retail news in context, analysis with attitude

The Wall Street Journal reports this morning that Safeway CEO Steve Burd has told analysts that if CPG companies don't start lowering their prices, Safeway will respond by pushing its private label lines harder than ever – and that, if necessary, Safeway will “chew up” the CPG companies on price.

According to the story, Burd “told analysts in an earnings conference call that the sales growth gap between national brands and private-store brands has become ‘extraordinary’ and accused food makers of being ‘disingenuous’ with consumers by not dropping their prices to reflect declining input costs.

“Faced with the economic recession, cash-strapped consumers have been trading down to cheaper products, both dining out and dining in, with more consumers gravitating toward private-label goods at the grocery store.”

While Safeway and other retailers have been pushing manufacturers hard on prices, suppliers have been saying that they cannot lower prices because they are locked into higher commodity costs. But in addition to wanting to cater to economically challenged shoppers, Safeway has other reasons for pushing private label – such products earn higher margins for the retailer, and reinforces the company’s brand image.

KC's View:
Retailers like Safeway have to position themselves as advocates for the consumer, and holding the line of prices – whenever possible – is precisely what they have to do.

I understand that there are contracts and commodity costs that manufacturers have to deal with, but in the current recessionary environment there are real perils to defending increased prices at a time when 1) consumers have less money to spend and 2) retailers have legitimate and quality private label options to offer an increasingly accepting shopper.