Wal-Mart Gives Its Store Brand a Makeover

Wal-Mart Stores (WMT) has completely overhauled its oldest and biggest store brand, a move likely to send shock waves through the ranks of branded grocery manufacturers around the globe.

For the past year, Wal-Mart has worked with suppliers and consumers to test the quality of more than 5,250 of its Great Value private-label products against leading national brands. With thousands of products spanning 100 categories, Great Value is not only the biggest brand Wal-Mart carries, it's the biggest grocery brand in the entire country.

The extensive testing prompted the company to change the formulas for 750 everyday items, mostly foods, such as its kids' breakfast cereal, which was made crisper, for example. Senior Vice-President Andrea Thomas, an innovation specialist who worked on new product development at Frito-Lay (PEP) and Hershey (HSY) before joining Wal-Mart in 2007, has also launched more than 80 new products under the Great Value line, such as thin-crust pizza, fat-free caramel swirl ice cream, and organic cage-free eggs.

Unusual Ice Cream Flavors

Some of the new products were designed using consumer feedback, which Thomas hopes will make them unique and perhaps even more attractive than national brands. "We trained customers to do comparisons for us and talk to us about what they were looking for," she says. For example, the Great Value all-natural ice cream now features unusual flavors like mocha mud slide and cake batter. "The national brands are not designing items [exclusively] for the Wal-Mart customer," she says. "We are."

The relaunch also includes new packaging design to provide a more consistent, consumer-friendly image for Great Value, which was launched in 1993. Nutritional information will be more prominent, and nearly all labels are now in English and Spanish. "It was like a checkup for the brand," says Thomas.

The Great Value redesign comes amid a period of strong growth for private labels of every stripe. Sales of Kroger's (KR) private-label assortment reached 27% of overall sales in its most recent quarter, a new record. Safeway (SWY), meanwhile, has seen such success with its O Organics store brand that it is now licensing it for use by other retailers. Overall, sales of private-label items rose 10% in 2008, according to data tracker Nielsen, vs. a 2.6% gain for branded goods. "Private-label sales are going through the roof at several companies," says Edward McLaughlin, a marketing professor and expert in food retailing at Cornell University.

Consumers Embracing Private Label

At the same time, skepticism toward store brand products is dissipating as more shoppers discover that many match the quality of national brands, but at lower prices. Some 64% of shoppers in 2008 said they often or always buy a store brand rather than a national one, according to the Food Marketing Institute, an industry trade group. That's up from 59% the prior year.

Private-label products generally cost anywhere between 5% to 20% less than name-brand products. They also deliver higher profit margins for retailers, analysts say, as overhead costs are low and marketing expenses are nil.

Those higher margins certainly appeal to Wal-Mart, which is notorious for squeezing its suppliers to deliver the lowest prices possible. Thomas said she used some new suppliers for the relaunch. Prices for the new Great Value items will be on par with the old ones, but some prices may be higher to account for new ingredients.

Will the Consumer Shift Stick?

As for whether the new Great Value items will receive more prominent shelf space inside Wal-Mart's stores, Thomas was noncommittal. "The Great Value items earn their position just like the branded stuff does," she says. "We pay attention to what sells."

The big question now is whether consumers will keep buying store brands when economic conditions improve, or return to national brands. By improving Great Value, Wal-Mart hopes to make that decision more difficult.

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