Summary
Looking back, retail observers and pundits will identify the current recession as a tipping point when private label products emerged from alternative status and into the mainstream. Wal-Mart's "Save Money. Live Better." value proposition has been incredible successful and was a natural extension of their longstanding EDLP pricing strategy. The fact remains that consumers will pay more than their reference price for a product if they perceive a brand to have differential value over a like item. This applies to private label brands as well. If Wal-Mart executes the revamp successfully it could significantly increase traffic, order size and conversion.
Analysis
Grocery chains have been building their private label brands steadily over the past decade. Whole Foods 365 Everyday Value® and 365 Organic Everyday Value® products provide a lower price point for consumers looking to economize, but who also seek quality. Safeway's Organics brand targets a mass audience by offering "great tasting organic food available to everyone and sold everywhere at a great value." If consumers are able to find suitable substitutes of comparable quality at Wal-Mart they could reduce trips to traditional grocers and their sales could be negatively impacted.
Traditional branded consumer packaged goods manufacturers will need to respond to this competitive threat to maintain their market share, but they are not in a position of power given their reliance on the Wal-Mart channel for a large percentage of their sales volume.
