Japan's Aeon turns to store brands in tough times

TOKYO Tue Feb 24, 2009 10:44am GMT

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TOKYO Feb 24 (Reuters) - Japan's second-largest retailer, Aeon Co Ltd (8267.T), said it would introduce more store brands and cut the prices of existing ones at its supermarkets in the face of a retail slump, increasing competition for national brands.

Shoppers at Aeon and rival chains such as Seven & I (3382.T) are increasingly buying store brands that are typically 10-30 percent cheaper than national brands sold by noodle maker Nissin Foods (2897.T) and cleaning products firm Kao (4452.T).

The trend to store brands in Japan mirrors that in other countries, with U.S. retailers such as Walgreens Co (WAG.N) pitting their own products against national brands to win sales as a recession deepens. [ID:nN18467069]

Sales of Aeon's "Top Valu" private label products were likely to grow by more than 40 percent in the year ending this month, Kunihiko Hisaki, Aeon's chief merchandising officer, told reporters at a briefing on Tuesday.

That would lift sales of the products to around 371 billion yen ($3.9 billion) at Aeon, which has around 2,000 stores.

"Amid uncertainty, shoppers are keeping a very tight grip on their wallets," Hisaki said.

An analyst said the move was positive for Aeon as retailers were better able to defend margins on their own brands because they had more control over production costs.

"I think attracting customers with stronger price appeal is pretty much the only way to fight this economic situation," said Shun Tanaka, chief analyst at SMBC Friend Research Center.

Aeon said starting next month it would replace 1,700 store brand items with cheaper ones and add 500 new products.

Food items in the range would be an average 30-50 percent cheaper than national brands, it said.

Seven & I, Japan's biggest retailer, is reporting a similar boom in its private label brands. It expected sales of its private label items to more than double to 180 billion yen in the current business year, a spokesman said. ($1=94.59 Yen)