Private labels booming in these tough times
Published Saturday July 4th, 2009
Retail Executive says consumers happily buying private label substitutes that meet their quality expectations
Penny-pinching shoppers have prompted a boost for discount goods businesses and cuts into sales of popular brands.
For Dieppe-based Irving Consumer Products Inc. this has meant increased demand causing record production levels.
The privately-held company is seeing increased sales in paper tissue, towel, diaper and private label brands it makes.
"Naturally in this economic climate the consumer looking at options starts looking at trading down," says company vice-president of sales Bob Tinnish.
The company's growth is strongest south of the border where there is more potential for store labels to gain market share from big brand names.
The two biggest players in the tissue products market in the United States have been moving fewer products this year.
Kimberly-Clark Corp. (NYSE:KMB-N) - makers of Huggies diapers, Cottonelle toilet paper, Scott paper towel and the iconic Kleenex brand - took a nearly three per cent hit in sales in the first three months of the year. Then last month the company announced it's cutting 1,600 jobs, six per cent of its salaried workers.
Proctor & Gamble Co. (NYSE:PG) - makers of Pampers diapers, Charmin toilet paper and Bounty paper towel as well as many other grocery items from detergents to dog food to batteries - saw sales volumes drop five per cent in the January to March quarter.
But unlike some products, which are expected to recover once the economy does, Tinnish says increased store brand sales will hold the market share they're taking from big brand names.
"The experience in that last big recession was that private label gained share after the recession was over," he says. "We expect that to happen again because consumers will happily meet a private label substitute that meets their quality expectations."
He says this creates new opportunities for the company. Irving Consumer Products recently hired Montreal-based IT consultants Odesia Group Inc. (TSX.V:ODS) to provide advice on supply chain management changes.
The technology consulting firm has Canadian, French and Mexican clients, and has received the highest award from the prestigious Oracle technology network. Odesia's consulting work will help Irving Consumer Products expand.
"We've had a sizable increase," Tinnish says. "But more importantly the condition that I've described has opened up doors for new business down the road, hence our need for supply chain applications that boost our capability of getting our product to customers in a timely manner."
Irving Consumer Products, which employs 1,136 people, also owns the Royale and Majesta brands and the American rights to the Scotties label. The company employs 207 people at a tissue plant and 120 at a diaper factory, both in Dieppe - as well as 363 at a Toronto plant and 268 at a factory in Fort Edward, N.Y. The remaining 178 employees work in the head office and sales offices in Canada and the United States. The company makes facial tissue, toilette paper, paper napkins and towels, diapers and training pants.
The J.D. Irving, Limited, firm declines to reveal its store label sales numbers or the brands it makes, only saying it makes products for leading American and Canadian retailers.
Robert Kerton, a University of Waterloo economics professor specializing in consumer behavior, agrees with Tinnish's projections for the future.
"If the private label product is seen to be of good quality the consumer will stick with the substitute, even after the recession is over," he says.
Kerton says there are two markets for many grocery store items: a full-price brand market and a lower-price market.
With store brands growing the lower-price market in the current recession, some of the brand name companies are introducing products to compete with store brands.
Procter & Gamble recently introduced discount versions of its Bounty and Charmin brands, as well as a cheaper line of diapers, called Luvs.
But Kerton says store brands will have an edge because retailers charge shelving fees for other products.
Kerton says there is less room for store brand growth in Canada because the private labels already have a healthy market share.
Sobeys Inc. and Loblaw Companies Ltd. dominance of the Canadian groceries market has allowed them to build strong brands through similar shelving fees. This coupled with a tamer economic situation means there will likely be less change in Canada than in the U.S., Kerton says.
"The recession's less severe in Canada so Royale hasn't been harmed as much as comparable brands in the U.S.," he says.
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