Watch out, Wal-Mart

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Wal-Mart Stores today deals from a position of great strength. Package-goods marketers must have shelf space in the mass-merchandising giant; even Procter & Gamble Co. caters to the cousins down in Bentonville. But by waging war on those very same package-goods marketers with its own advertised store brands, Wal-Mart tries their patience. Without promoting their popular, well-known, well-established brands, the retailer also risks trying its consumers' trust.

Private-label products have long held a place in the U.S. market, providing a less expensive alternative to the advertised brands. But despite predictions of greater sales during the recession of the early '90s, the dollar share of private labels never got much beyond 14%. Even in the 1970s, when inflation was rampant in the U.S. and stores added the element of a separate line of generic, no-name goods, share never pushed much beyond that level.

Ironically, some observers credit the growth of Wal-Mart -- and its "everyday low prices"-on-branded-goods positioning -- for keeping store brands from climbing during the last two decades to the range of 20% to 25%, a level some large chains actually experience. The consumer recognizes there's a tradeoff involved -- lower price, yes; same quality they've come to know and expect, maybe not.

This has many observers wondering about Wal-Mart's new plan to boost its private-label business, especially since it follows a "price rollback" program that hasn't gone down too well with some major marketers/suppliers. Many already have given Wal-Mart all the pricing considerations they think possible.

Hopefully, there's nothing more working here than the retailer's global expansion plans. Store brands hold a larger share of market in other countries. But if it's a matter of arrogance at the Arkansas company, now so far-and-away in control of U.S. retailing, and moving into big supermarketing arenas, then we remind them that the Great Atlantic & Pacific Tea Co. built up its U.S. grocery presence over a long period to a point where its store brands held an exceptionally large piece of its business. And where is A&P today? Saved only by the fact Germany's Tengelmann owns a very large piece of it. And down to about 760 stores from nearly 14,000 at one point.

A&P had problems not likely to be encountered by Wal-Mart. But Wal-Mart executives should watch out for the similarities.

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