A battle is raging on Manhattan’s Upper East Side, where CVS Caremark Corp. is wooing cash-strapped shoppers with house-brand anti-wrinkle cream that’s as much as 30 percent cheaper than L’Oreal SA’s Advanced Revitalift.
As consumers scared by rising unemployment and declining asset values cut back on spending, pharmacy chains such as CVS, Walgreen Co., Rite Aid Corp. and Canada’s Shoppers Drug Mart Corp. are stepping up offerings of less expensive, more profitable store brands.
“Customers are more willing to look at private label” during a recession, said Willy Kruh, who heads the consumer and industrial businesses at KPMG Canada in Toronto. “The consumer is hunkering down.”
During the 2001 recession, store brands accounted for 21 percent of total sales at U.S. supermarkets, drugstores and mass merchandisers such as Wal-Mart Stores Inc., up from 18 to 20 percent through most of the previous decade, according to the Private Label Manufacturers Association in New York. The contribution also increased when the economy contracted in 1990.
Woonsocket, Rhode Island-based CVS, the largest U.S. drugstore chain, plans to increase sales from private-label products to as much as 20 percent of total non-prescription sales during the next three to five years, from 14.5 percent in 2007, spokeswoman Joanne Dwyer said. The company’s push coincides with a slowdown in pharmacy business.
The retailer has more than 3,000 store-brand products. About 500 were added last year, including the Vickery & Clarke Natural Apothecary makeup and body-care line and Earth Essentials environmentally friendly paper goods.
Store brands now account for $80 billion in annual sales, or one of every five items sold in U.S. supermarkets, drugstores and mass merchandisers, according to the PLMA. Revenue from those products at pharmacy chains, which were slower to offer them than food retailers, jumped 33 percent to $4.9 billion from 2002 to 2007, the group’s data show.
Private labels can cost consumers at least 20 percent less than national brands and can be twice as profitable for retailers, depending on investment and marketing expenses, said John Williams, a partner with retail-consultant firm J.C. Williams Group Ltd. in Toronto.
For those reasons, Toronto-based Shoppers Drug, Canada’s largest pharmacy chain, has made increasing the number of house- brand offerings a top priority. Shoppers Drug added 1,200 private- label items in the first nine months of 2008, including candy, organic snacks and cosmetics. That’s six times the number that it put on shelves in 2003.
Sales of the company’s own brands will rise to 17 percent of non-prescription revenue in 2008, Shoppers Drug Chief Executive Officer Jurgen Schreiber said in November, and the plan is to increase the contribution to a quarter of sales within the next five years.
“There’s not too much I wouldn’t try” of the drugstore’s lines, said Sheila Kellogg, a 46-year-old Toronto resident, as she reached for Shoppers Drug’s Life Brand peanuts for 99 cents (83 U.S. cents). “I’ve had good luck with them. They’ve got a better price.”
Shoppers Drug sells a 60-tablet bottle of Life Brand Kids Only chewable vitamins with extra C for C$7.49, compared with Bayer AG’s Flintstones supplement costing $9.99. The chain’s soft-mint mouthwash costs C$3.49 for a one-liter bottle, while a liter of P&G’s Scope peppermint mouthwash was C$5.99.
At Deerfield, Illinois-based Walgreen, private-label purchases already represented about 20 percent of non-prescription sales in 2008, and the more than 2,000 store brands are “definitely being helped by the difficult economic climate,” spokeswoman Tiffani Bruce said.
Walgreen expanded its own line of products by about 10 percent in 2008 and promoted small electronics, appliances and boxed candy during the holidays, Bruce said in an e-mail. She declined to give any projections for this year.
Price increases on household and personal-care items by Procter & Gamble Co., Colgate-Palmolive Co., Kimberly-Clark Corp. and other manufacturers have contributed to the lure of lesser- known brands. Sales of brand-name products in those categories declined by 0.7 percent in the four weeks ended Nov. 29, while private-label items climbed 6.6 percent, according to a Dec. 12 research report by Sanford C. Bernstein & Co. in New York.
P&G, which makes Cover Girl makeup, Pampers diapers and Tide detergent, said in December it had been able to maintain market share and private-label growth was “modest.” Even with the appeal of lower prices during a recession, some consumers won’t substitute store brands for those they have used for years.
“I tried generic brands, and then just went back,” said Laura Gallagher, a 43-year-old receptionist shopping at a Duane Reade Inc. drugstore in New York. “You get what you pay for.”
— With reporting by Carol Wolf in Washington, Stefanie Batcho-Lino in Toronto and Amy Eagleburger and Heather Burke in New York.
