Welge, Donald E.

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Research Papers in Economics

Private Label Foods Surge: Continuing or Abating?
Donald E. Welge
I  would  like  to begin  my  remarks  today  by  14.  Opened  Wilson,  Arkansas  plant  in  1978;
pointing out to you that private  label offers a way  Started RTS Frosting in Denver in 1978
for the small  to medium size food manufacturing  15.  Bought B  &  R Plastics  in  1983;  Started RTE
company  to  survive  in  today's  very competitive  C  l in 
grocery  industry.  With  slotting allowances  going
through the ceiling, with heavy front-end  market-  16.  Bought P L Business from  Wilkens Rogers in
ing  moneys  being  offered,  with  free  distribution  1985;  Bought  Basic  American  private  label
of product being offered, and with heavy advertis-  potato  business;  Bought sugar  plant;  Started
ing budgets of the national  brands,  it has  become  in P L Microwave Popcorn
very  difficult  for  a  small  to  medium  size  food  17.  In 1988 boughtPARTY  PAC
manufacturer  to compete with their own brands. I
would like to point out to you today  a case  study  18.  In  1989  expanded  RTE  Cereal;  We  moved
of one small flour milling company which I have  Party Pac  to McBride  in  1988;  Started pack-
worked for  since  graduating  from  LSU  and  how  ing pasta at sugar plant in  1989
private  label  let this  small  company  survive  and  19.  Bought KO Pack in 1990
grow.
20.  Built DC in  1991
History of Gilster-Mary Lee  21.  Built corrugated Sheet Plant in  1991
1.  Founded  1895  22.  Fought flood of 1993
2.  Don Welge joined company in 1957  23.  Rebuilt plants in 1994
3.  Started  in baking mixes in 1958  24.  Opened shredded wheat plant in 1995
4.  Started packing TOPCO private label in 1959  25.  In 1996 expanded pasta plant
5.  Merged into Martha White in 1961
Gilster-Mary Lee Today
6.  Bought Trenton Milling company in 1962
A.  Main Categories:  private  label  baking mixes,
7.  Started pouch mixes in 1963  dinner mixes,  pasta,  cereal,  microwave  pop-
8.  Bought DUFF in 1965  corn, potatoes, and drink mixes, including  hot
9.  Bought  PY  0  MY  Kitchen  Arts  Foods  in  cocoa,  chocolate drink, and chocolate  syrup 9.  Bought  PY  O  MY  Kitchen  Arts  Foods  in
1968  B.  Twelve plants
10.  Started Mary Lee Packaging  in 1969  C.  3,000 employees
11.  Formed Gilster-Mary Lee in 1971  D.  215 Tractors and 600 Trailers
12.  Gained  CONAGRA  private  label  cake  mix
business in 1974  Private Label Today
13.  General  Foods  private  label  cake  business  A.  Private label continues to  improve in quality
1975;  Installed  first  pasta  line for private  la-
bel Mac & Cheese  in 1975  Can now be a career  because  of continuity of
business
Must be equal to the brand in quality for first Donald  E.  Welge  is President  and  General  Manager  of the  labels
Gilster-Mary  Lee  Company,  Chester,  IL.,  a manufacturer  of
private label products.Welge, Donald  E.  Private Label  Foods Surge: Continuing orAbating?  37
B.  Types of private  label  G.  The future of private  label
1. First label  1.  Gradual growth
2.  Second label  Most  economical  way  for  the  consumer  to
3.  Upscale  buy food
C.  Market penetration  in the  15%  range and even  National  brands have  strength  to not  let  pri-
higher in food service  vate label grow rapidly
D.  The rise of in-house brokers  2.  Continued emphasis on quality of product
1. Advantages to manufacturer  Quality of packaging
2.  Disadvantages to manufacturer  3.  Customers will look for private  label vendors
with  multiple  product  lines  in  order  to  im- 3.  Advantages to customers  prove turnover of inventory
4.  Disadvantages  to customers  4.  Continued  pressure on private label  suppliers
E.  Private label in different food store formats  for quality, service,  and prices
1. Convenience stores  5.  Profit  margin  for  private  label  products  will
remain under intense pressure 2.  Independent  supermarkets
6.  Because  of small  margins  and  uncertainty  of 3.  Supermarket chains  profit margins,  private  label  better adapted to
4.  Box stores  small  and  medium  size  privately  held  com-
panies than to publicly listed firms 5.  Supercenters
F.  Innovation  inprivatelabel  7.  In  closing,  I  would  like  to  again  emphasize
that  the  opportunity  to  survive  in  today's
1. Gilster-Mary Lee examples  competitive  marketplace  lies  in  private  label
~(A)  RTS  Frosting  ^1for  many small to medium size food manufac- (A)  RTS Frosting  turing firms.
turing firms.
(B)  Microwave Popcorn ~(B) Microwave  Popcorn  By forming a partnership  with the retailer and
(C)  Deluxe Shells & Cheddar  wholesaler,  the  small  to  medium  size  food
(D)  Bite Size Shredded Wheat  manufacturer  has  a  much  better  chance  of
surviving.
2.  Private label market share today 8.  I  also believe that private  label  will  continue
The tables on the following  page are from  to grow  as consumers  realize  that  it is  equal
PLMA's  1996 private label yearbook.  in quality to the leading national brands and is
simply  a  way  to  eliminate  extra  marketing
expenses.38  February  1997  Journal  of Food  Distribution  Research
Table 1. Private Label Dollar Volume:  Today vs. A Year-Ago
Today  Year-Ago  Change
Regular Private Label  $ 31.2 Billion  $ 30.2 Billion  +3.5%
Generics  311.0 Million  361.5 Million  -14.0%
Total Private Label  31.6 Billion  30.5 Billion  +3.3%
Total Brands  177.7 Billion  174.1  Billion  +2.1%
Source:  IRI/PLMA
Table 2. Private Label Unit Volume: Today vs. A Year-Ago
Today  Year-Ago  Change
Regular Private Label  25.1  Billion  25.1 Billion  -0.1%
Generics  252.7 Million  303.7 Million  -16.8%
Total Private Label  25.3 Billion  25.4 Billion  -0.3%
Total Brands  103.2 Billion  104.0 Billion  -0.8%
Source: IRI/PLMA
Table 3. Private Label Dollar Market Share: Today vs. A Year-Ago
Today  Year-Ago  Change
Regular Private Label  14.9%  14.8%  +0.1  pts
Generics  0.1%  0.2%  -0.1  pts
Total Private Label  15.1%  14.9%  +0.2 pts
Total Brands  84.9%  85.1%  -0.2 pts
Source: IRI/PLMA
Table 4. Private Label Unit Market Share: Today vs.  A Year-Ago
Today  Year-Ago  Change
Regular Private Label  19.5%  19.4%  +0.1  pts
Generics  0.2%  0.2%  ±0.0 pts
Total Private Label  19.7%  19.6%  +0.1  pts
Total  Brands  80.3%  80.4%  -0.1  pts
Source: IRI/PLMA
Table 5. Five Year Market Share Trend in Dollars and Units
Dollars  Units
1991  13.6%  18.1%
1992  14.6%  19.4%
1993  14.9%  19.7%
1994  14.9%  19.4%
1995  14.9%  19.5%
Source:  IRI/PLMA

PRIVATE LABEL FOODS SURGE: CONTINUING OR ABATING?

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