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As ConAgra buys Ralcorp, store brands soar in importance

Retailers and consumers have never been more aligned, and ConAgra’s deal to buy Ralcorp confirms that store brands may be outpacing the icons of the American cupboard.

Retailers are turning to the Tetra Recart carton for their own-brand offerings partly because its compact shape puts the same amount of product in about a 44 percent smaller space than a rounded container.
Retailers are turning to the Tetra Recart carton for their own-brand offerings partly because its compact shape puts the same amount of product in about a 44 percent smaller space than a rounded container.

“We expect growth in private label food to continue to outpace growth in branded food.”


With this statement in a story carried by U.S. News and World Report, ConAgra CEO Gary Rodkin made it clear that private label food will continue its onslaught on store brands. From the Jolly Green Giant on down to the Keebler Elves, national food labels are feeling the tremors of a seismic shift in the grocery aisles.


In a fast-moving trend that shows no sign of letting up, a mix of economic and demographic factors are driving ever more consumers into the arms of retailer-owned brands. Smartly packaged and sophisticated, these lines are worlds away from their “generic” or copycat predecessors. Grocery receipts tell the tale: store brands raked in a whopping $90 billion in revenue for 2011 alone, and over the past five years grew at six percent versus two percent.  That is triple the rate of their nationally branded counterparts, according to a recent report by market forecaster Rabobank.


The growing power of these labels is fueled by the many advantages store brands enjoy, including the ability to customize products to specific shoppers since today’s retailers know more about the customers who walk through their doors than ever before. This information acts as a blueprint to create products that are primed for success from formulation to packaging, which studies show may be the most influential part of its marketing.


“Many retailers today are not just offering an alternative product for their customers to consider, they’re building brands that support and reflect the values and the expectations of their overall company and the shopping experience,” says Joe McKie, vice president of private brands at the Food Marketing Institute.


As a result of this sea change, packaging has never been more important. A can, a jar, or an aseptic carton such as Tetra Pak’s Tetra Recart all communicate something different, and retailers are using these differences to set their brands apart and play to what today’s sophisticated shoppers want. All this makes the stakes high for those on both sides of the register, because store brands are more profitable for retailers and typically more economical for consumers, who are increasingly after high value.


That's why packaging is as important as it is today. More than 70 percent of consumers decide what to buy at the store shelf, and product packaging has less than three seconds to grab their attention, according to the British Design Council. Coupled with the fact that supermarkets can contain on average 40,000 products, packaging has to work hard and fast to convey its brand’s assets.


‘Battle of the brands’


So a package's shape and size, strong graphics, messaging, materials, and sustainability are integral to this ‘battle of the brands’ since they affect a consumer’s purchasing decision with such immediacy. And they do so by creating a set of expectations about the looks, quality, and taste of what will be inside. So from the get-go, the decision about which type of packaging to use is critical.


In response, store brands are increasingly offering high quality, innovative, and smartly packaged products that leverage the built-in strategic advantages retailers have in marketing and promoting their own products. And for good reason. Store brands in the U.S. are expected to reach European levels of market penetration, 25 to 30 percent, within the decade—up from under 20 percent today. By 2025, the forecasters say one in every three products bought in the U.S. will be a retailer-owned brand.


Ralcorp makes store-branded goods for Wal-Mart and Kroger, the two largest food retailers in the nation.  They are also among the most influential to recognize the value of store brands.  Great Value, the in-house label Wal-Mart launched in 1993, has been the single fastest-growing brand in the U.S. over the past five years, according the market research firm NPD Group.  And Kroger has big plans to grow its store-branded lines after it finished its last fiscal year with strong sales thanks to these products, which outpaced CPG brands, notes Store Brands Decisions.


“Adding Ralcorp provides us with a much larger presence in the attractive and growing private label segment,” notes ConAgra’s Rodkin in the Wall St. Journal. It also gives ConAgra a bigger playing field.  Besides Wal-Mart and Kroger, other grocery giants that have followed suit with house-managed labels include Safeway, Publix, Whole Foods and Costco, which all have actively experimenting, ever-expanding, and attractive store brands.

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