Brand-name manufacturers are pulling out all the stops in the war against generic rivals
BRANDS BITE BACK
Brand-name manufacturers are pulling out all the stops in the war against generic rivals
For a small eight-page “magazine,” the quality is remarkably high. With lavish color photographs reproduced on thick, glossy paper, the articles are a cat lover’s delight, covering such topics as health-care tips from veterinarians and profiles of the trendiest breeds. But then, Friskies Cat Club News is no ordinary publication. Buyers of Friskies cat food can obtain a free subscription by filling out a form on the back of a can label and sending it to the publisher, Friskies PetCare Products. The ability to directly reach a specific target market makes the Cat Club News a highly efficient weapon in the arsenal that consumer products manufacturers like Friskies’ parent, Nestlé Canada Inc., are increasingly deploying to develop and maintain customer loyalty. Frank Celia, chairman and chief executive officer of Nestlé Canada, acknowledges that having customers voluntarily supply their names and addresses is an excellent way to build up a valuable database. But, Celia told Maclean’s, the consumer also benefits: ‘We only talk to people who want to talk to us—and they get information they can use.”
In retail parlance, that strategy is all part of an effort by many big brand-name companies to add value and to build a “relationship” with the consumer. Companies like Nestlé are resorting to a variety of such weapons in their effort to stem the tide of private-label competitors. Over the past several years, decades of consumer loyalty to brand-name products has steadily eroded with the emergence of high-quality “no name” items. Those goods are less expensive because they are directly marketed in grocery stores, drugstores and other retail outlets, rather than through costly national advertising and marketing programs. In Canada, Dave Nichol, former president of Loblaw International Merchants, openly led the charge against what he called a “brand tax”—or the premium that consumers paid for a heavily advertised, widely recognized product
name. Starting in 1984, Nichol, who is now president of soft-drink maker Cott Corp., introduced Loblaw’s shoppers to hundreds of No Name and President’s Choice (PC) products, eventually exporting the concept and some of the products to the United States.
As a result of such aggressive campaigns, brandedproduct producers are now struggling to hold their ground by rethinking their approach to the multibillion-dollar business.
Private-label goods may now be an entrenched part of the Canadian retail landscape—accounting for 21.3 per cent of annual retail sales. But at least one marketing expert, John Hulland, a professor at the University of Western Ontario’s school of business administration, says that the concept of branding
remains alive and well—despite some fundamental shifts in the players and their game plans. President’s Choice, he notes, is in fact another brand name, albeit one created by— and for—a grocery store chain rather than a packaged-goods giant. Says Hulland: “What has changed is the relationship between the retailer and the manufacturer. And for the first time, the retailer has the power.” Retailers can blanket their own shelves with their own products, he notes, so that customers become familiar with those names— just as they would any other brand.
While the ferocious rivalry between privateand brand-label goods has been simmering on store shelves for years, until the 1980s genericbrand products were no more than lowerpriced, lower-quality alternatives to the big brand names. With the development of sophisticated retail technology, however—specifically universal price codes and bar coding—the battle took on new dimensions. As that technology spread, retailers of all sizes were suddenly able to closely monitor which goods were selling and in what volume. Furthermore, that newly acquired information revealed that retailers—who were not encumbered by the high cost of advertising and promoting to “differentiate” their products in a broad market— could offer high-quality products at lower prices. Cott Corp., for instance, took on some of the world’s most valuable brands, Coca-Cola and Pepsi, when Loblaw selected the small Mississauga, Ont.-based company to supply its PC Cola. When consumers noticed little difference in taste, but as much as a threedollar-a-case difference in price, it quickly became Loblaw’s best-selling pop. Today, Cott-produced products are available in seven
countries and in more than 16,000 retail outlets.
To a great extent, retailers’ forays into the branded-product market were assisted by the sluggish response of long-established brand-name manufacturers. Les Pugh, a consumer analyst with Salomon Bros, in New York City, says that complacent senior executives were largely “in denial” about the consumer appeal and the inroads made by private labels. Finally, on April 2, 1993, a day that Wall Street pundits have dubbed “Marlboro Friday,” Philip Morris Cos. Inc. retaliated. Countering years of market erosion by cheaper generic rivals, it abruptly lowered the price of a packet of Marlboro and other brand-name cigarettes. But it was a costly move. Philip Morris’s share price immediately plunged, and many shareholders, fearing other brand-name manufacturers would follow Philip Morris’s lead, quickly began selling off a wide range of their consumer-goods holdings. That pulled down the stock price of the companies owning such fabled brands as Coca-Cola, Kellogg and Heinz. Within four months, 25 of the top makers of branded products had lost $65 billion in combined market value—a loss it took them months to recoup.
Since that shock, the big guns have devised a number of strategies to fight back. Some have scurried to develop a host of so-called line extensions, new products that are introduced under established banners. General Foods USA, for one, in 1990 introduced Jell-0 Jigglers, a more concentrated form of Jell-O, the gelatin dessert first launched in 1897. Campbell Soup Co. and Nabisco Biscuit Co. opted to boost their advertising and marketing budgets. Other manufacturers have introduced new products or repositioned existing ones as their so-called value brands, a name brand priced to compete with a generic rival. Lever Bros., for instance, now flags packages of Pepsodent toothpaste and Lifebuoy and Lux soaps as “super values.” Their differing strategies are starting to have an impact. According to Steve Buckley, director of marketing research at Nielsen Marketing Research of Markham, Ont., the rate of growth for store brands has slowed in recent months.
At the same time, branded-product companies have also started to aggressively eliminate products that are not among the top sellers in their respective categories. Edwin Artzt, chief executive officer of Procter & Gamble Co. of Cincinnati, has earned the nickname “The Terminator” for ruthlessly axing several of the company’s established brands, among them Citrus Hill orange juice, Solo laundry detergent and White Cloud toilet paper. In all, Artzt vowed to purge 25 per cent of Procter & Gamble’s stable of name-brand products. And Western’s Hulland says that killing off slow sellers is something that will happen with even greater frequency. “ft you are No. 1 or No. 2 in a category, you are probably OK,” he says. “But if you are one of the also-ran brands, you will be squeezed right off the shelves. The retailers now want the No. 3-selling product to be their own.”
In fact, one hotly debated issue in dealing with private-label contenders is whether to fight them or join them. In many cases, branded-product companies have stopped fighting and begun to manu-
facture certain items for private-label firms. But Alfred Zeien, the CEO of Gillette Co., for one, claims that it is “a sign of weakness” to buy in. Instead, Gillette has fought low-priced competition by pouring money into research and development of a seemingly ordinary product, the razor. The result is the Sensor, a $3.50 device with twin blades mounted on tiny springs that outsells its nearest competitor 10:1. Gillette realizes real money when consumers refill it with Sensor blades.
Still, H. J. Heinz Co., 3M and Ralston Purina Group are among the many namebrand companies that do make privatelabel goods. (Philip Morris, for example, is the second-largest manufacturer of the generic cigarettes that it attacked with price reductions.) “There are really only a handful trying to resist the trend,” says Brian Sharoff, president of the New Yorkbased Private Label Manufacturers Association. He notes that 2,000 association members—including 1,150 from the United States and Canada, and 850 international exhibitors, primarily from Europe—displayed their wares at the organization’s trade show in Chicago in November. Among them, the exhibitors manufacture goods that represent more than 80 per cent of 440 major product categories. And in 50 per cent of those categories, he said, a private-label brand was among the top three best-sellers.
To curb the growth in that sector, several brand-name producers have now developed specific policies about which goods they will manufacture under private label. Some brand-name companies, says Sharoff, will not make private-label goods for their home markets: Campbell’s Soup, for instance, makes storebrand soup outside the United States, while Michelin makes generic tires outside France. At the same time, market leaders seldom make private-label competition for themselves. Heinz, which makes the top-selling ketchup in North America, does not make that condiment for retailers—but it does make store-label soups, Sharoff says.
For his part, Celia says that the key to success in this shifting market is the “value equation.” He adds: “That means that your product offers the best combination of quality, service and price.” And according to Celia, the “service” part of the equation is becoming more and more important to consumers. He defines service not simply as being polite or helpful, but as providing more than the consumer expects—including extras like the Cat Club News.
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