A recent article over on World Trade Magazine that describes a new spin on just in time describes the impact of SKU proliferation on supply chains and how many distributors and 3PLs now have to deal with replenishment requests from retailers that are less-than-pallet or less-than-case. As a result of name brand and private-label brand proliferation across many categories of consumer goods, there are now more products competing for the same shelf space and retailers are carrying less stock of each item and issuing more frequent replenishment requests for fast-selling items.
The article also notes that, as a result of the recession and a (dramatic) increase in quality in private label brands, we’re seeing consumers move from premium brands to what might be appropriately called, more mainstream products, and staying there. This means that private label brand sales are steadily increasing at the expense of name brands of similar quality that have gone from being the low-cost option to the more expensive option. At some point, a tipping point will be reached and the name brand product will disappear from the shelf.
Think about it logically. As sales of a certain brand increase, that brand becomes a top-seller and an important contributor to the store’s bottom line in that category. Priority will be placed on the brand to minimize the risks of stock-out and to find ways to decrease the cost to maintain the increasing sales trend. In-stock thresholds will be bumped up and order quantities will increase, decreasing the amount of storage available, and in-stock thresholds for, the low-cost name brands. At some point, the replenishment cost for the low-cost name brand, which will always be less-than-pallet and/or less-than-case will become prohibitive, as it will increase the product’s cost (in contrast to the decreasing cost of the private-label brand which now has sufficient volume to be replenished economically), and the sales will start to drop substantially relative to the private-label brand. At this point, the retailer will just drop the low-cost name brand, knowing it will be able to make up most of the sales in its own private-label brand. It’s been happening for years.
Here in Canada, President’s Choice, the private-label brand of Superstore (owned by Loblaws Inc, which is a top 2 or top 3 grocery retailer in most Canadian provinces), has been bumping low-cost name-brand alternatives off of the shelves for years. For many types of products, your only choice now is private-label or considerably more expensive name brand. And since PC products are often as good as the similarly priced low-cost name brands, or no-name brands, if not better, no one cares. (In some categories, you literally have to pay twice as much for a premium brand to find something better.) In the US, Target is a prime example. They have their own housewares and clothing lines, and they are often better than many of the more expensive name brands. As a result, many stores typically only carry the Target brands or the (considerably) more expensive premium brands.
In other words, it seems that the low-cost brands, that launched big in the 80’s, have now priced themselves out of business as the big-retailers now individually account for enough demand that they can not only cut production and distribution costs, but marketing costs as well. As that can typically shave another 10% off of the product price, it looks like the days for are numbered for many of these brands. I wonder if ABC(c) knew when it introduced its now-classic Why Pay More campaign in the late 80’s (in Canada) that it was the beginning of the end. Less than 20 years later, it would be dumped by Colgate-Palmolive to Phoenix Brands where it continued its slide into brand obscurity.
Any differing opinions?