Monday, May 3, 2010

Brand vs Store Brand

The Lipton Ice Tea logo as used in many marketsImage via Wikipedia
 Big-brand consumer products companies are starting to win the battle for shoppers who traded down to store brands by cutting prices, rolling out both lower- and higher-priced new products, and pumping up promotions. Even with new Brand name products many are still higher priced than store brands that are the same product or very similar. Although some name brand products

Procter & Gamble Co., Colgate-Palmolive Co. and Unilever NV all showed strong sales growth in Thursday's quarterly earnings report, although P&G's results were hurt by charges including from the U.S. health-care overhaul, and Colgate took a hit from the currency devaluation in Venezuela. While consumers are still minding their budgets, the rising sales are an encouraging, if tentative, sign of economic rebound after more than a year of shopper cutbacks.

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"These are companies that sell everyday household products," said Jack Russo of Edward Jones, who covers P&G and Colgate. "Procter has been introducing products that have more of a value equation. I wouldn't say that consumers are jumping back in on the premium products."

The three companies' sales surged overall, particularly in emerging markets and after price cuts meant to lure consumers back from cheaper private label and store brands.

"We are doing what we have to do price-wise to stay price-competitive," Bob McDonald, P&G chairman and CEO, told investors on a conference call.

Colgate shares fell 20 cents to $84.80 Thursday, while P&G was off 97 cents, or 1.5 percent, at $62.20.

P&G is trying to combine brand strength with lower-priced alternatives while also grabbing shoppers' attention with upgraded products and marketing. The maker of Tide detergent and Pampers diapers says revenue rose 7 percent, to $19.2 billion, while profit dipped 1 percent to $2.59 billion, or 83 cents per share, with a 5-cents-a-share charge for costs from health-care changes in its third fiscal quarter.

Colgate-Palmolive, maker of Colgate toothpaste, Palmolive dishwashing liquid and Ajax cleanser, saw revenue rise more than 9 percent, to $3.83 billion. But first-quarter earnings fell 30 percent, to $357 million, or 69 cents per share, after the company took a charge for the currency changes in Venezuela, a key South American market.

Unilever NV, the maker of Lipton tea, Dove soap and Ben & Jerry's ice cream, reported a 33 percent jump in first-quarter profit and a revenue increase of 6.7 percent.

"In cutting prices, Unilever continues to up the pressure on rivals" analyst Keith Bowman of Hargreaves Lansdown said in an earnings note. He described the company's strategy as "intense advertising combined with successful product innovation and stringent cost control."

Unilever and P&G had to cut prices in the quarter because people are more apt to trade down to off-brand home products, said David Kolpak, managing director at Victory Capital Management in Cleveland.

"Consumers are just flat-out a lot more loyal to branded products when it comes to stuff you use for your appearance and your health than when it comes to mopping your floor or cleaning your countertops," he said.
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  1. I used to be brand specific but now I'm leaning towards generic and store branded products. Take a store like Best Buy for example, They may sell you a nice LG tv for $1200 while they are sellin g an Insigna( which the parts are made by LG) for $800. At the end of the day, the TV's are going to show the same picture, so why pay more for the name?

  2. William,

    you are so right. And with many products today, the store brand is made by the same company.

    thank you for your comment

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