Loblaw Cos. Ltd., a trailblazer in low-cost private labels such as President's Choice, is testing an array of new "discount" store brands aimed at attracting more shoppers and fending off a legion of new players in the grocery business.
The strategy of promoting what some retail experts refer to as "fighter" brands is similar to one being used by grocery giant Tesco PLC in Britain to take on mighty Wal-Mart Stores Inc. and other discounters.
Now, Loblaw is borrowing a page from the British private-label playbook by introducing a bevy of brands at its No Frills discount stores, a move that could spiral into a new food fight in Canada.
The move comes amid rising competition in the grocery sector. Retailers ranging from Canadian Tire to Shoppers Drug Mart and Wal-Mart are adding more food products to their shelves.
It is part of a broader push by Loblaw president Allan Leighton, a former British retail executive, to turn around the fortunes of Canada's largest supermarket chain.
"For Loblaw, it's the potential to make more profit margins," said Tom Stephens, a former Loblaw executive who runs Brand Strategy Consultants, a specialist in private labels. "It's more choice and savings for the consumer. But it's a further threat to national brands."
Private labels can provide retailers with gross margins of up to 40 per cent, or 10 percentage points more than national brands such as Kraft, because of lower distribution and marketing expenses. Shoppers are drawn to private labels because they are 20 to 40 per cent less expensive than national brands.
Loblaw's new products have names such as Bijou (frozen juice), Terra (canned vegetables), Cercle (mayonnaise) and Du Matin (jam). For example, a 950-ml jar of Cercle mayo is $3.49, more than the grocer's private-label No Name product at $2.59, but less than a smaller jar of Kraft Miracle Whip that sells for $4.29.
Signs and flyers at No Frills promote the line as "discount brands exclusive to No Frills" and "up to 20 per cent cheaper than the big names."
Loblaw is already a leader in private labels in North America with its iconic No Name and pricier President Choice lines. Mr. Stephens suggested its latest efforts could be the first step of a wider launch of the new discount private labels at other Loblaw banners, which include Real Canadian Superstore, Provigo and Maxi.
Loblaw would probably ditch weak-performing lines among national-brand producers if its new private labels took off, said Jim Danahy, managing principal at consultancy CustomerLAB. In the past, Loblaw has dropped soft-selling national brands after introducing new store brands, he said.
"It's a gutsy move and a creative move," he said.
Still, in adding new private labels, Loblaw risks pinching sales of its popular President's Choice line, he warned. And it could be confusing for shoppers to be confronted with so many different brands, added A.G. Manoian, a grocery consultant who was once part of the Loblaw private-label team.
Loblaw may have done better by introducing an even cheaper line of goods, he said. "They really need a 'deep discount' layer of products to compete with Wal-Mart."
Loblaw executives declined to comment on details of its program. But spokeswoman Julija Hunter confirmed in an e-mail that it recently started to roll out the private labels in No Frills stores "as a trial."
Loblaw isn't alone to re-focus on private labels. Rivals Metro Inc., Sobeys (a division of Empire Co.) and Wal-Mart are among chains that have recently re-launched their store brands.
Still, while store brands have been gaining market share rapidly in the United States, they have been in decline in Canada over the past several years, said Carman Allison, director of consumer and industry insights at market researcher Nielsen Co.
That's partly because U.S. grocers have only recently bolstered their private label offerings, while retailers here have been carrying them for years, he said. In the downturn, grocers heavily discounted national brands "in some cases at prices below what a manufacturer would like," which helped boost their sales, he said.
Kraft Canada, for its part, "has a good partnership with Loblaw," said spokeswoman Lynne Galia. "And we recognize that different brands play different roles in a category." An official of the Food and Consumer Products of Canada, which represents major manufacturers, couldn't be reached.Report Typo/Error