Question 2 What is the role of HEB and Hill Country Fare as the two Own Brand labels?
How should these be positioned with respect to the other brands in each category? HINT: Calculate the procurement income estimation & derive variables of the income statement for HEB. Answer: Retailers wish to promote store brands since retailers carry store brand products due to the fact that they can sell them with higher gross profit margins. Store- brand products are usually cheaper than national-brand products since the retailer can optimize the production to match consumer demand and trim down advertising costs. National brands are priced on average 40% higher than store brands. In addition to increasing profits, store brands help to attract and retain customers. This is really important in the competitive supermarket business. If a consumer becomes addicted to a particular store brand canned fruit or spaghetti sauce, for instance, they will return when they need to purchase these items again. Also, store brands enable retailers to get better deals with national brand manufacturers. If we go back to the case, we see that three major objectives of H-E-B (improved profitability, sales growth, deeper customer relationships) are in line with the information given above. H-E-B needs to take into consideration the quality and price of the national brands in the category when deciding on the store brands position, price and margin. It has two store brands: First is H-E-B brand for premium products which equalled or exceeded national brands in quality. The products under this brand should be priced comparably with national brands. The price could be slightly lower than national brand s; butit should not be significantly lower. The next tier of products is Hill Country Fare. This tier serves to compete against other store brands and approach national brand quality. The products under this brand should target price-conscious shoppers and be priced lower then national brands in order to get those consumers. Procurement Income = 5-10% of sales in packaged goods
80% sold of end-caps sold to its vendors 20% for local merchandising. $36 million sales in Bottled water in 2000
Approx Procurement Revenue from bottled water category
36*7.5% (Average Procurement Income)*80 %( Vendors end caps) = $2.16 million