CHIP OFF THE OLD BLOCKTo The Editor:In the article, “The Vulnerability Of Brand Equity” (CE: July/August 1994), author David Beatty, [...]
November 1 1994 by Chief Executive
CHIP OFF THE OLD BLOCK
To The Editor:
In the article, “The Vulnerability Of Brand Equity” (CE: July/August 1994), author David Beatty, former president of Weston Foods, claims that U.S. consumers are paying a “brand tax” on packaged-goods products-a tax that presumably funds manufacturer inefficiency and inflated profits. To avoid this alleged inequity, Mr. Beatty proposes a massive conversion to private-label products (such as those in Weston’s President’s Choice line), a process he says would drive category growth, offer superior products and lower prices to the consumer, while supposedly delivering higher unit profit to the retailer.
A look at the facts leads to a somewhat different conclusion. First, there is no question that innovative branded products drive category growth. For example, our own low-fat and fat-free SnackWell’s and Newtons cookies products have helped propel the cookie category to an 8 percent year-to-date sales growth. This did not happen by accident. Producing a fat-free product that tastes great was a serious technical challenge that took about two years and cost nearly $7 million. And selling them to the consumer did not follow automatically; we invested over $100 million in marketing for them. This kind of innovation and support will not come from private-label knockoff products.
In addition, the touted success of Mr. Beatty’s own President’s Choice line is less than overwhelming. One of the most familiar items is the Decadent Chocolate Chip cookie, a product that represented 22 percent of President’s Choice total 1993 sales, according to Information Resources Inc. In its best market,
President’s Choice Decadent Chocolate Chip cookies have not grown the total category. A national nine-month IRI tracking study indicated that virtually no users had been brought into the category by the Decadent Chocolate Chip cookie. This same IRI study showed that, on average, accounts carrying Decadent Chocolate Chip cookies had 35 percent lower cookie category growth than accounts not handling them.
Finally, private-label share traditionally grows during a recession. And this recession was no exception. However, this growth is not sustained, and recent data show private-label share hitting a plateau. According to IRI, private-label share of the total packaged-food business (on a dollar basis) was 16.8 percent in 1992, 16.9 percent in 1993, and has edged back to 16.8 percent for year-to-date 1994.
I am not saying there is no place or role for private-label products. It’s quite the opposite. Both branded and private-label products should be offered to the consumer. However, private label is not a panacea for the retailer, and it certainly is not, as Mr. Beatty puts it, “the best hope for survival since the scanner.”
H. John Greeniaus
Chairman and Chief Executive
Nabisco Foods Group