These are among the takeaways from the recently released 2009 edition of Willard Bishop's "Future of Food Retailing" report. Bishop executives Craig Rosenblum and Jim Hertel highlighted key trends from it during a recent Webinar sponsored by The Food Institute and Bishop and moderated by food retailing expert Michael Sansolo.

The big winners within the food retailing industry for at least the next few years will continue to be Walmart and others that are strategically focused on strong price/value positioning, reflecting consumers' strong shift toward trading down, Bishop concludes.

This value positioning is the reason that limited-assortment food retailers such as Trader Joe's and Save-A-Lot -- which offer store-label products at prices 40% below those of national brands sold at traditional supermarkets -- are the fastest-growing food format (14.3% growth last year).

Suppliers will be increasingly focused on the top 10 to 15 food retailers, which continue to increase their concentration of share. This will also mean mounting pressure on suppliers to invest with these retailers, Bishop points out.

To deliver value to consumers while continuing profitable growth, retailers will be more focused than ever on cutting costs, including "rationalizing" SKUs. That rationalization or strategic winnowing-down process, according to Bishop, will impact:

• categories that are not central to a given retailer's brand promise (for instance, frozen foods are not a key category for Walmart, which carries a limited assortment only for shopper convenience);

• brands in slow- or no-growth categories that lack true innovation; sizes, flavors or other line extensions that have not created incremental sales;

• and suppliers with "me too" products in one or two convenience categories.

At the same time, private-label products will continue to become more important not only as a means of delivering value to consumers, but by helping retailers differentiate themselves from competitors via exclusive product offerings. Moreover, many private-label SKUs are outperforming national brands on profitability, according to Bishop.

Walmart's focus on private-label, categories with growth, scale and credibility within its brand image, and products and brands within those categories that deliver outstanding ROI and unique value are leading to discontinuations not just of SKUs, but entire major brands and even whole supplier companies from the chain, said Rosenblum and Hertel. And as the largest food retailer by far, Walmart is, of course, the bellwether for the top tier.

To succeed in this changing environment, national brands must innovate in order to deliver uniqueness or superior performance over value-oriented competition, the report stresses. However, private labels thrive by emulating the successful products that have been created and nurtured at great expense by brands. Therefore, branded suppliers must also "identify ways they can leverage interest in private brands for mutual success" for their companies and their retail partners.

One big opportunity for branded suppliers lies in closer collaboration with retailers below the top tier. The two groups are well-matched: Many suppliers will need to replace sales lost to rationalization by top retailers and compete on non-price bases, while "next-tier" retailers will need to find non-price-based differentiators and enhance their shopping experiences to compete with the dominant national chains, the report points out.

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