In a conference call discussing its fourth quarter figures yesterday, chief executive Tarang Amin said private label sales were likely to drop 25 percent in fiscal year 2012, declining from around 23 percent of sales to well under a fifth.
He added: “We’ll continue to bid on private label business that makes sense, but we’ll step away from the stuff that’s crazy, where no one makes any money.”
His comments echo recent statements from supplements giant NBTY, which said it had “walked away” from some private-label tenders as firms were making such suicidally low bids.
Too many BOGOF deals commoditize brands
But Amin also warned of the dangers of excess trade spending and said funds should instead be channeled into consumer advertising: “One of the common practices in the industry, which we have also been guilty of, is a prevalence of trade spending such as BOGOFs, bonus bottles and other discounts.
“These tactics erode premium brands and incentivize disloyal consumer behavior. Therefore, we will reduce trade spending and invest our resources in consumer advertising. We intend to take our sales and marketing investment as a percentage of sales up from 16 percent to 22-24 percent in fiscal 2012.”
Major retailers such as Walmart and Costco were “looking for manufacturers to step up and stop some of the high-low discounting” and spend more money on advertising to support strong brands, he claimed.
But cash would also be invested into new products and R&D, while a new nutrition advisory board would help “facilitate connections to new product ideas and technology platforms”.
Commenting on the Sustenex and Digestive Advantage probiotics brands recently acquired from Ganeden Bioetch, he said. “The plan is to increase advertising levels and investment behind these brands, which were a bit starved of investment before the acquisition.”
Total branded sales were up 7.8 percent to $37.7m in the quarter while private label sales were relatively flat at $14.3m compared with $14.2m in the same period last year, he said.
However, gross profit as a percentage of net sales was down due to depressed margins in the private label business.
Headquartered in Salt Lake City with a sales office in Bentonville and a sourcing office in Beijing Schiff’s stable of brands includes Move Free, MegaRed, Mega-D3, Tiger's Milk, Sustenex and Digestive Advantage.