The Agribusiness World Today

Ken Shwedel
Investigador de Agronegocios de Rabobank, México
1 - 4 de Enero de 2008

The World

Monetizing the private label or giving it away? Theory says that retailers develop private label brands as part of a strategy designed to differentiate their stores in the eyes of the consumer from their competitors. And, of course, retailers also see private labels enhancing margins. Originally, most the private label strategies centered on price. Subsequently, retailers moved private labels away from just a price concept to include quality as an attribute of their private labels. Some retailers have gone so far as to develop a range of private labels along a price/quality continuum. Nevertheless, no matter what the focus was, retailers jealously guarded their private labels. That is, until now. Safeway, the U.S. retailer, responding to the growing potential of the organic market jumped in to develop their own private label: the “O” line of organic foods and beverages. The O line has since its launch has “grown to 300 items, including milk, chicken, entrée and juice products”, with sales estimated at some US$300 million in 2007, up from US$164 million last year. Now, in a break from traditional private label strategies, Safeway has entered into a deal with Sysco, the U.S. food distributor, “to sell the “O” products in foodservice locations”.

The products “will be the same as those sold in Safeway’s stores”. It isn’t clear how they will manage pricing. This is an interesting strategy. As long as the “O” line is kept out of competitors’ stores this has the possibility creating more interest in brand and, what we believe is Safeway’s ultimate objective, driving business to their stores. The risk of course, is losing control of the brand. We believe, though, it is worth taking. Other retailers, surely, will be monitoring Safeway’s progress. To the extent that Safeway is successful, this has the potential of redefining the dynamics of the food market.

Mexico

Cheap food: Last week we talked about governments’ concerns surrounding the increase in food prices and the policy measures being taken in response. In Mexico the government has negotiated with the supermarket association (ANTAD, as it is known by its Spanish acronym) to lower prices on some 300 products, considered as basic items for lower income consumers. By negotiating with ANTAD the government has tacitly recognized the changing structure of food marketing in the country. Because the government, looking to protect consumers from higher food prices, will channel food purchases to the supermarket sector, this will work to further accelerate the structural change favoring supermarkets. If there is a potential loser, it is food manufacturers. In the short run, they will come under pressure to lower prices to supermarkets. In the mid to long term, they will have to deal with a stronger supermarket sector.