalued  Perrigo, considering its own prospects: $1 billion sales potential in new products over the next three years, the continued Rx to OTC drug switches, the expansion of its merger & acquisition activity, and the upside of its royalties from the Tysabri brand (2015 total sales projected at $5.4 billion). Ironically, Mylan itself has just rejected a takeover bid by the Israeli drug maker, Teva Pharmaceutical Industries. (Teva, however, did not want Perrigo as part of that deal.)

(3) Dean Foods, Dallas, the country's largest processor and distributor of milk and other dairy products and the market leader in private label (now with 53% of its net sales in private label increased by virtue of its spinoff of noncore business),  in 2014, reported its  "most difficult year" ever. Its turnaround strategy now is not to 'milk' its private label business, but to turn more to brands.  Dean now looks to the promising growth of its new TruMoo flavored milk brand (launched in 2012) as one answer to private label's  market share gains. In May 2015, Dean decided to launch another national brand, Dairy Pure, to represent  31 regional brands of white milk across the country. Dairy Pure's estimated sales are put at $2.5 billion. The company plans to promote and advertise this new brand as a national brand. Ironically, Dean Foods because of  its 2013 divestments (spin off of WhiteWave Foods and sale of Morning Star Foods)  has  pushed its private label share of  total  net sales upward to 53%; but the company seemingly is reluctant to capitulate to private labels. (See Dean Food listing in our database for details.)

(4) "Looking forward for Snyder's-Lance, we believe focusing more completely on our branded products will create better long term shareholder value as we grow organically through product innovation and the acquisition of additional core brands." This quote from Carl E. Lee, Jr., President and Chief Executive Officer. of Snyder's-Lance, Charlotte, NC, follows the company's mid-2014 divestment of its private brands business.

We invite your comments on this analysis.


To the 'Victor' Go the 'Spoils'

In this case, the competition represents the 'victor' in the dissolution of the iconic A&P company. The first 120 stores  are being divided among local competitors: Acme Markets (76 stores), Stop & Shop (25 stores), and Key Food Stores Co-operative (19 stores), according to the latest reports. Some 150 other A&P-owned stores remain on the auction block. (See article below for details.)

A&P Is History

It is a sad day in the U.S. retail industry...

Yesterday (July 19), A&P, Montvale, NJ, for the second time, since December 2010, filed for Chapter 11 bankruptcy protection, citing competition and what it calls "inflexible collective bargaining agreements" and "legacy costs," according to a news report today in the The Record, a daily newspaper in New Jersey. A&P noted in this filing that it now had three "stalking horse bids" for the sale of 120 stores (priced at $600 million); while a liquidation specialist, Hilco, has been retained to solicit for bid to another 150 stores, while A&P looks to close 25 underperforming stores. The bidders in hand are released from all Union bargaining agreements established by A&P.  That virtually ends the remarkable history of this 156-year-old, pioneering supermarket leader, who helped define, innovate and set industry standards in retail marketing and merchandising--especially with respect to fostering the growth of private labels. That leaves the fate of its six chain banners–A&P, Food Basics, The Food Emporium, Pathmark, Superfresh, and Waldbaums– operating 295 stores in six states, up to potential buyers.  See report below (June news), 'What the Dickens,' for more details about A&P.


The Emergence of Retail Giants

Consolidation in the retail industry has been a catalyst for sales growth since its formative years early in the 20th Century. Organic growth alone does not cut it; mergers and acquisitions have played a key role in the progress of the major retail players. This trend continues into the 21st Century and, in fact, has intensified recently as private equity investors participate more in this business. (Manufacturers, too, have followed a similar course of development.) The bottom line is that giant retailers have emerged, growing from single-digit billion-dollar companies through the double-digit bracket and (excluding Walmart, the industry colossus–far ahead of its competitors) most recently into triple-digit billion-dollar industry giants. It's a sea change for retailers overall, and the tide does not appear to be changing any time soon.

In January 2014, for example, Kroger paid $2.5 billion for Harris Teeter, Matthews, NC, a chain with fiscal  2013 sales of $4.5 billion. Kroger's fiscal 2015 sales (ending Jan. 31) now total $108.5 billion (up 10.3%), breaking through the $100 billion barrier.

 Late in 2014, Walgreens proclaimed itself  'the world's first global, pharmacy-led health and wellbeing enterprise,' when Alliance Boots officially became the consolidated subsidiary of Walgreens Boots Alliance. Together, these companies now represent estimated sales of $130 billion. They span more than 25 countries, operate through 12,800 health and beauty stores, and manage 340 distribution centers. With this merger, Walgreens broke through the $100 billion barrier.

Since March 2007, after a merger with Caremark Pharmacy Services (a leading pharmacy benefits manager), CVS has focused on broadening its health care services, which led to a name change last year: CVS Health. This past May (2015) CVS for $12.7 billion acquired Omnicare, a leading provider of pharmacy services to long-term care facilities; then in June 2015 took over the pharmacy and clinic business at Target for $1.9 billion. While this strategy has skewed CVS's revenues more toward pharmacy services, its retail pharmacy revenues have increased as well up to $67.8 billion or 48.6%  of its total 2014 revenues of  $139.4 billion. CVS broke through the $100 billion barrier in 2011 with net revenues of $107.1 billion.

The smaller players have no option other than to follow the trend. Recent examples...

  Last April 2015, AB Acquisitions LLC (controlled by private equity investor Cerberus Capital Management and other investors, as the parent company of Albertson's acquired Safeway in a $9 billion deal. This merger resulted in a diversified retail business, estimated sales of up to $60 billion, combining at least 16 food chains: Safeway, Vons, Pavilions, Randalls, Tom Thumb, Carrs, Albertsons, ACME, Jewel-Osco, Lucky, Shaws, Star Market, United Supermarkets, Super Saver, Market Street, and Amigos.   

 In June 2015, Hudson Bay Company, Toronto, agreed to pay $3.5 billion to acquired one of Europe's top department store chains, the 137-store Galeria Kaufhof, owned by the METRO Group of Germany. Once completed, HBC will emerge with some 464 locations worldwide under eight leading store banners, together generating some $13 billion in revenues.

Also in June 2015,  in the supermarket segment, Ahold of The Netherlands agreed to pay some $28 billion to acquire Delhaize of Belgium. Combined, this new retail force would oversee more than 6,500 stores with estimated sales exceeding $60 billion.  These two retailers have their strongest sales commitment in the United States. Ahold, holding a 61% stake in the merger, terms the arrangement  "a true merger of equals," as opposed to an acquisition.

And now this month, July 2015, we see Dollar Tree, successfully bid $8.5 billion cash and stock to takeover its rival dollar store chain, Family Dollar. Thus Dollar Tree jumps from some 5,454 stores and $8.6 billion in sales into becoming  the dollar store segment leader with sales of $18 billion overseeing more than 13,000 stores. (Dollar General, which unsuccessfully made a higher bid for Family Dollar, continues with its 10,000+ stores and sales of $14.8 billion, falling to second place in that market segment.)


June 2015




Under Sean Connolly, its new CEO since April 2015, ConAgra, Omaha, North America's largest producer of private brand packaged foods, has adopted a new strategic course, focused exclusively on its two other major business segments, Consumer Foods and Commercial Foods; while its third segment, Private Brands, will be divested. Details will be announced later this year. ConAgra, while previously optimistic about the fit of its private brands business, under the now retired CEO Gary Rodkin, that business segment has since faltered (also see ConAgra news item below, April 2015). Its fiscal 2015 nine-month private brand sales were off by 3.8% versus the comparable 2014 period. Third quarter 2015 sales were off by 4.7% to $1 billion; while that period's private brand operating profit plunged to a $1.3 billion loss versus profits of $44.7 million the previous year. The latest fourth quarter results, ending May 31, 2015, were almost as bad, affected by higher commodity costs, which impacted negatively on its profits, as did lower sales volumes.  ConAgra's Private Brands segment operation lost $25 million and with adjustments in net expenses those profits plunged by 30% (even with an extra week in the current period) versus the previous fourth quarter.


Connolly had no choice but to listen to ConAgra's shareholders, some complaining that since the November 2012 acquisition of Ralcorp for about $5 billion, ConAgra has encountered some $2 billion in write downs on its Private Brands business. Connolly reported: “As I have intensely studied the situation in our Private Brands operations over the last few months, it has become clear that the time and energy the company is devoting to the Private Brands turnaround represent a suboptimal use of our resources. To prevent further distraction, we are pursuing the divestiture of our Private Brands operations. Because the outcome of our strategic review for the Private Brands operations will influence our long-term financial outlook, we will wait until this process is complete before sharing long-term financial commitments. We expect to offer operating details of our plans as well as long-term financial expectations at an investor event later this year.”


Emergence of the 4th Largest U.S. Supermarket Chain in 2016

A merger of equals, a melding of complementary businesses, that's how the parties to the creation of a major, global retailer describe their new company, Ahold Delhaize, Brussels, Belgium, which will formally launch in mid-2016. News of this new industry giant came late this month when Koninklijke Ahold N.V., Zaandam, The Netherlands, agreed to a deal worth € 25 billion ($28 billion) to acquire Delhaize Group, Brussels. Based on their 2014 financial results, the new company will  represent annual sales of € 54.1 billion ($61 billion) and encompass 6,674 stores located in 10 countries– some two-thirds of its total sales generated in the United States. In effect, Ahold Delhaize in the U.S. alone will  represent $43.7 billion with 2,063 stores and very likely rank as that country's fourth largest supermarket chain, trailing only Walmart ($288 billion net sales in U.S. ), Kroger ($108.5 billion), and Albertson-Safeway ($61 billion).

Both parties in the Ahold Delhaize have experienced modest 2014 total sales growth versus the previous year: Ahold up by 0.5% to € 32.8 billion and Delhaize up by 2.5% to € 21.4 billion. Their profits performance, however, each show a significant decline from 2013: Ahold  down 76.6% to € 594 million and Delhaize down 50.3% to € 89 million mostly the result of discontinued operations. Delhaize's store count droped by 66 outlets (Bottom Dollar food stores in U.S. sold to Aldi)  to 3,468 stores, while the company also pulled out of three countries: Bosnia and Herzegovina (39 stores) and Bulgaria (54 stores). Ahold added 75 stores total (including franchised outlets; but only one store in its major market, the U.S.) Both retailers maintain an aggressive own brand commitment, strongest in Europe; but significant as well in the U.S.: Ahold 37.6% of its total U.S. sales, Delhaize 28% share of its total U.S. sales.


What the Dickens, A&P & HBC Are Comparable...

“It was the best of times, it was the worst of times. . . .”  Charles Dickens began his "Tale of Two Cities" with that line. While it refers to London and Paris in 1775, it could as well apply today to two iconic retail companies, each now faced with opposing prospects. They share similar long-term histories, while each is  owned by a billionaire investor's private equity firm. For HBC (Hudson's Bay Company in Canada) it is the best of times; for A&P (the Atlantic & Pacific Tea Company) arguably it is the worst of times.  

A&P, founded in 1859 and credited with a number of impressive industry firsts throughout its history, in its heydays of the 1930s operated some 60,000 small grocery stores (over $1 billion in sales), Today, A&P has shrunk in size into a regional chain of 301 supermarkets with revenues close to $6 billion, diminished by its sell-off  of huge chunks of its business. (About six years ago, A&P's volume reached $10 billion.) Newspaper reports this month indicated that A&P now is rumored to be considering the sale of nearly  half of its remaining supermarkets. The company, which recently emerged from bankruptcy protection, is owned by the private equity and venture capital firm, Yucaipa Cos., Los Angeles–backed by grocery billionaire Ron Burkle).

Hudson's Bay Company, Toronto, traces its history back five centuries to 1670 (started as a fur trader in Canada), while its retail business took root in the 1870s. HBC's prospects today point to this being its best of times, where it is expanding into a global enterprise.  Its 'tale,' also involves billionaires, first Jerry Zucker, who purchased HBC with its 500+ stores initially for $878 million; unfortunately Zucker died of brain cancer, but only after negotiating its sale to another billionaire, Richard Baker.  As a shrewd real estate investor, Baker controlled NRDC, a private equity firm which at that time already owned 20% interest in HBC. NRDC also owned Lord & Taylor, an upscale retailer (started in 1826). In 2008, Baker purchased HBC for about $1.2 billion,  primarily assuming its debt burden.  At that time, HBC operated about 580 stores, which besides Hudson's Bay outlets also included the Zellers discount chain, Home Outfitters home decor chain, and a rural discounter, Fields. Baker then turned around and sold the Zellers chain to Target in 2011 for $1.8 billion. (Target announced recently that it was pulling out of Canada after having converted Zeller stores to its Target format.) Baker followed up in 2013 paying $5 billion for the upscale Saks Fifth Avenue business. For fiscal 2014, HBC reported its total sales up by 2.7% on same store sales to $8.2 billion. When factoring in the Saks acquisition on a full 52-week period, HBC's sales increased by 56.4% over the previous year. HBC's gross profits for the year were $3.3 billion, up 65%-- also thanks to the inclusion of the Saks business. The company's store count now totaled 322 stores: 90 Hudson's Bay, 50 Lord & Taylor, 38 Saks Fifth Avenue sores, 77 off 5th outlets, and 67 Home Outfitters stores.

With its coffers full, Baker's HBC this month (June 2015)  has agreed to pay $3.4 billion (including assumption of certain liabilities) to acquire one of Europe's top department store chain, the 137-store Galeria Kaufhof ,owed by the METRO GROUP of Germany.  Bottom line, HBC estimates that after the European acquisition, it will operate 464 locations worldwide from eight leading store banners, together generating some $13 billion in revenues.


Mega Giant Retailers Emerge


For years the top two US drugstore chains, Walgreens and CVS, have capitalized on their industry segment's consolidation by buying up smaller chains and gradually building their sales volume. More recently, both these chains have begun capitalizing on the growing consumer interest in health and wellness. Walgreens and CVS are now aggressively absorbing pharmacy-led product and service organizations, a strategy that has helped to boost their revenues into the hundred-billion-dollar players club.


CVS took this initiative in March 2007 by merging with Caremark Pharmacy Services, a leading pharmacy benefits manager (servicing 65,000+ pharmacies including CVS stores).  Renaming its business CVS/Caremark Corp., the company reported its 2011 revenues at $107.1 billion, its pharmacy services representing 56% of that total volume.   In February 2013, retailer CVS also launched its first venture outside the US, acquiring the 44 store Drogaria Onofre Ltd pharmacy chain in Sao Paulo, Brazil. CVS broadening its health care services, which led to a name change in 2014: CVS Health.  CVS Pharmacies, now calling itself the largest pharmacy health care provider in the US, again renamed itself in 2014 as CVS Health Corp. with its mantra, "health is everything."  (True to its word, CVS stores dropped all tobacco products recently, which on an annualized basis cost the company $2 billion.) While CVS continues building its drugstore chain through acquisitions, it also has established Oak Sourcing LLC, Foxborough, MA., the largest US generic sourcing entity, in partnership with Cardinal Health Inc. (a Dublin, OH-based $91 billion health services company.)  CVS in May 2015 agreed to acquire Omnicare, Cincinnati, the leading provider of pharmacy services to long-term care facilities. The deal is valued at $12.7 billion. This month (June 2015), CVS agreed to acquire Target's pharmacy and clinic business for $1.9 billion, which encompasses some 1,660+ Target pharmacies in its stores across 47 states. For fiscal 2014, CVS reported $139.4 Billion in revenues, of which  Pharmacy Services represent 63.4% of that total, while another $67.8 billion of its total Retail Pharmacy business includes 70.7% in prescription drugs ($47.9 billion sales).  Behind this prioritized strategy, CVS has not neglected its private brands business. Now representing 19.5% of front end store sales, the goal is to raise that share to 25%.

Walgreens's health and wellness initiative received a major infusion in June 2012, when the company announced its $6.7 billion cash-and-stock bit for 45% interest in the UK-based, privately owned Alliance Boots along with an option to purchase the remaining shares at a later date.  On December 31, 2014, Walgreens officially merged when Walgreens Boots Alliance became the successor of Walgreen Co. Thus Walgreens became a wholly-owned subsidiary of the newly-formed Walgreens Boots Alliance. (Its combined sales have been estimated at $130 billion.) Upon completion of a reorganization of Walgreens into a holding company and the combination of the two companies, Alliance Boots became a consolidated subsidiary of Walgreens Boots Alliance. This strategic alliance spans more than 25 countries, employs more than 370,0000 people, and provides health and wellbeing products through 12,800 health and beauty stores, while also managing 340 distribution centers.  Its Pharmaceutical Wholesale business, recognized under the Alliance Healthcare brand, sells medicines and other healthcare products plus related services to 140,000+ customers, including pharmacies, doctors, health care centers, and hospitals, utilizing some 299 distribution centers in 12 countries. In effect,  the acquisition catapulting Walgreens onto the world stage, as the biggest pharmaceutical wholesaler and the largest purchaser of prescription drugs and many other health and well-being products. Additionally, Walgreens took on the manufacturing function as well.

Walgreens on its own has been rolling out a Well Experience store format with different variations in Walgreen drugstores  and even has  introduced a 'Well at Walgreens' private brand in its OTC products as well as the 'ology' brand covering baby care, personal care, and household cleaners, all free of harmful chemicals and carrying a "well being trademark under its logo.

The marriage with Boots Alliance now allows for the initiative of marketing the company's own powerful global brands throughout its network. This includes: Boots No 7 cosmetic and skin care line (including licensing agreements with other retailers), Boots Pharmaceuticals,  and Well at Walgreens.  Boots recently acquired ownership of the Soap & Glory brand, which now operates as a stand-alone brand within the newly named company's Global Brands division, lead by Ken Murphy, its president since January 2015. Plans call for re-launching the Soap & Glory brand in the US market at Walgreens and eventually to introduce its portfolio of beauty and personal care brands into new markets, such as Mexico and Chile.

Rite Aid's Catch-Up Strategy

The third largest retail drugstore chain in the US–Rite Aid with 4,570 stores in 31 states–reports 68.8% of its total fiscal 2015 revenues ($26.5 billion) are in prescription drugs. Rite Aid, too, is very much aware of the benefits of health and wellness in its strategy, as the company plays catch up with its competitors, Walgreens and CVS, on the same track.  On April 1, 2014, for example,  Rite Aid acquired Boston-based Health Dialog, a provider of health coaching, shared decision making tools and healthcare analytics. That same month, Rite Aid acquired Houston-based RediClinic, a leading operator of retail clinics.  Then on February 11, 2015, Rite Aid agreed to pay about $2 billion to acquire EnvisionRx, a national, full-service pharmacy benefit management (PBM) company that also offers a broad range of pharmacy-related services. EnvisionRx, which is based in Twinsburg, OH, has projected 2015 revenues of $5 billion.  Rite Aid is now  piloting an innovative program named Rite Aid Health Alliance that positions Rite Aid to partner with local physicians and support patients with chronic conditions in achieving positive health outcomes.

(Editor's Note: See company details in our Retailer Database listing.)

May 2015


As a follow-up to our March 2015 news item on our 'Emerging Digital World' (see below), comments by Google's president of Americas Margo Georgiades at the 19th Global Retailing conference held late in April 2015 are worth noting. Geordiades compared U.S. retail stores recorded 39 billion 'footsteps' in November-December 2010 to 18 billion for the comparable period in 2014. Despite this decline of in-store traffic, store revenues for those periods shot upward from $641 billion to $737 billion. "Those footsteps didn't go away," she said, "they just went online," adding that shoppers arriving at stores now are "more purposeful." They have been exposed to a variety of digital channels, ranging from traditional media to email marketing to search and social sharing. The always-on ubiquity of mobile devices, she indicated, has shifted these behaviors into high gear.

(Editor's Note: Thanks to Jamie Tenser who reported Geordiades's comments on his Tenser's Tirades blog  http://tenserstirades.com/long-live-the-store/ The event was sponsored by Terry J. Lundgren Center for retailing at the University of Arizona.)



Brand name manufacturers continue to 'adjust' to growing private label competition. In our February 2015 news, we reported on Smucker's strategy. Now, it's Dean Foods turn. Reporting on 2014, its  "most difficult year" ever, Dean now looks the promising growth of its new TruMoo flavored milk brand (launched in 2012) as one answer to private label's  market share gains. This month, Dean has decided to launch another national brand, Dairy Pure, to represent  31 regional brands of white milk across the country. Dairy Pure's estimated sales are put at $2.5 billion. The company plans to promote and advertise this new name brand.  (See Dean Food listing in our database for details.) Ironically, Dean Foods because of  its 2013 divestments (spin off of WhiteWave Foods and sale of Morning Star Foods)  has  pushed its private label share of  total  net sales upward to 53%; but the company is reluctant to capitulate to private labels.



Liberty Star Consumer Holdings (Libstar), based in Johannesburg, South Africa, is a significant private label manufacturer providing a broad range of food and non-food products. Last October, the Middle East's largest private equity firm, The Abraaj Group, Dubai, acquired a majority stake in Libstar. We have just added Libstar, a black-controlled holding company (positioned as one of the largest, unlisted food and personal care manufacturers in South Africa,  to our manufacturer's database.



Last month (see item below), we noted the uptick of interest in veggie burgers/meatballs. Several quick service restaurants have added this item on their menu: The latest is Wendy's which this month reportedly has begun testing a vegetarian black bean burger in some Ohio outlets. The $4.50 item is served on a multigrain bun and garnished with asiago ranch sauce, Colby-pepper jack cheese, tomato, and a spring mix.


April 2015

Grönsaksbullar (veggie balls) join Köttbullar (meatballs) at IKEA

No where near the billions and billions of hamburgers sold by McDonald's, yet the iconic Swedish meatballs at  IKEA, the Scandinavian furniture chain, have sold at a clip of a billion-plus per year as a top seller for some 30-plus years. This month (April 2015), IKEA, at its in-store restaurants, introduced an alternative choice to its iconic beef-pork meatballs: newly formulated veggie meatballs. The new menu option is said to be the company's first step toward providing a great choice of healthier and more sustainable food for its customers. According to a report in Fortune Magazine (April 8), the veggie balls, priced at $4.49 for 10 pieces, are made only with vegetables, i.e., chickpeas, green peas, carrots, bell peppers, and corn, and thus have lower CO2 emissions than animal products.  Late in April, IKEA plans to roll out chicken balls as well.

Veggie balls not only fit into vegetarian and vegan diets, but also appeal to so-called flexitrians (people who eat less meat and more plant protein). Meatless burgers, of course, have been available at retail for decades. Under private label retail brands, however, there has been no earth-shaking news for these products. ..ConAgra, positioning itself as a major private label supplier (see article below) in September 2013 sold its small branded business, Lightlife Foods, Boston, a producer of plant protein foods (including veggie burgers) to investors Brynwood Partners. Lightlife was part of ConAgra's private label business segment. ...This year, Supervalu, Eden Prairie, MN, expanding its Wild Harvest private brand range, has included a Wild Harvest veggie burger to the selection.  

Without much fanfare, meatless food items have penetrated the foodservice sector, too. McDonald's reportedly years ago, tested meatless burgers, but found a weak reception among its meat-hungry clientele.  Burger King still continues to offer a Veggie Whopper of sorts; while White Castle, a regional fast food hamburger chain, in January 2015, began selling the Veggie Slider, a vegan patty, made by Dr. Praeger's (a manufacturer of all natural frozen foods), using such ingredients as: carrots, zucchini, peas, spinach, and broccoli. The Veggie Sliders prepared on a vegetable-only grill are flipped using dedicated green spatulas.


 U.S. Limited Assortment Store Concept Catching Fire

The recent trend in the United States toward accelerated growth of the limited assortment store concept  could be likened to the past recaptured. This trend started during the initial spread of generic products in the late 1970s in the grocery business.  But now, as the economy has soured ,  interest in this concept of low-priced products (mostly private label) covering a limited number of staple food and non-food grocery items  has fired up with the most successful player in the U.S., the German-based retailer Aldi Süd  having embarked on a five year, $3 billion+ investment plan, starting in 2014, designed to add 650 new stores to its chain by 2018, bringing the chain total nearly 2,000 outlets.  

Now, a new player in the U.S. has emerged, which promises to ignite more interest in this retail segment.  Aldi's principal European competitor in this market segment, Lidl, operated by The Schwarz Group of Germany, officially has disclosed its plans this month (April 2015) to enter the U.S. market.  Schwarz, through its Lidl subsidiary, reportedly has invested $65 million in a headquarters building in Arlington, VA. Other news reports indicate that Lidl has intensified its interest by  advertising for management in North Carolina, searching for store sites and is now considering  the start-up of a huge distribution center in Alamance County, North Carolina, according to the Triad Business Journal, Greensboro, NC.  Since 2008, Lidl reportedly has been eyeing  the U.S. market, and especially the success of Aldi USA.  Reports also indicate that Lidl initially roll out some 100 Lidl limited assortment stores either in 2015 or next year.

So far, in the U.S. market for limited assortment stores,  it's been nearly a 40-year horse race between two major retail players, each vying for a share of that store business .  It started in 1975, when Aldi Süd, established roots here with its Aldi no-frills, warehouse-type store, featuring a limited assortment of products, 90%+ in private labels--a carbon copy of its successful format in Europe. The following year, Bill Moran, who worked in the grocery trade, became an entrepreneur, launching a similar format under the Save-A-Lot banner with about 80% of its stock in private label products. Since then, both these chains have endured and expanded into multi-billion-dollar companies, across the country, while along the way their competitors with similar strategies have come and gone. In the late 1970s, the timing for low-cost, dedicated private label stores was perfect: Generics or no-name products were spreading across the U.S. market.

Interestingly, Aldi and Save-A-Lot  today each list some 1,300+ limited assortment stores under their respective store banners. The Save-A-Lot chain, which includes some 948 licensed stores, reports total chain-wide sales of $4.2 billion, according to its parent company, Supervalu Inc., Eden Prairie, MN. Privately owned Aldi does not report sales; but estimates put the U.S. sales volume at double that of Save-A-Lot  or nearer to $9 billion+.  The prospects for accelerated growth in both chains are promising, given the growing consumer acceptance of private label and an economy that has conditioned shoppers to be more budget-conscious in their spending habits.

 Aldi USA now operated 1,330 stores in 32 states from Kansas to the East Coast). Save-A-Lot's parent firm, Supervalu Inc., still involved in a corporate turnaround strategy has produced encouraging results with its Save-A-Lot operation, opening some 40 stores in fiscal 2014 with expectations to add  60+ stores in fiscal 2015.

Lidl in recent years has been evolving from a so-called hard discounter (no frills, warehouse-style format) into a soft discounter, stocking fresh meats, produce, bakery items, exclusive wine selections, as well as its exclusive Deluxe brand premium food range. The latter features items like whole lobster, scallops in Chablis sauce, Beef Wellington, caviar, etc.

Aldi, too, has upgraded its product selection to include fresh foods, frozen foods, etc.  Aldi stocks more than 90% of its products under different private brand identities. Lidl, which traditionally has kept its private brand stock to 70%+ of total store sales,  lately been building its own brand selection. The limited assortment concept  depends on private label products to keep a tight rein in costs while projecting a lower-price image plus maintain flexibility with multiple suppliers as a bargaining tool. The product selection ranges across many categories: electronics, clothing, furniture, garden supplies, as well as beverages and food and non-food  grocery items.


ConAgra Optimistic About its Private Brand Segment

With a New CEO & Starting in Fiscal 2016

It all looked good on paper, when ConAgra Foods, Omaha, for $5.1 billion in January 2014 purchased Ralcorp, St. Louis,  a leading supplier of private brand packaged food in North America.  The takeover completed ConAgra's product portfolio of brands, private brands, commercial and foodservice products. Ralcorp's product categories presented no competition and posed "very low overlap" with ConAgra's leading brands. The corporate strategy called for ConAgra to bring its CPG experience to the private brand business in terms of product innovation, packaging, category shopper insights, and shopper marketing, according to Gary Rodkin, ConAgra's CEO, who added: "Joining Ralcorp to our business planning will bring a greater sense of top-to-top strategic partnerships with our key customers." In its latest quarterly report for fiscal 2015, the company reported being "pleased with the performance of our Consumer Foods segment and our domestic Commercial Foods business, as well as the robust efficiencies we are generating across the company. Our Private Brands segment, however, is significantly below expectations."

ConAgra's fiscal 2015 third quarter report (ending Feb. 22, 2015) showed its private brand sales down by 4.7% to $1 billion while its nine-month private brand sales were off by 3.8% to $3 billion versus the comparable periods in fiscal 2014. ConAgra's fiscal 2014 third quarter private brand operating profits of $44.7 million turned into a loss of $1.3 billion in the fiscal 2015 third quarter. For fiscal 2015's nine-month period, its operating loss was $1.4 billion versus $200 million operating profit in the earlier comparable period.  Private brand sales were down in: pasta, cereal, snacks, condiments, and in-store bakery items; while there was "some growth in private brand nutrition bars." ConAgra explained: " Execution challenges and higher commodity costs, notably in durum wheat and snack nuts, played a significant role in the comparable profit decrease; continued volume declines across most categories, largely reflecting an intense bidding environment, also weighed on profitability. Pricing initiatives underway should help pass on the higher commodity costs over time."

ConAgra's new CEO, Sean Connolly from Hillshire Brands, assumed that role this month (April), when Rodkin retired. Connolly, schooled in the branded business, late in March 2015 admitted to analysts that "I will need a lot of study to get where I need to be to provide insight on this (ConAgra's future strategy and goals). ConAgra has spelled out four main areas for change:

  • Responsiveness to customer requests for product modifications, notably graphics changes, i.e., new packaging
  • The speed of commercializing new items, i.e., new products
  • On-time deliveries, fill-rates, and other core measurements of customer service, and
  • The alignment between core functions driving margins, specifically sales and supply chain, to drive better cost management when input costs fluctuate.

(Editor's Note: In August 2014, Tyson Foods, Springdale, AR., a major branded meat and processed foods manufacturer, merged with Hillshire Brands, Chicago, a leader in branded convenience foods, to produced a $37.6 billion brand food company.)


March 2015 

Private Label 2014 U.S. Dollar Share at Retail up by 2.5%

Our news item in January 2015 reported on a research study, "Private Label & National Brands: Dialing in on Core Shoppers,"  (see below) issued  by Information Resources Inc. (IRI), Chicago, which indicated that private label dollar sales growth over the past several years has been driven mostly by price increases...and that private label prices are rising more quickly than those of national brands.

This month (March 2015), IRI's rival research firm, Nielsen NV, New York, through the Private Label Manufacturers Association, New York, released its 2015 Private Label Yearbook, covering 2014 data on U.S. store brand sales in supermarkets, drug chains, and mass/club & dollar stores. Private label 2014 dollar volume in all retail outlets measured showed a 2.5% gain over  2013-- approaching  2012's strong percentage gain of 2.9% over its previous year. In 2014, Nielsen found that total private label dollar volume for all retail outlets was $115.3 billion or $2.9 billion ahead of 2013.  That gain pumped up private label dollar market share to 17.7%, a  +0.2% change from 2013.  In comparison, the national brands in 2014 gained 1.1% in dollar volume or up by $6 billion, reaching a total volume of $537.5 billion. The brands' dollar market share at 82.3% was off by 0.2%  versus 2013.

All well and good in terms of positive results for the 2014 private label dollar volume profile. Private label unit volume for 2014, however, reflects a different story. In 2014, private label unit volume for all outlets dipped by 1.2% or off 600 million units to a total of 43.4 billion units; while private label unit market share  fell by 0.1% to  21%. In 2014, national brand unit volume suffered a smaller loss, off by 0.3% or 500 million units, resulting in a total of 163.2 billion units; while the national brand market share gained 0.1% registering a 79% share. Private label's less than stellar results in unit volume, according to the Nielsen/PLMA study, was attributed not so much to price inflation, but to consumers "trading up to specialty and premium priced items at the high end--whether organic, sustainable, gourmet, better-for-you, or simply 'new' and innovative products--(and) to shoppers across the economic spectrum pursuing savings by purchasing larger sizes and club packs, or by migrating their regular shopping to patronize limited assortment stores and discount channels not counted by Nielsen." Additionally, the report suggests that the cautious behavior adopted at the value end during the recent post recession years (say, beginning in 2012) continues today despite more consumer optimism.


(Editor's Note: While it may be true that cautious shopping habits continue, we believe, inflation plays a bigger role than that credited in the Nielsen/PLMA report.  We indicated in our January 2015 report on IRI's study that "The U.S. Consumer Price Index for food at home rose 3.7% in 2014, after rising only 0.4% in 2013, according to the U.S. Labor Department."


In the largest channel segment, supermarkets, Nielsen/PLMA reported private label dollar volume up by 1.8% to $62.1 billion; while the total brands rose 1.1% to $255.9 billion. In unit volume, private label fell 2.1% to 26.4 billion units versus total brand off by 0.4% to 87.9 billion units.  In effect, private label dollar market share gained 0.1% to a 19.5% share, while the brands slipped by 0.1% to an 80.5% share; and in unit market share, private label lost 0.3%, resulting in a 23.1% share, while the brands picked up 0.3% going to a 76.9% share.

In drug chains, private label dollar volume rose by 0.3% to $8.3 billion, while private label unit volume dipped by 2.2% to 2 billion units. In comparison, total brands' slipped off by 0.1% to $42.3 billion, while its unit volume fell by 1.8% to 9.4 billion units. Minor changes occurred in market share: private label picking up 0.1% to a 16.5% dollar share and down 0.1% to 17.3% unit share. Total brands lost 0.1% in dollar share going to 83.5% and in unit share gained 0.1 going to 82.7% share.

In a breakdown of major departments for all U.S. outlets, the Nielsen/PLMA study showed private label claiming double-digit dollar market share in each of seven major food categories: 36.4% in the $64.6 billion dairy department, 29.8% in the $10.1 billion deli department, 23% in the $6.3 billion fresh meat department, 20.5% in the $48 billion frozen food department, 18.9% in the $25.5 billion fresh produce department, 15% in the $244.8 billion dry grocery department, and 14.8% in the $18.7 billion packaged meat department.  In three non-foods categories, private label took a 17.7% dollar share in the $77.2  billion non-foods grocery department, 17.1% in the $82.7 billion health and beauty aids department, and 11.5% in the $44.4 billion general merchandise department. For the $30.3 billion alcoholic beverages category, private labels dollar share was 0.7%. Private label's largest dollar share gain was in fresh meats, up by 2.5 points. Overall, private label through those 11 major categories, averaged a 17.7% dollar market share (+0.2 points).  (Its units, the 11 categories averaged a 21.9% market share (-0.1 points)


"Cleared for Takeoff"

On March 19, 2015, Amazon received a nod of approval from the Federal Aviation Administration (FAA) to conduct drone test flight for delivery of small packages to consumers' homes. Several restrictions are attached to the approval: Drone flight only during daylight hours, flights only up to 400 feet elevation and in good weather, and the operator must have a private pilot's license. Previously, the FAA had grounded Amazon's drone flights in the interest of safety (see item below).


IT Firms Edging Deeper into Brick & Mortar Retail Segment

It's obvious that companies in the Information Technology business and including the computer giants like Microsoft and Apple will sell their services and products online. What's less obvious is the emerging trend  for these multi-billion-dollar companies to own and operate dedicated  physical retail stores under their company banner identity. Many of them have already established a foothold in retailing via dedicated sections within stores operated by major retail chains. The trend toward opening their own  specialty retail outlets, selling services and hardware and software wireless and telecommunication products was demonstrated recently when RadioShack filed for bankruptcy (see news item below), prompting its largest shareholder, the hedge fund investor Standard General to finally purchase some 1,723 RadioShack stores and in partnership with Sprint Nextel Corp., Overland Park, KS,, the wireless/wire-line service provider (2013 revenues of $28.6 billion),  allow Sprint to operate these stores under its store banner:  Within one-third of the space, Sprint will sell mobile devices as well as its Boost and Virgin Mobile brands. The remaining store selling area would sell RadioShack products, services and accessories. No stranger to retailing, Sprint already operates some 1,200 Sprint stores across 49 states.

Sprint, however,  is not the only communications company, which operates its own stores. The $131.6 billion AT&T Inc., Dallas, reports selling its telecommunications services in more than 16,000 locations, including 2,200+ company owned retail stores as well as in kiosks, through authorized dealers, and third party retailers (alliances with Best Buy, Walmart, Costco, etc.).  AT&T stores, which sell telephones, cordless headsets, accessories, etc.,  also offer shoppers a chance to interact with functioning wireless handsets and services. Also, the firm operates dozens of AT&T Experience Stores, and including some outlets showcasing its complete portfolio of wireless, broadband, video and wired voice products and services--encouraging shopper hands-on interaction. An interesting feature in some of the stores: demonstrations of AT&T's Digital Life home security and automation services plus demos that show how the wireless technology helps to drive a car. These stores also attract traffic with more than 100 digital screens to help educate consumers about the future of wireless technology--and how AT&T  devices fit in.

The high-speed wireless service operator, Verizon Wireless, Wallingford, CT, (AT&T next biggest competitor) with revenues of $87.6 billion, operates 1,700+ retail locations in the U.S. as well as servicing some 200 locations outside the country with voice and data services.  Verizon sells phones and internet devices as well as its services.

Another  telecommunications firm, T-Mobile US, Bellevue, WA, reporting revenues of $29.6 billion, sells its phones, tables, and accessories through a total of 62,000 points of distribution. T-Mobile  oversees some 10,000 T-Mobile and Metro PCS branded locations in addition to 52,000 third party and national retail locations.

Count as well the giant computer manufacturers, Microsoft and Apple, among the retailer ranks. Microsoft through its 116 Microsoft Stores (106 in the U.S.) sells: Windows PCs, Windows Phones, Xboxes, Microsoft and third-party software, games, peripherals and more. The company also established ties with Best Buy and Staples via dedicated Microsoft store-within-a-store concepts.

Apple, which had a head start in retailing in 2001, now has up to 450 Apple stores located in 16 countries (255+ in the U.S.).  Its stores sell computers and consumer electronics, including: Macintosh personal computers, software, iPods, iPads, iPhones, third-party accessories and other consumer electronics. All these stores also offer a so-called Genius Bar for technical support and repairs as well as free workshops available to the public.

We've saved  our 'breaking news'  development for last... Google, Mountain View, CA, a $66 billion, producer of  web-based services, products, and processes, this month (March 2015) opened its first "shop in shop" Goggle branded shop in London.  In partnership with the United Kingdom electrical retailer, Curry's PC World, the Google shop, encourages interaction and education, offering customers tutorials on both Google products and the power of Google apps. Customers can also purchase Google branded products, such as Android phones and tablets, Chromebook laptops, and Chromecast TVs. They can play with the in-shop Google software, tools and apps. On the interactive level, for example, customers can experience the' Portal,' an immersive surround screen installation that allows them to  'fly' through any part of the planet via Google Earth. On a 'Doddle Wall.' they can practice their graffiti skills, using a digital spray can, spraying their work onto the iconic Google logo. Their creations then can be shared on social media.  Two similar Google shops are scheduled for opening later this year.


Update on Our Emerging Digital World

The worldwide usage of digital mobile phones is predicted to grow by 796 million people from 2013 to 2017, according to eMarketer (Mashable Statista). Specifically, the total  population count of mobile phone users is expected to rise from 2013's 4.3 billion to 2017's 5.1 billion people, mostly in the Asia-Pacific region, which represents 65% (521 million new users) of the total gain.  Next biggest gainer: the Middle East & Africa with 145 million mobile phone users added. In other parts of the world: Latin America up by 57 million new users, Europe up by 56 million users, and North America up by 17 million users.  

Putting this in perspective, the world's population, estimated at 7.2 billion people, is expected to increase by one billion people by 2025 and upward to 9.6 billion people by 2050, according to the US State Department (mid-2013 estimates).  The agency adds: "Today's generation of 1.8 billion young people between the ages of 10 and 24 is the largest the world has ever seen, and will shape the future of the world we live in." Bottom line: Mobile devices are becoming ubiquitous, the growth strongest in emerging markets populated mostly with younger people. At the 2015 Mobile World Congress held this month in Barcelona, speakers offered some evidence of the industry's work in supporting this trend.

Google's senior VP Sundar Pichai reported that people now spend more than 10 billion hours per month on their mobile devices; they also take more than a trillion photos with their phones. Google, he indicated, is now developing new technology to circumvent the need for cellular towers spotted across rural areas of the world. This includes massive floating cellular balloons launched into the stratosphere and now being kept afloat for up to six months, plus lightweight aircraft powered by sunlight. 

Mark Zuckerberg, Facebook's CEO, outlined his online social network's  goal to provide free basic internet services to the world's population, working in partnership with mobile operators. Zuckerberg pointed to Facebook's initiative,  www.internet.org, which after launching in mid-2014 has already been established in six countries (India, Ghana, Colombia, Kenya, Tanzania, and Indonesia). The goal is to provide free basic internet services to the two-thirds of the world that do not have internet access. (Facebook estimates that 2.7 billion people have access to the internet.) Working with mobile operators, Facebook hopes to remove barriers that slow worldwide internet access such as: expensive devices and service plans, a scarcity of mobile networks, content unavailable in the local language, people questioning the value of the internet, power sources limited or costly, and networks unable to support large amounts of data.

Even mobile phones are keeping instep with this changing industry. For example, Frank Yao, founder of the Chinese manufacturer Huawei, described his firm's new Honor 6 smart phone: a device that was introduced into China last year as well as into India and is now breaking into the European market. Honor 6 features the industry's first "bionic parallel dual lens camera" on its back side. This includes two 8-megapixel cameras working with a dual-LED flash. The cameras focus at a super fast speed of 0.1 seconds,  capturing  images (from 70 mm up  to infinity) at a resolution of 4160x3120 pixels. This feature collects twice the amount of light versus a single sensor. At the device front, there is an 8-megapixel camera. Yao noted that the Honor 6 is designed for "digital natives...who shop, socialize, and attend'  functions with their smart phones. The device is sold only online.


Amazon's Latest Delivery Spike: 3D Printing On Demand

Didn't we already say that Amazon. com  is amazing (see feature article below)?  In its quest for faster product delivery options, Amazon recently has proposed drone delivery (the use of unmanned aircraft), which Federal agencies have stymied by issuing strict regulations (see UPDATE Amazon article below). Last month, Amazon launched a one-hour delivery service in Manhattan, allowing its Prime members to use a dedicated app, Amazon Prime Now," to pay an extra $7.99 for the speedy service. A number of household items (paper towels, shampoo, books, toys , etc.) can be delivered via bike couriers to customers within the hour.

Now, on another front, Amazon Technologies, on Feb. 19, 2015, applied for a patent with the U.S. Patent & Trademark office, titled: "Providing Service Related to Item Delivery Via 3D Manufacturing  on Demand."  If or when this service comes to fruition, you can expect the street traffic of FedX, UPS, USPS, etc. trucks to be joined by Amazon.com vehicles. Inside, each one could very well be equipped with a 3D printer. Customers using a smart phone first order and then arrange payment for  a product.  The request can be filled at an Amazon facility or on its truck, where its computer system retrieves a digital 3D model of the item and converts printing instructions received from the item manufacturer to produce the product. The customer can visit a designated pickup location for that product.

Amazon not only realizes speedier delivery service with 3D printing on demand, but also can expand its product offering and circumvent storage costs.  


February 2015

While Carbonated Soft Drink Sales Go Flat, Alternative Beverages Effervesce

Major beverage producers have had to response to the ongoing flat sales growth of carbonated soft drinks:  In their biggest market, for example, carbonated soft drinks reportedly have dropped from 60% to 35% of total US beverage volume (as reported by PepsiCo). These sales are off primarily as a result of growing consumer health and wellness concerns over issues such as: obesity, diabetes, tooth decay, weakened bone calcium, and (most recently) accelerated DNA ageing. Consumers now shop for healthier and more natural beverage alternatives.  The response by big beverage producers in this brand-dominated product category includes marketing more to and forming partnerships in emerging markets (China, India, Latin America, and Eastern Europe) as well as diversifying their product portfolio, including the addition of alternative beverages.   

The Coca-Cola Co., the world's largest beverage business, (but with no food operation), has watched its net operating revenues drop by about 4% since 2012 to $45.9 billion in 2014. Coke's net income in that recent three-year period likewise slipped from $9 billion to $7.1 billion.  In August 2014, Coke announced its purchase of an equity interest (16.7%) in Monster Beverage Corp., Corona, CA, a producer of energy drinks and alternative beverages (noncarbonated RTD iced teas, lemonades, juice cocktails, fruit beverages diary and coffee drinks, sports drinks, still water, natural beverages, etc.). Monster's gross sales have doubled in the past five years: 2009's $1.3 billion to 2013's $2.6 billion.  The Coke-Monster strategic relationship calls for Coke transferring a dozen of its energy drink brands to Monster's management, while Monster transfers its non-energy drinks over to Coke's expertise. This deal is expected to close in the second quarter of 2015, when Coke will pay its new partner, Monster, $2.2 billion cash.

(UPDATE: Monster Beverage reported 2014's 4th quarter revenues up by 12.1% and net income up by 64.7%; for 2014 full year, revenues advanced by 9.3% to $2.8 billion, while net income rose to $483.2 million--up from $338.7 million.)

Coke's primary carbonated soft drink competitor, PepsiCo, has more than 50% of its total revenues in snacks and convenience foods. Still, its overall 2014 net revenues barely inched upward from 2013's $66.4 billion to $66.7 billion; while its beverage business in the Americas stayed flat at $21.2 billion versus 2013's $21.1 billion. 

On a global scale, researcher Canadean's 2013 soft drinks market report echoes these lackluster results:  The global soft drinks market reportedly increased less than 2% to $937 billion in 2013. Canadean's listing of the top 20 most valuable "soft drinks" brands in terms of volume shows Coca-Cola brands still commanding four of the top five positions (ranked #1 Coke-Cola, #3 Sprite lemon-lime soft drink, #4 Minute Maid orange juice, and #5 Fanta fruit-flavored carbonated soft drink); while PepsiCo slips in at the number two slot.  Coke's Minute Maid competes with Pepsi's Tropicana orange juice ranked number 16. Significant changes, however,  occur lower in the rankings. Red Bull brand energy drink has shown an annual average growth in value of 7% since 2008 reaching a $12 billion value in 2013. It's now ranked number six in Canadean's top 20.  A Chinese brand, Kangshifu milk tea, which in 2008 first popped into 16th position, has risen in the 2013 tally to number seven ranking  with its annual average growth rate of 19% (an estimated value of $10 billion). Scanning down the top 20 listing, some familiar brands appear:  ranked #8--Gatorade (Pepsi) sports drink, #9--Lipton iced tea (Unilever), #10--7-Up (Dr Pepper Snapple Group) lemon-lime non-caffeinated soft drink, #11--Mountain Dew (Pepsi) citrus-flavored soft drink, #12--Dr Pepper (Dr Pepper Snapple Group) pepper-style soft drink, and #13-- Powerade (Coke) sports drink. Moving up two positions from its 2012 slot to number 14 is Jiaduobao (Guangdong Jiaduobao Drink & Food Co), the leading Chinese herbal drink. (Incidentally, Monster energy drink edges into the 19th position in the ranking.)

Cott's Reliance On Private Label Beverages Diminishes

While private label soft drink sales, at a lower price, spiked upward during the global recession, starting in 2008, the largest retailer brand beverage producer, Cott Corp., Mississauga, ONT, Canada, nevertheless has been impacted by pricing wars between the market leaders, Coke and Pepsi, as well as facing its own higher raw material and packaging material costs. The downward trend in carbonated soft drinks sales also has turned Cott's marketing & distribution strategy on its head. In 2009, Cott's concentrated soft drink business commanded 60% of revenues. In 2012, it was closer to 40%; while juice/juice drink sales roared ahead from 1% to 25% of Cott's revenues. To keep its shareholders happy, Cott has gone through a few top executive changes as well as a failed effort to build the Cott-branded teas and juice business along with new non-exclusive distributor agreements.  The latter change led to a fallout with Cott's biggest customer (30 to 40% of its revenues), Walmart, which sought exclusivity in this area. Diversification has saved Cott from a sellout or bankruptcy. In July 2010, the company acquired Cliffstar Corp., Dunkirk, NY, a leading supplier of private label beverages and the largest producer of private label apple, grape, and cranberry juices and juice blends in North America. In April 2013, Cott agreed to acquired Calypso Soft Drinks , a United Kingdom producer of fruit juices, juice drinks, soft drinks, and freezer products. In May 2014, UK-based Aimia Foods ($110 million revenues), a producer of hot and cold cereals, natural beverages, coffee and malt drinks, and creamers, joined Cott; and by year-end, the company acquired DS Services ($970 million revenues), Atlanta, which provides water and coffee home and office delivery services and water filtration. Calypso+Aimia+DS added to the product portfolio together with more focus now placed on contract account manufacturing have helped Cott push its 2014 fourth quarter revenues up by 13% over the comparable quarter a year earlier. Overall revenues for 2014 were $2.1 billion versus 2013's $2.09 billion.  For 2015, Cott will be a $3 billion+ company--and no longer totally dependent on the marketing strategies and price wars played out by the giant brand killer beverage firms (at least in carbonated soft drinks).


It's Becoming A 'Digital World' After All

(Private Label Retailers, Ignore This At Your Peril)

Private label retailers/distributors take heed. Some 78% of nearly 600 senior marketing executives in consumer packaged goods (CPG) branded companies located in 11 countries and representing 10 industries (including retail) believe that over the next five years marketing will undergo a fundament change. This finding comes in a  May 2014 survey, which was commissioned by Accenture plc, Dublin. and conducted by Forrester Consulting/Research, Cambridge, MA, The survey cited three top changes as key drivers: analytics, digital, and mobile. Of the chief marketing officers (CMO) surveyed, 42% predicted that analytics skills will be a core competence of marketing; 37% said digital will account for 75% of the marketing budget, and 35% pointed to the mobile as commanding over 50% of the marketing budget. More than one-third of the respondents also felt that marketing, sales and customer service will be merged into a single function; similarly marketing and IT will be merged.

In January 2015, Accenture (a management consulting, technology services and outsourcing company) and Forrester (the survey researcher) issued a follow-up paper on the survey, titled "CPG  Sales Leaders Go Multichannel: A Guide to CPG Sales and Channel Management in a Digital World." Based on  in-depth surveys with 56 CPG heads of sales at the VP or chief sales officer level plus 75 sales leaders at the account director level, results showed that these leaders are aware of the opportunities offered by digital technologies. The paper indicated that "In order to increase consumer lifetime value and drive superior return on investment (ROI) in sales and channel management, consumer packaged goods (CPG) brands must develop the capability to collaborate digitally with retailers and distributors. Digital collaboration between retailers and distributors can help to accelerate new product introductions, improve plan-o-gram accuracy and replenishment, and lift revenues while reducing markdowns and driving superior inventory turn.'

Private Label Implications

Of the 75 account directors in the survey, 23% strongly agreed while 52% agreed that if their brand sold to consumers through digital channels, retailers would relax their private label initiatives and offer more shelf space to the brand to compete for the consumer on convenience and availability. Also, 12% strongly agreed and 48% agreed that retailers would increase their investment in private label to resist the CPG alternative sales initiatives. Trade promotion funds would increase because retailers would need more incentive to compete with digital sales: 13% strongly agreed and 32% agreed. Some 48% of these respondents also strongly agreed that "digital transformation improves the chances of consumers trading up." In other words, it will be easier to sell higher priced branded products to consumers. Also, some 32% strongly agreed that "direct to consumer digital engagement" will result in higher conversion rates and increase average order amounts.

In an October 2012 report, Accenture wrote:

"Buyers (shoppers) no longer enter a channel. Instead, they are continuously in the channel. As long as they are within arm’s length of a smart phone, tablet or PC, today’s consumers are able to participate in any and all of the components of traditional channels at the time and place of their choosing, online. They can also move seamlessly between various channels and components, both online and in the physical world. Distinct sales channels are giving way to a single, all-encompassing model. This shift affects business-to-business as well as business-to-consumer relationships, and has strategic implications, not just for such marketing activities as advertising and promotion but also for sales, service and every other function of the channel."


Smucker's Brand Strategy Versus Private Label

Ever wonder how iconic brand or leading brand name manufacturers fight their competition, especially the lower priced private labels? A number of strategies come into play:

* More ad spending and promotional efforts.

* New differentiating or innovative product introductions.

* Budget-priced brand introductions or smaller pack sizes.

* Private label products produced for certain product categories where the company is not the market leader.

* Brand acquisition in product categories new to the company.

 For The J.M. Smucker Co., Orville, OH, this last strategy has been ongoing for decades and has not let up. Last year, for example, Smucker's purchased Shale Snacks brand (sales estimated at $50 million per year) out of  Seattle, a premium, all-natural, nut and fruit mix producer. This month (February), Smucker's agreed to purchase Big Heart Pet Brands, San Francisco, in a cash and stock deal valued at about $5.8 billion. (In both cases, Smucker's has been dealing with private equity investment firms.) Big Heart, which was renamed from  Del Monte Corp. after it divested its consumer products business (shelf-stable products like fruit, vegetables, tomatoes, and broth) in February 2014, will join the Smucker's family of brand around May 2015. Big Heart, now positioned as the largest U.S. producer of premium quality pet foods and pet snacks, its sales topping $2 billion, brings in such brands as Milk-Bone, Kibbles 'n Bits, 9 LIves, and Gravy Train, to the Smucker's family of brands.  

 The J. M. Smucker Co., Orrville, OH, reported fiscal 2014 net sales off by 5% to $5.6 billion. Especially hard hit: its international, foodservice and natural foods sales, off by 7% for the year.  Thanks to its family of high-margin household  brand names, (Pillsbury, Crisco, Folgers, Smucker's, Eagle Brand, licensed Dunkin Donuts retail pack coffee, etc.), the company's profits for the year climbed by 4% to $565.2 million.

Smucker's, not enamored of private label business, nevertheless acts as a private label supplier of canned milk. In 2013, however, the company walked away from its roast and ground coffee  business in private label (acquired from Sara Lee). Now, Smucker's has picked up new private label business, via both Shale Snacks and Big Heart. In the latter case, the pet food producer reports 39% of its listed sales are with Walmart (owner of the leading dog and cat food brands in the U.S., Ol' Roy and Special Kitty, respectively). How Smucker's handles this new private label business remains to be seen.

Recently, the company has been clobbered by higher commodity costs and private label competition, Since coffee plays a significant role in its product mix, a recent hike in green coffee costs promoted a 9% price increase last June for Folgers brand coffee products. Reuters News reports that Smucker's has since admitted a "misstep" in that price hike, which turned consumers more onto private label coffee. Now, plans call for introducing a smaller Folgers can, set at a lower price point, according to Reuters. Folgers can sizes range from 10.3 to 38.4 ounces.



UPDATE: Amazon's Drone Delivery Plans Grounded by FAA

In the interest of safety, the Federal Aviation Administration (FAA) and the Department of Transportation have  proposed rules that will allow drones (unmanned aircraft) to fly only during sunrise-sunset hours, weigh less than 55 pounds, not drop cargo, and keep within sight (beneath 500 feet). In effect, these rules prevent Amazon (see feature story below) from launching drones as couriers in its Prime Air  delivery service.


Rite Aid's Catch-Up Acquisition Strategy

For Rite Aid, the country's third largest drugstore chain, fiscal 2015 has become a busy takeover year, starting right at the beginning (April 2014) with two acquisitions in Texas: Health Dialog Services Corp. and then RediClinic. The first company creates teams of doctors, Rite Aid pharmacists and Health Dialog health coaches to help people suffering from chronic and polychromic health conditions. RediClinic operates some 30 in-store medical clinics in Texas cities. Plans called for Rite Aid to open these clinics in its stores as well.  Rite Aid closed fiscal 2015 with the announcement this month (February) of the $2 billion takeover of Envision Pharmaceutical Services, Twinsburg, OH, a pharmacy benefit manager (PBM). This third party pharmacy benefit manager (PBM), called EnvisionRX, administers prescription drug programs and pays drug claims. Once the deal closes later this year, Rite Aid's revenues will jump by $5 billion from EnvisionRX alone, bringing its total revenues to more than $30 billion. (In 2006, competitor CVS propelled its sales upward by acquiring the PBM firm, CareMarkRX for $21 billion.) 


Pioneer Retailer Files for Bankruptcy

Perhaps part of its name, 'Radio,' was out-of-date;  perhaps the identity, 'Shack,' failed to reflect its in-store, up-to-date electronic displays; or perhaps the big-box retail competition did RadioShack Corp., Ft. Worth, TX,  in.

On Feb. 5, Reuters reported that this electronic specialty retailer, founded in 1919 (just four years shy of its 100th anniversary), filed for Chapter 11 bankruptcy protection. General Wireless, an affiliate of RadioShack's  largest shareholder (Standard General),  had agreed to purchase between 1,500 and 2,400 of the more than 4,000 outlets in the RadioShack chain. Wireless service provider, Sprint Corp. separately has agreed to operate up to 1,750 of the stores under an agreement with Standard General. Sprint would sell its mobile devices plus RadioShack products, services and accessories. RadioShack, which listed $1.2 billion assets and $1.4 billion debts in its Chapter 11 filing, noted also that it has agreed with lenders DW Partners for a $285 million loan to operate while in bankruptcy.


Shifting Roles in Private Label Manufacturing

Busy last year with acquisitions to its portfolio, Shearer's Foods LLC, Massillon, OH, the largest private label manufacturer of salty snacks and kettle-cooked potato chips in North America, effective mid-January 2015, fell under majority ownership of The Ontario Teachers' Pension Plan (OTPP), Toronto. In 2012, OTPP had  joined private equity investor, Wind Point Partners, Chicago, in sharing stakes in Shearer's business (previously family owned since 1974). Shearer's during 2014 had doubled its business and significantly expanded its private label and contract manufacturing interests via two acquisitions: the $430 million takeover in July of the private label and contract snack food business of Charlotte, NC-based Snyder's-Lance (representing about 17% of Snyder's revenues  or an estimated $300 million+)  and a smaller firm, Newport, AR-based Medallion Foods (private label and value brand corn-based snacks) in April  for $33.5 million from ConAgra. Snyder's-Lance walked away from private label, becoming entirely brand-name focused for its extensive line of snacks.


$39 Billion Office Supply Megastore in the Making

Feb. 4--Staples, Inc., Framingham, MA, announced plan to acquired its principal rival, Office Depot, Inc., Boca Raton, FL, in a $6.3 billion cash and stock deal expected to be finalized by year-end 2015. The merged companies will result in a $38.9 billion retailing giant ($31.5 billion of its revenues in North America), overseeing 4,020 stores (3,572 in North America) and 243 distribution facilities (160 in North America). Office Depot, which merged with Office Max in 2013, has revenues of $16.2 billion ($12.7 billion in North America) with 1,996 stores (1,851 in North America). Staples, which has revenues of $22.7 billion ($18.8 billion in North America) with 2,024 stores (1,721 in North America), reports it will realize annualized synergy savings over the next three years of $1 billion with this merger. The acquisition is valued at a premium of 44% over the closing price of Office Depot shares as of Feb. 2, 2015.


A Black Eye for Store Brands

It's so easy to generalize about a single questionable thing, especially when all the (pro and con) evidence is not present. This happened early this month when consumers heard accusations by New York's Attorney General that store brand herbal products sold at four major retail chains in New York state carried fraudulent labeling.  Some consumers and even a pharmacist immediately chimed in with negative comments (more than 800 of them) about herbal store brands and then about store brands in general; some had vowed not to buy store brand products at all.  

Store brand herbal products came under the crosshairs of New York's Attorney General, who on Feb. 2 issued a 'Cease & Desist Notification" to retailers GNC (Herbal Plus brand), Target (Up & Up), Walmart (Spring Valley), and Walgreens (Finest Nutrition) ordering them to stop selling their store brand herbal supplements, based on plant DNA barcode testing, which found ingredients on the product label could not be verified or other ingredients were found in the products. Six products were genetically tested: ginkgo biloba, St. John's wort, ginseng, garlic, Echinacea, and saw palmetto.  Since store brands dominate market share in the product categories tested, no national brands came under the scrutiny of the AG.

The New York Times reported this AG action (Feb. 2), indicating that an earlier Times article about label fraud in the supplements business inspired the recent AG tests. On Nov. 3, 2014 NYT reported on DNA barcode findings conducted in the previous month as reported in the journal BMC Medicine, which tested 44 herbal products from a dozen companies plus 50 leaf samples from 42 herbal species. BMC's lab was able to "assemble the first standard reference material (SRM) herbal barcode library from 100 herbal species. BMC found that "most of the herbal products tested were of poor quality, including considerable product substitution, contamination, and use of fillers."

NY's AG office having conducted its own DNA barcode tests, discovered that four of the five top-selling store brand products (mentioned above) in the retail chains investigated did not contain herbs listed on their labels and "often contained little more than cheap fillers like powdered rice, asparagus and houseplants" some of which could be harmful to people with allergies.

The Times article also quoted Dr. Pieter Cohen, assistant professor at the Harvard Medicine School, who indicated the AG test results were hard to accept, being so extreme and that the tests possibly failed to detect some plants (even ones present), since the manufacturing process had destroyed their DNA.

DNA barcode testing is a phenomenon of the 21st Century; launched about 2003, it has attracted supporters and repelled critics alike. The science of genetic fingerprinting of plant and animal organisms is still under development. While the retailers were not given reasonable time to respond to the AG allegations; industry sources did express doubts about the AG test.

 Nutraceuticals World.  (Feb. 4) reported that trade associations questioned the AG testing protocol. GNC's products tested reportedly were a botanical extract where DNA does not remain intact (it can be damaged or destroyed), federal regulations govern how products are tested by manufacturers for identity (where DNA barcode testing is not always appropriate). Other arguments were also presented.


January 2105


Inflation's Impact on Private Label 2014 Sales

The U.S. Consumer Price Index for food at home rose 3.7% in 2014, after rising only 0.4% in 2013, according to the U.S. Labor Department.

 A new report,  "Private Label & National Brands: Dialing in on Core Shoppers," released this month by Information Resources Inc. (IRI), Chicago, shows that consumer packaged goods (CPG) sales trends are stagnant, while dollar sales growth is being driven mostly by price increases.  "Across many CPG categories,  average savings offered by private label solutions declined during the past several years. This is due to a number of factors, including the increased prevalence of premium-tiered private label offerings and the fact that, in many instances, private label prices are rising more quickly than those of national brand solutions." IRI reported that private label packaged goods sales rose by 2.1% during the past year to $120 billion; while this increase outpaced the CPG industry average of 1.6%, the private label growth came from price increases, In fact, private label unit sale dipped in this period (2011's 20.2% to 2014's 19.8%) , while total CPG unit sale remained flat.

The dollar share trend for both private label and national brands has been flat for the past four years:  2011 (16.2% PL, 83.8% NB) vs. 2014 (16.6 PL, 83.4% NB). In that period, unit share gains has favored national brands: 2011 (20.2% PL, 79.8% NB)) vs. 2014 (19.8% PL, 80.2% NB). The slight gains/losses in share points during 2014 versus 2013 represent significant dollar volumes, when private label spending is compared channel by channel. IRI plotted PL share of spending by six channels (excluding Walmart in the grocery or Mass/Super channels).  In the grocery segment ($304.8 billion total sales), PL dollar share edged upward by 0.1 points  to $55.8 billion (18.3% share), in club stores ($78.4 billion total sale) up 0.1 points to $14.5 billion (18.5% share), in drugstore chains ($49.5 billion total sales) down 0.2 points to $8.2 billion (16.6% share), in dollar stores ($14.7 billion total sales) down 0.2 points to $2.1 billion (14.4% share), in mass/super ($35.6 billion total sales) up 1.1 points to $4.9 billion (13.8% share), and in convenience stores ($132 billion total sales) up 0.1 points to $2.4 billion (1.8% share).  PL unit share was down in four channels and up in two: down 0.2 points in grocery to a 22% share, in club stores down 0.1 points to 18.1% share, in drugstore chains down 0.6 points to 16.3% share, in dollar stores down 0.4 points to 13.4% share, in mass/super up 1.1 points to 15.2% share, and in convenience stores up 0.1 points to 2.5% share.  The private label share point losses, of course, go to national brands.  

There's no question that the financial crisis of five years ago boosted private label sales: Some 50% of consumers, adjusting their budgets at that time, said they had stepped up their private label purchases, which represented lower priced products. Today, IRI report s, market strategies are shifting where consumers now focus more on affordability and value and less on low prices. With national brands gaining points in certain retail channels and product categories, retailers have responded by introducing open price points (entry level products) for private label--i.e., no frills products targeted to cost-cutter shoppers. Consumer brand loyalty nevertheless is weaker today:  Some 25% of consumers buy brands that are on sale versus their preferred brand, 23% select products based on loyalty card discounts.  And 70% of consumers think that store brands are a good option when their preferred brand is not on sale or does not offer a coupon.

IRI also plotted market share by store departments, showing on average in all outlets losses for private label, except for frozen up 0.1 share points and home care up 0.2 share points.  In frozen foods, mass/super registered the largest gain for private label up 5.3 share points. In drugstore chains, refrigerated and general merchandise showed strong gains, for private label up 2.8 points and 2.9 points, respectively.  The health and the beauty departments suffered private label losses across all the retail channels, the largest dip in health in club stores down 2.9 share points.


3D & 4TH Largest RTE Cereal Producers Merge

Post Holdings Inc., St. Louis, has agreed to pay $1.2 billion to acquired MOM Brands, Lakeview, MN. Post Holdings lately has diversified its product portfolio via acquisitions, this latest helping to boost its US market share in the RTE cereals market to 18%. MOM Brands brings $760 million+ in 2014 revenues to Post's $2.4 billion sales. Later company estimates its annualized sales now exceed $4 billion. Post-MOM deal expected to be completed in 2015's third quarter. Both companies are committed to the private label business.


PLMA's 'Meet the Retailers' Roundtable Scheduled in February 2015

The annual 2015 Roundtable Conference staged by PLMA (Private Label Manufacturers Association), New York/Amsterdam, is scheduled Feb. 25-26 in Nice, France, at the Le Meridien Hotel. Speakers include four retailers, each charged with a presentation on private label tours of their respective countries: Domenico Brisigotti, director of private label department development at Coop Italia; Stephane Le Pottier, director of product development and FMCG at Groupe-Carrefour in France; Kees Postman, global sourcing director at Metro Cash & Carry in Germany; and Alison Rhodes, head of own brands at online retailer Ocado in the United Kingdom. Two retail analysts from Planet Retail (Nikles Reinecke and David Gray) and Euromonitor International analyst Filipe Oliveira are also scheduled to speak.



Relocated and re-branded in 2014, At Home Group Inc., Plano, TX (formerly called Garden Ridge) has embarked on a national rollout of its home décor superstores. Averaging about 120,000 square feet and stocking more than 50,000 unique items per store, this specialty retailer focuses on furniture, art/décor/pillows, patio and outdoor furnishings, and rugs/curtains. At Home is capitalizing on store closings by major department store retailers (Target, JC Penney, Kmart, etc.) and now operates 82 stores in 21 states. Its plans call for opening some 200 stores by the end of this decade. The company, which started in 1979, after going public began expanding too rapidly, which led to it bankruptcy in 2004. Taken over by the private equity firm, AEA Investors, New York, in October 2011, the company at that time generated some $388 million in sales from about 70 stores.


Jan. 23--Family owned wholesale coffee roaster and dealer, Coffee Holding Co., Inc., Staten Island, NY, reported an 18.8% dip in its fiscal net sales (ending Oct. 31, 2014) to $108.9 million; while net income jumped to $5.9 million from a $1.5 million net loss in fiscal 2013. Company attributed the sales dip to a 20% decrease in pounds of green coffee sold, all coupled to market volatility and an increase in coffee prices.


Jan. 22--Shareholders at Family Dollar approved $8.5 billion takeover bid by Dollar Tree. Approval by

FTC will combine two discount store chains into $18 billion retailer with 13,000+ stores in 48 states plus five Canadian provinces. Family Dollar in fiscal 2014 generated $10.5 billion in revenues with 8,000+ stores; while Dollar Tree's fiscal 2014 revenues totaled $7.8 billion from some 5,000+ stores. Leader is this segment, Dollar General, which also bid for the Family Dollar takeover, will trail the merged companies its fiscal 2014 revenues at $17.5 billion from some 11,132 stores.



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