Roy White
Financial Report
June 2012

How are store brands doing? You can check Nielsen for market share. You can ask consumers for their opinions. Wall Street has its own way of looking at things and I am happy to join PLMALive! with news and commentary about store brands from the financial and business perspective.
On the supermarket side, financial heads turned to this year as it released its annual report.  Sales last year rose to nearly $44 billion as the chain embarked on a broad array of initiatives, with more private label clearly among them  investment in the future was decidedly up …

•    25 new stores opened to bring the total to 1,678 by year’s end
•    29 lifestyle-format remodels accomplished, bringing this program close to completion
•    47% of stores are now over 50,000 sq. ft.
•    Identical stores showed positive gains in all four quarters
•    Rolled out the “Just For U” digital marketing program for  shoppers
•    The Blackhawk network subsidiary for prepaid products and payment services to consumers grew significantly in 2011
•    And, many additions were made to Safeway’s already robust and sophisticated store brand program

For starters, items were added to the chain’s new Pantry Essentials program, into which have been folded the Value Red and Dairy Glen labels, so that these priced right basic items now number 100.

The chain significantly expanded its Open Nature program of 100% natural products to include bread, Greek yogurt and granola among 125 other items. The program achieved over $100 million in sales in 2011, its first full year of operation.

Net-net, added 949 products to its various store brand programs during 2011, and has initiated a major rethink of its core  private label. That label is being repositioned into four segments Safeway farms for produce, kitchens for baked goods and cereal, home for paper and cleaning products and health care for HBC.

On the drug chain side, CVS’s recent annual report describes a huge, complex and multi-faceted business based on a broad assortment of services and products.

Here’s what the chain achieved financially last year …
•    Corporate sales reached $107 billion up 12%
•    Operating profits rose 3%
•    Net profits rose to $3.5 billion
•    Added 247 new stores for a net gain of 145 taking store count to about 7,300
•    Has 650 minute clinics now in operation, aiming for 1000 by 2016
•    Filled 658 million prescriptions, equal to nearly 20% of the us retail prescription drug market
•    Pharmacy services encompass pharmacy benefits management, mail order prescription service, clinical expertise and more, with revenues of over $50 billion in 2011.

But while CVS Caremark Corporation is definitely a health care and pharmacy services-oriented organization, and 68% of the drug division’s revenue flows from prescription sales, the retail pharmacy chain does in fact have a strong front end. In total, it generated about $18.9 billion in dollar volume out of is roughly 7,300 stores last year, up approximately 3% from the year before.

Store brands play a significant role in CVS’s front end business. The private label program features 4,000 sku’s covering remedies, general merchandise, cosmetics/beauty care, and food. It is one of the industry’s most sophisticated and features the CVS label itself, plus other labels such as CVS gold emblem for candy, snack and food items. The P/L program accounts for 17.5% of front-end sales, or about $3.3 billion.  Store brand sales were up about 5-6% in 2011, around double the growth rate generated by the total front end. CVS merchandising management continually updates the program, and last year saw the introduction of the “Just The Basics” line with 100 plus items. The chain is aiming for a 20% private label ratio in front end sales over the next several years.

Among mass merchandisers, Dollar General’s sales for fiscal 2012 climbed 13.6% to nearly $15 billion and net profits soared over 22% to $767 million. Dollar General’s stats make interesting reading. At year-end, the chain operated 9,937 stores, and has since crested the 10,000 mark, after opening 625 units for a net gain of 565. Sales per square foot of selling space were $213, and each unit averages around $1.5 million annually. Stores are about 7,200 sq. ft. in size. Same store sales were up 6% for the year. The chain developed gross margins of 31.7%.   Dollar General has an extensive private brand program and according to most recent 10k, the chain has substantially increased the number of private brand items and sees the program as a sizeable part of future growth plans.  In fact, in February, Dollar General exercised an option to purchase the Bobbie Brooks trademark, an apparel line. The chain’s labels include Clover Valley for food products, DG Home for household products, Everpet, DG Baby, Sweet Smiles for candy, and others, as well as DG Health and DG Body covering health and beauty care.

Of course, not all retailers enjoyed banner years. The economy has left many companies in the distribution sector struggling to stay ahead of the game.  We will be looking more at how businesses are coping with the economy in future reports.

For now, this is Roy White reporting for PLMALive!