Feb. 19 (Bloomberg) -- Wal-Mart Stores Inc., the largest U.S. grocery seller, will reintroduce its Great Value line of food in late March with new packaging and more marketing to cater to consumers wanting to pay less.

Saving money will be one focus of the brand, Wal-Mart Chief Financial Officer Tom Schoewe said in a Feb. 17 interview. For retailers, private-label sales generate a higher profit margin than national brands from suppliers, he said.

The move intensifies pressure on food manufacturers to hold down prices and to develop competitive new products because of their reliance on sales through Wal-Mart’s stores. As the U.S. recession deepened, private-label grocery sales climbed 10 percent in the year ended Jan. 24, according to Nielsen Co., a New York-based research firm.

“Wal-Mart is sending a message to their branded suppliers, saying, ‘Hey, watch yourself here. We want to make sure the value proposition remains strong,’” Andrew Lazar, a food analyst for Barclays Capital in New York, said in an interview Feb. 17 at the Consumer Analyst Group of New York’s annual conference in Boca Raton, Florida. “It’s another lever for Wal-Mart.”

Wal-Mart rose 45 cents to $50.45 at 4:15 p.m. in New York Stock Exchange composite trading. The shares have tumbled 10 percent this year, following an 18 percent gain in 2008 that made the company the best performer among the 30 members of the Dow Jones Industrial Average.

Managing the Label

The world’s largest retailer is hiring 75 people for its private-label business to oversee product development and purchases, Brian Sharoff, president of the Private Label Manufacturers Association, said in an interview.

Wal-Mart spokeswoman Caren Epstein declined to comment on the staffing for its Great Value brand.

The company’s renewed interest in improving its private- label offerings reflects its attempt to bolster profit and increase store visits by consumers pinched by the highest unemployment in 16 years. The retailer generates most of its revenue from national brands.

“Wal-Mart will always be a house of brands, but the timing of what they’re doing in private label is almost impeccable,” Robert Drbul, a Barclays analyst in New York, said Feb. 17 in a telephone interview. “The consumer is going in and looking for private label.”

Cheaper Goods

Private-label products generally cost 5 percent to 20 percent less than name-brand products depending on the category, Sharoff said.

The consumer ultimately decides whether a product is worth the money, H.J. Heinz Co. CEO William Johnson said in an interview at the CAGNY conference.

General Mills Inc. gets about 19 percent of revenue from Wal-Mart and Kraft Foods Inc., the maker of Oreo Cookies, receives about 15 percent of its sales from the retailer.

ConAgra Foods Inc. CEO Gary Rodkin and other foodmakers making presentations this week at CAGNY said they don’t view Wal- Mart’s private-label emphasis as a threat to their sales as long as they continue to come up with new products and keep prices in check.

“I wouldn’t go so far to say we’re not concerned,” Rodkin said. “Clearly we are, but I think it’s manageable.”

Heinz’s Johnson said Wal-Mart depends on national brands to spur traffic.

“Wal-Mart needs us to break news in the category,” he said. “Private-label products tend to emulate the market leaders. They do need the leading brands.”

Supermarket Brands

Supermarkets are also increasing their emphasis on store brands. SuperValu, the second-largest grocery-store chain and owner of Acme and Albertson’s, said on a conference call last month it sees private-label accounting for 18.5 percent of sales by February 2010, compared with 17.3 percent currently.

Kroger Co., the biggest U.S. grocery-store chain, gets 27 percent of sales from private label, it said on a conference call in December.

Wal-Mart plans to improve packaging of its Great Value brands while giving greater emphasis to the label in signs in its stores and its weekly newspaper circulars, Drbul said. He estimated that Great Value accounts for 10 percent of Wal-Mart’s food sales across more than 100 categories, from canned meats to salad dressings to cereal.

Wal-Mart’s private-label push will emphasize “not just value but also quality,” Schoewe said. “Those two things --both cost and quality -- resonate with the customer.”

As private labels grab more sales, retailers will eliminate slower-selling brands by national and regional manufacturers, Brenda Barnes, chief executive officer of Sara Lee Corp., told reporters Feb. 17. Sara Lee’s products include Ball Park franks and Hillshire Farm deli meats.

“There will be a consolidation over time to one or two brands and a private label in most categories,” Barnes said. “It certainly says your strategy has to be really good about innovation and bringing value to the consumer.”

To contact the reporters on this story: Chris Burritt in Greensboro, North Carolina, at 1348 or cburritt@bloomberg.net, Carol Wolf in Washington at cwolf@bloomberg.net.

Last Updated: February 19, 2009 16:19 EST