Article: Private Practice -- May 2009
May 1, 2009
Premium, organic and upscale may not necessarily be terms that would immediately come to mind when pondering private label, but those are the very areas where that segment has seen some of its largest gains. While these are not brand-new phenomena, they have joined with other trends to propel private label sales and consumer acceptance.
As Brian Sharoff, president of the Private Label Manufacturers Association (PLMA), explains, “The level of private label penetration is really a result of 5-10 years of evolution within the supermarket industry. It isn’t an overnight success. During those years, 15-20% of grocery shopping has shifted from the traditional supermarket to specialty food chains, like Whole Foods Market and Trader Joe’s. Then, as these retailers emerged, traditional supermarket chains had to adjust their offering to remain competitive in the consumer’s mind.”
Facing the competition from traditional supermarkets, Whole Foods has upped the ante, increasing its private label SKU count 11% year over year. The retailer offers 300 exclusive products. Now, word comes that the country’s largest retailer is increasing its focus on its own brands.
Wal-Mart is relaunching its Great Value brand with more than 80 new products and distinctive packaging. The new food items run the gamut, from organic cage-free eggs to frozen pizza to double-stuffed sandwich cookies. At the same time, the company has reformulated 750 products under the Great Value label, all part of the retailer’s awareness of private label’s value to consumers hit hard by the recession.
Wal-Mart is far from alone: Aldi is revamping its program, changing brand names and packaging to “communicate product attributes rather than just their category.” Target, likewise, is expanding its own brands; the company’s CEO, Gregg Steinhafel, says its private label penetration in consumables may climb into the upper 20s, from the current 20%. Steinhafel discussed the efforts during a recent conference call, explaining them as “an enhanced focus on frequency-driving strategies, which are centered on food, pharmacy and commodities; plus, a consolidation of our own brand portfolio to make a more powerful statement about these exclusive, high-quality and affordable assortments.”
Steinhafel continued, “[Focusing on food] is in recognition of its importance in driving greater frequency, increasing guest loyalty and making Target a preferred shopping destination. In recent years, we have expanded our selection and assortment to provide improved convenience and outstanding value, and in 2009, we plan to further enhance our assortment of dry, dairy and frozen and add perishable items in new and remodeled general merchandise stores.”
“There certainly has always been a perception that private label is imitative, because retailers for many years imitated what the national brand offered,” Sharoff explains. “So, it’s not surprising that consumers would get the impression that it’s imitative. In the last 5-10 years, Kroger, Costco, Safeway and others have no longer limited themselves to imitations or knockoffs of a brand. They are creating their own product in areas where there is no brand and have found consumer acceptance at the one place where it counts: the cash register.” Kroger’s store brand sales hit $12.5 billion in the fourth quarter, registering an all-time high of 35% unit market share for grocery. The retailer carries more than 14,400 private label products, and its Private Selection premium line sold in excess of $1 billion in 2008.
Premium is just one area where store brands are innovating. Recent health and wellness trends have likewise been a focus. Trader Joe’s 9 Whole Grain Crunch Cereal touts 560mg of omega-3, 8g of fiber, 10g protein and 15g whole grains, plus reduced sugar. It is kosher-certified and low in sodium, as is the chain’s Gluten-Free Granola Loaded Fruit and Nut, which also is dairy-free.
As in one of those Trader Joe’s products, omega-3 enhancement is also a prime selling point for Inter-American Products’ private label Active Lifestyle Penne Rigate Multigrain Pasta. The manufacturer notes, “Active Lifestyle helps a consumer nurture the relationship between diet and health by providing foods that are not only great-tasting, but scientifically proven to be better for him or her.” Each of the line’s products is fortified with specific wellness benefits to help lower cholesterol, support heart health (through ALA omega-3), boost immunity, assist with digestive health and serve as a good source of fiber. The Active Lifestyle line also includes Wholegrain High Fiber Bread, which claims to reduce cholesterol with plant sterols
What is in Store
Across the country, retailers have made sizable investments in their private label programs. The efforts are proving so massive and successful, they prompted Advertising Age in January to declare “packaged-goods brands face their greatest crisis and strongest threat from private label since at least the early 1990s.” The magazine found industry analysts expect “a structural slowdown in consumer spending that could last 4-10 years, which, combined with increasingly marketing-savvy and aggressive retailers, could conspire to push private label shares to a dizzying high--as much as six times the roughly one-point gain already seen since the recession began.”
Consumer research by the PLMA demonstrates just how much consumers can save, finding shoppers can trim about 30% off their grocery bill by purchasing store brands on weekly trips to the supermarket. Items such as cereal and ice cream garnered savings of over 30%, while dog food was 25% less expensive than competing brands. Of the 43 food and non-food items in the survey, 35 of the private label options saved the consumer more than 20%, and nearly a quarter of the products saved shoppers more than 40%.
Beyond cost savings, a number of consumers are turning to private label for other reasons. “Private label demonstrated how good it could be, once you started getting prepared foods portion-controlled and microwaveable,” Sharoff recalls. “When you start speaking in terms of meals that people are going to eat, that’s where private label demonstrates its value. You can be more reflective of what they want. It’s very tough to do in a Salisbury steak in a factory thousands of miles away. Prepared private label can be fresher in this area of prepared and microwaveable.”
While convenience stores may not currently be a prime location for private label finds, a number of recent launches exemplify Sharoff’s notions. 7-Eleven Inc. has introduced Asian Rollers, focaccia sandwiches and Go-Go Fajitas, while Valero has introduced fresh-baked pastries and muffins. Quick Chek, a c-store chain with about 100 units in the Northeast, has announced a revamp of its private label program to “include fresh new offerings that mesh well with customer demand.”
Sharoff explains the areas where private label manufacturers have been most innovative: “in the combination of ingredients and foods that it puts together in prepared meals, ethnic foods and a variety of foods which are restaurant quality. The key to private label innovation is the ability of retailers to provide a meal of restaurant quality, including ethnic assortment. That has been a major achievement. In terms of health and wellness, it’s wonderful that Safeway has been able to create the O brand, and several others have done wonderful things. In terms of its broadest reach, I would probably say the diversity of meals. Second would be that retailers with private label programs have done a better job of moving organic forward than would be the case if national brands were doing it.”
Safeway’s O Organics line has been one of the country’s largest efforts to bring organic offerings to the masses, and its pace of introductions shows no sign of slowing. A look at the Mintel Global New Products Database finds several notable O Organics launches in March 2009 alone: hot cocoa mix; heavy whipping cream featuring milk “sourced from dairy cows that enjoy a mix of outdoor exercise, clean water and a 100% organic diet;” honey sweet spread “free of synthetic pesticides;” and chicken nuggets (“fully cooked and breaded chicken breast patties...high in protein and with no trans fat or antibiotics”).
Sam’s Club likewise has opted to focus on the environment’s health, by introducing a “green” and sustainable Fair Trade-certified wine. Solombra Reserva, produced and bottled in Argentina and available in merlot or pinot grigio, is the chain’s second Fair Trade-certified wine and one of a handful to receive the status since 2008, it notes.
It IS the Economy
A worldwide economic downturn has played a role in shifting some consumers’ buying patterns. The notion of “trading down” might sound foreboding to certain areas of the food and beverage industry, particularly upscale foodservice, but for private label manufacturers, it will provide a boon--and may serve as an opportunity to redefine consumer behavior.
David Houser, managing director of Lincoln International, an international investment bank specializing in mergers and acquisitions, takes an investor’s level approach to looking at private label, but he could just as easily be talking about consumer perception. “Growth over the last five years has increased private label’s sophistication and a change in investors’ attitudes toward the private label business. There was a time when investors were heavily focused on brands. Now, a lot of private label companies might not have a brand, but they have characteristics that allow them to be special within the store-brand component. That is a part of the food industry that has enjoyed very good growth over the last five or 10 years, and all signs show that’s about to continue, particularly in this economy.”
Economic concerns have prompted notable changes in consumer buying patterns, but manufacturers may wonder if this is only a short-term gain for private label, one that will disappear with any economic uptick. Sharoff sees it as a permanent change. “The recession will accelerate private label share,” Sharoff foresees, “because that’s what recessions do. It [private label consumption] also will remain after the recession is over, because again, statistically, that’s what recessions do: shift people’s buying patterns, and then they don’t shift back.” pf
www.plma.com -- Private Label Manufacturers Association
www.mgmt.purdue.edu/centers/ijio/Accepted/2241.pdf -- Research on “Private Labels: Psychological Versioning of Typical Consumer Products”
Nutrition and Private Labels
One of the biggest stories in regard to private labels is retailers’ efforts to implement nutrition programs, such as NuVal, nutrition iQ, Guiding Stars and Healthy Ideas, to name just a few, says Kathie Canning, editor-in-chief of Private Label Buyer, Prepared Foods’ sister publication.
Although they involve the placement of on-shelf nutrition labeling for both national brands and private label, because they are retailer-based programs, they really help to showcase the stores’ own brands and their nutritional content, she adds.
“There is an expectation by consumers that retailers should address health concerns,” says Harriet Hentges, vice president, corporate responsibility and sustainability, Ahold USA. Ahold, which owns retailers such as Albert, Peapod, Giant and Stop & Shop, has initiated the Healthy Ideas labeling system. “A recent study by FMI shows consumers expect retailers to make things clear for them,” Hentges adds.
“The elements getting the most attention are those that are most top-of-mind with consumers right now, such as fiber, calcium, antioxidants, low fat, reduced salt, vitamin D and so on,” Canning says. Indeed, some products are as innovative as any of the national brands. For example, Safeway’s Eating Right Mocha Cappuccino Light Ice Cream Cups, introduced in late 2008, positioned as a premium dessert, also promotes its probiotics, omega-3s (DHA and EPA) and controlled calories.
Indeed, Mintel’s GNPD, which tags new product introductions under private label, notes that, when the search term “omega-3” is used, 51 new private label products appeared in 2005, which increased to 109 new launches in 2006 and 188 new private label products mentioning omega-3 in 2007 and 2008, respectively. Similarly, when using the search term “probiotics,” some 16 private label launches appear in 2007; this increased to 34 in 2008.
Whether retailer nutritional labeling systems will clarify or complicate consumers’ nutritional understandings is yet to be decided (see related story “Nutritional Labeling: Of Symbols and Seals,” on page 15 of this May 2009 issue). Private labels may not only be keeping up with national brand standards, but are also striving to stay one step ahead.
--Claudia D. O’Donnell, Chief Editor