RETAIL VIEW: Store brands finding niche in produce department
- by Tim Linden | June 10, 2007
There is nothing new about the idea of a store brand or a private label, but experts say the concept has evolved significantly in the last decade, and now retailers use it largely to differentiate themselves from their competitors.
"Some of the best products in the supermarket are [packed as] private brands," said Bruce Knobeloch, vice president of marketing for River Ranch Fresh Foods in Salinas, CA, a leader in the production of private-label packaged salads. "The trend that we have seen, especially over the last three to four years, has been a movement toward developing premium private brands."
Mr. Knobeloch said that retailers are looking for high-end blends and ready-to-eat salads that can help a store distinguish itself from its competition. He said that for most of the major supermarket chains across the country, "their corporate brand department is top of the food chain."
So these retailers are looking for high-quality products that can be signature items for their chain. "They have food scientists developing products, and they are doing focus-group research to determine what works best for their customers," he said.
The River Ranch executive said that it is not at all uncommon for a retailer to work with a producer on an exclusive signature item. "And we will give that to them. It is all about creating a differentiated product." He said that for premium salads, these retailers are looking for "unique components that you might find in a restaurant."
Brian Sharan, president of the Private Label Manufacturers Association, said that differentiation has always been considered the top reason for initiating a private-label line. Every chain can sell the national brand, but only the individual chain can sell its own brand. Hence, this gives each supermarket chain the opportunity to differentiate itself from its competitors.
While PLMA does not get involved in issues surrounding the price of store-brand products vs. other brands, he said that the profitability of a private label has always been touted as one of its advantages. Presumably, a chainstore can make as much - or more - profit on its own brand of soup or toasted oats or cola as it can on the well-known and well-advertised national brands.
Mr. Sharan said anecdotally that this seems to be true, but he has no research to back up that theory. He agreed with Mr. Knobeloch, however, that the store-brand concept has evolved significantly in recent years.
Quality and innovation are two very important drivers behind the growth of store brands, said Mr. Sharan. It is a crowded field of venues and companies competing for their share of the food dollar. A retailer must often go beyond the ordinary to attract customers.
One of the ways they are doing that with produce items is with fresh, ready-to-eat salads. Interestingly, however, that increase in private-label sales may not be getting credited to the produce department.
Mr. Knobeloch indicated that when it comes to produce, scan data do not necessarily tell the whole story, so it is difficult to get a good picture. For example, in many chainstores those signature, store brand, ready-to-eat salads are being sold at and credited to the deli department, where some retailers routinely merchandise their meal-replacement lines.
The PLMA has just begun to include produce in the private-label retail numbers it analyzes on a regular basis. Dana Twining, who is director of public relations for the association, said that the addition of produce is not a comment on anything, noting that the association's previous data supplier simply didn't collect produce information. PLMA recently contracted with A.C. Nielsen, which is well known as an industry leader in supermarket scan data, and Nielsen does include produce numbers.
As a point of fact, Mr. Sharan said that very few PLMA members come from the produce arena. Nonetheless, the percentage of private-label sales in packaged produce is very comparable to private-label sales throughout the store. Mr. Twining said that recent data show total supermarket sales are $12.1 billion, with private-label items garnering 15.1 percent of sales. In the produce department, private-label accounts for 16.4 percent of packaged product sales. In units sold, private-label accounts for 15.3 percent in the produce department, but 21.3 percent throughout the rest of the store.
These numbers seem to corroborate Mr. Knobeloch's observations that within the produce department, the private-label is often used for premium product as dollar volume has a greater share than unit volume. And throughout the rest of the store, it appears that the more-traditional view of the store label being a more economical alternative is still true.
Intuitively, one might think that the food-safety crisis would have some retailers shying away from putting their name on a bag of spinach or leafy greens of any kind, but both Messrs. Knobeloch and Sharan independently disputed this notion. Both men said that food safety is, of course, very important to retailers for every item they sell. But they also said that it does not appear to be a factor when adding products to their store brand lineup.
Mr. Knobeloch said that like all of River Ranch's customers, retailers are very interested in the firm's food-safety programs, but it is simply not a determining factor in the private-label issue. "If they were overly concerned about that, they wouldn't put their name on any product," he said. Mr. Knobeloch said that there is very good growth potential for private label in the produce department. He indicated that while there are some chains with 20 or 30 private-label SKUs in the fresh-cut category, there is a significant number of chains with only a handful of private-label SKUs in the department.
Mr. Twining of PLMA said that the scan data for produce include only the fresh-cut category because that is where the overwhelming majority of private-label product is in the produce department. Although the produce department is dominated by unbranded commodities that many customers think of as store-branded product, those items do not fit the definition of private label.
Mr. Twining also shared the results of the latest PLMA study showing that private label is as popular as ever in the United States.
Nearly half of all consumers questioned in the study said that their regular shopping cart contains up to one-quarter store-brand items. A significant percentage of shoppers - 41 percent - now identify themselves as "frequent" buyers of store brands. This is an increase from five years ago when 36 percent described themselves that way, and a major change from 15 years ago when only 12 percent of consumers said they frequently bought store-branded products.
The study revealed that consumers at the highest and middle-income levels are significantly more likely to increase their purchases of private label in the upcoming year than those in the lowest income range.
More than 1,000 consumers across the United States were polled in the PLMA survey.