‘Pre­ferred Se­lec­tion’ line draws suit from Kroger

Northwest Arkansas Democrat-Gazette - - MUTUAL FUNDS - ABHA BHATTARAI

Kroger, the coun­try’s largest su­per­mar­ket chain, is su­ing Euro­pean gro­cery gi­ant Lidl, al­leg­ing that its “Pre­ferred Se­lec­tion” in­house brand is too sim­i­lar to Kroger’s “Pri­vate Se­lec­tion” la­bel.

The law­suit, filed June 30, comes as U.S. su­per­mar­kets brace for in­creased com­pe­ti­tion from Ger­man dis­count chains Aldi and Lidl and shows just how im­por­tant pri­vate-la­bel brands, which were once con­sid­ered lower-qual­ity generic prod­ucts, have be­come to the bot­tom lines of su­per­mar­kets.

In the fil­ing, Kroger said Lidl is try­ing to ben­e­fit by “caus­ing con­fu­sion” between the two brands. It also al­leges that Lidl’s new in- house la­bel, which was reg­is­tered in Septem­ber, “di­lutes” Kroger’s store brand.

“Lidl has com­peted un­fairly and con­tin­ues to com­pete un­fairly with Kroger,” the law­suit states. “As a di­rect re­sult of Lidl’s wrong­ful con­duct, Kroger has suf­fered and will con­tinue to suf­fer ir­repara­ble in­jury, in­clud­ing, but not lim­ited to, in­jury to its trade­marks and to the good­will and busi­ness rep­u­ta­tion associated with those trade­marks.”

The law­suit was filed just two weeks af­ter Lidl de­buted its first stores in the United States. The com­pany, which has 10 stores in Vir­ginia, North Carolina and South Carolina, plans to open 100 lo­ca­tions along the East Coast by next sum­mer.

Pri­vate-la­bel brands have grown into a boom­ing busi­ness in the af­ter­math of the re­ces­sion, as shop­pers hunt for bar­gains and gro­cers look to beef up profit mar­gins by play­ing up their in- house la­bels.

“The re­ces­sion was the best thing to hap­pen to pri­vate- la­bel brands,” said Diana Shee­han, an an­a­lyst for mar­ket re­search firm Kan­tar Re­tail. “Shop­pers, whether they wanted to or not, started buy­ing pri­vate­la­bel to make ends meet. And they quickly re­al­ized that pri­vate-la­bel brands had come a long way since the 1980s.”

In-house brands such as Costco’s Kirk­land Sig­na­ture and Whole Foods Mar­kets’ 365 Every­day Value have be­come a valu­able way for com­pa­nies to cash in on con­sumer de­mand for lower-priced goods. Chains such as Trader Joe’s, where stores are al­most ex­clu­sively stocked with pri­vate la­bels, have also added to the ap­peal by of­fer­ing ex­clu­sive goods.

“You can’t buy Two Buck Chuck any­where else,” said su­per­mar­ket an­a­lyst David Liv­ingston, re­fer­ring to the nick­name for Trader Joe’s line of Charles Shaw wines, which at one time sold for $1.99 a bot­tle. “These chains take pri­vate- la­bel brands very se­ri­ously, and ev­ery year, it be­comes a big­ger part of their busi­ness.”

Last year, over­all in-house brands ac­counted for $120.5 bil­lion in U.S. sales, up 6 per­cent from 2013, ac­cord­ing to Kan­tar Re­tail.

Con­sumers were most likely to buy pri­vate- la­bel milk, over-the-counter drugs and bak­ing sup­plies, while they tended to stick to na­tional brands of pet food and hair care prod­ucts.

At Kroger, store brands in­clud­ing Pri­vate Se­lec­tion, which was in­tro­duced about 20 years ago, ac­count for more than $20 bil­lion in an­nual sales and in­clude a range of items, from herbs and pro­duce to smoked salmon and ar­ranged flow­ers.

Ac­cord­ing to the fil­ing, Kroger is seek­ing com­pen­sa­tion “in­clud­ing but not lim­ited to” all prof­its from Lidl’s Pre­ferred Se­lec­tion brand. Kroger, which has about 2,800 stores around the coun­try, last year had $115.3 bil­lion in sales.

A spokesman for Lidl said he could not com­ment on on­go­ing lit­i­ga­tion but em­pha­sized that the new brand was cre­ated in-house.

“We are very proud of our Pre­ferred Se­lec­tion range, which is a unique spe­cialty brand de­vel­oped by Lidl, and one that has been pos­i­tively ac­cepted by our cus­tomers,” Will Har­wood, a spokesman for Lidl, said in an email.

Lidl’s 10,000 stores around the world are stocked mostly with in-house prod­ucts, which the com­pany said are priced up to 50 per­cent lower than at ri­val stores.

Over­all, pri­vate- la­bel sales make up 25 to 30 per­cent of all su­per­mar­ket sales, a fig­ure that is ex­pected to rise in com­ing years, ac­cord­ing to Shee­han.

“With mil­len­ni­als, you have a whole gen­er­a­tion of shop­pers who have grown up with­out the stigma of pri­vate-la­bel brands,” she said. “You’re go­ing to see this be­come the core fo­cus of ev­ery sin­gle re­tailer in the U.S.”

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