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WHY BRANDS OUTLAST PRIVATE LABEL PRODUCT INNOVATION, QUALITY AND PRICING HOLD RETAILERS AS WELL AS CONSUMERS

By Published on .

If the headlines a couple of years ago were to be believed, private label brands should now be taking over the food industry. Publications were crying, "The brand is dead! The brand is dead!"

But remember what happened to Chicken Little after she cried, "The sky is falling, the sky is falling!" That's a fable all marketers should re-read every now and then for its valuable moral.

Private label proponents were fantasizing back then that "a share in excess of 40% is inevitable" and that national brands were facing Armageddon. What actually happened to private label in the past couple of years?

Not much.

According to Information Resources Inc., private label dollar share in total grew from 14.6% in 1992 to 14.9% in 1993. In the food category, private label grew from 16.8% to 16.9%.

And things have been no better in food thus far in 1994, with private label going flat at 16.8% in the first two quarters. Closer to home, in Cookie Land, private label's share has sunk for three consecutive months in grocery stores and six consecutive months in mass merchandisers.

As one food analyst at Goldman Sachs put it, "Definitely not the kind of gain that would merit all the unusual publicity." That's a wise analyst's way of saying "the emperor has no clothes."

So now, as the business publications have begun asking "Is private label passe?" the more zealous private label advocates have shifted from statistics to the pseudo-silly. The "brand tax" is their label for the investment that companies like Nabisco make in R&D, promotion and advertising of breakthrough products like SnackWell's.

They argue that consumers are, in effect, "taxed" by having to pay for the very things that grow categories and create new ones. Brands, they conclude, are taxes.

Consumers, of course, overwhelmingly reject that argument every time they shop. Brands, from category to category, segment to segment, offer superb and consistent quality, product innovation and an excellent price-an unbeatable combination that spells real value.

You bet we had to spend money to create and promote SnackWell's. A lot of it. But this year, SnackWell's, after a scant two years in the marketplace, has become the largest-selling cookie and cracker brand in the land. Consumers love them, retailers love them and we love them. We still can't bake them fast enough to satisfy demand. Contrast that with the dusty packages of "premium" private label cookies in many stores.

Private label does have a place on today's grocery shelves, of course. However, their sole reason for being is imitating existing, well-known products. A follower offering good price will always fulfill the needs of more than a few customers. But you can't follow if you're not shown the way. And that's where the national brand leaders come in.

In fact, private label and powerful national brands must work together if they're to work at all. I'd like to put that in terms of another fable, "The Goose That Laid the Golden Eggs."

Take the symbiotic relationship that exists between the wise farmer (retailer) and the golden goose (national manufacturer). Even if the farmer wants to feed a private label hen, it's silly to try and starve that goose. If he has geese that don't lay golden eggs, then by all means lead them to the slaughter. That's basic category management. Marketing leaders have been preaching that for decades. But you hold on to those golden egg-layers and, if you want, keep a few pet hens on hand to make life in the coop interesting.

The retailer wins because he enjoys the best choice for his shoppers, traffic builders for his store, continued high margins and category growth, thanks to innovative new products supported by promotion and advertising.

But the biggest winner in a land of geese and hens is the consumer, who continues to enjoy choice, innovation and price.

Mr. Verdon is president of National Biscuit Co., a unit of Nabisco Foods Group, Parsippany, N.Y.

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