In our “Being the Biggest, Not the Best” post from the Category Killers Business Blog Book Tour, we discussed why big box retailers are producing more and more private label goods.
With the recent merger announcement between Proctor & Gamble and Gillette, the New York Times speculates the rise of private label goods (especially Wal-Mart’s store brands) and the loss of pricing power from packaged good producers played influential roles in P&G's decision to buy Gillette.
Constance L. Hays, of the NY Times, writes …
For 15 years, giant chains - Wal-Mart chief among them - have increasingly dominated their relationships with manufacturers, flexing their market muscle and seizing pricing power by showing a willingness to sell their private label products.One industry expert said the Procter deal reflected a desire by P.& G. to take back some pricing power from Wal-Mart and other retailers, who have increased their leverage by consolidating, and eliminating rivals, starting in the mid-1980's.
"The big consumer product companies need to rebalance power a bit between themselves and the big retailers like Wal-Mart," said John D. Sicher, publisher of a beverage newsletter that tracks the growth of private-label soft drinks. "It's important for them, their brands and their consumers," he said, adding that the consumer products companies need to bolster their pricing power if they are going to keep shoppers buying by innovating, improving marketing, and developing brands.
But some specialists think P.& G.'s acquisition may be too little and too late to curb Wal-Mart's power.
Procter generates about 17 percent of its annual sales through Wal-Mart, and Gillette about 25 percent, but that still represents less than 10 percent of the discounter's total sales, said Bruce Cohen, a principal with Kurt Salmon Associates in San Francisco, a consulting firm that has advised Gillette in the past but did not participate in the deal announced yesterday."Wal-Mart will continue to be a major part of P.& G.'s thinking," said Dan Stanek, executive vice president of Retail Forward, a consulting group based in Columbus, Ohio, that publishes weekly reports about Wal-Mart. "It shifts things a little bit, but Wal-Mart is still Wal-Mart. The ball is still clearly in Wal-Mart's court."
"At this point, there is a real question about whether P.& G. will actually increase in power, or whether Wal-Mart owns the consumer," Professor (Ed) Fox (Southern Methodist University) said.
So will Wal-Mart now respond to the Procter-Gillette marriage by producing more private-label goods? Professor Fox predicted Wal-Mart will not do so unless a category is large enough to warrant the effort. "The categories don't grow because of the merger," he said.
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