Whether they're distributed through non-competitive retailers, used as a vehicle to promote philanthropic endeavors or co-branded with national brands, private-label products are behaving more like their national-brand counterparts. Industry observers note that retailers' desire to boost their company brands in an increasingly competitive marketplace is inciting the trend.
“They are no longer content to just put their name on the product and say ‘I'm the retailer, here is my product and why don't you buy it,’” said Brian Sharoff, president of the New York-based Private Label Manufacturers Association. “They're looking for more creative ways to merchandise their brand. All retailers are creating high-quality products, so they have to find yet another way to differentiate themselves.”
As part of an effort to increase brand awareness while leveraging greater economies of scale, Boulder, Colo.-based Wild Oats Markets established partnerships for the distribution of its natural and organic private-label line with Price Chopper Supermarkets, Pathmark Stores and Stop & Shop. The 110-store chain penned similar deals with online outlets Amazon.com and Stop & Shop/Giant Foods' online shopping and delivery service, Peapod.com.
“The No. 1 request we get from people is that they want us to put a Wild Oats store in their neighborhood,” said Gregory Mays, chairman and chief executive officer of Wild Oats, in a statement. “This is the perfect way for us to reach more people who want high-quality natural and organic foods with our Wild Oats-branded products more quickly than if we were to open new stores.”
Although Austin, Texas-based Whole Foods and the smaller natural and organics retailer have agreed to merge, Wild Oats plans to “move forward” with its private-label distribution deals, its spokeswoman Krista Coleman told SN.
In fact, Schenectady, N.Y.-based Price Chopper, which initially estimated it would carry 300 new Wild Oats products, announced last week that its selection will include close to 450 Wild Oats items. The 115-store chain is the largest independent distributor of the natural and organic line. Carteret, N.J.-based Pathmark carries more than 200 Wild Oats items.
“We've been incorporating these [Wild Oats] items in our stores ever since we announced that we'd carry them last year, and we have so many stores that it's taken us the better part of the last three months to change our category sets to accommodate the tremendous variety,” said Mona Golub, Price Chopper's spokeswoman. “More customers have noticed and purchased these products than either Wild Oats or Price Chopper expected.”
Wild Oats food items, including natural Italian sodas, canned organic black beans, gluten-free chocolate chip mini cookies, organic raspberry vinaigrette dressing and organic whole wheat spaghetti, can be found in Price Chopper and Pathmark stores and on Amazon.com. Quincy, Mass.-based Stop & Shop established store-within-a-store Wild Oats departments in two of its locations, but has since discontinued the sections and ended its relationship with Wild Oats, according to Stop & Shop spokesman Rob Keane. He could not elaborate.
For retail partners whose stores aren't concentrated in the same geographic regions, arrangements like these can be mutually beneficial, noted Frank Dell, president and chief executive officer of Stamford, Conn.-based DellMart & Co.
“By engaging in these partnerships, Wild Oats has increased its volume power,” he said. “If you have a slow-moving item, but you need to buy a truckload of it, putting it in more stores will allow it to turn more frequently.”
Wild Oats products are good candidates for this type of arrangement, noted Dell, because they fill a void not yet occupied by a major national brand.
“Traditional supermarkets have sat back and said, ‘Gee, look at the success of Whole Foods and Wild Oats, they have confirmed that there is demand for organic and natural foods,’” he said. “We've not had the creation of a major natural/organic brand because most suppliers that occupy the space are small. This gives them an opportunity to get into the space, do it with a store brand that brings a greater margin, and since it's natural/organic, they can charge more for it. The alternative is for these retailers to create there own natural/organic private-label brands.”
Price Chopper's situation is somewhat unique in that it merchandises Wild Oats products alongside other natural and organic items, some of which belong to its Price Chopper Naturals private-label line. The retailer also carries an extensive selection of items from Kashi, Organic Valley, Imagine, Amy's, Stoneyfield Farms, Tom's of Maine and Burt's Bees.
“There is some category overlap between the Price Chopper Naturals and Wild Oats products, but we don't have concerns about competitive issues,” said Golub. “We're talking about pre-existing Price Chopper Naturals items that are actually selling more at this point than the Wild Oats products, so our customers are enjoying them.”
Price Chopper engaged in another somewhat unique private-label merchandising strategy when it began co-branding two varieties of Price Chopper/Newman's Own brand cereal in January. The products are unique in that all of the profits resulting from their sales are donated to charity. Fifteen-ounce boxes of blueberry pecan cluster and cranberry macadamia nut varieties sell for $3.49 each, or $2.99 on promotion.
“Customer feedback has been outstanding,” said Golub. “We've heard that they like the taste, they like that these products are all-natural, and they appreciate the charitable connection to the Double ‘H’ Hole in the Woods Camps.”
The retailer gives equal portions of its proceeds to the Double “H” Hole in the Woods Ranch in Lake Luzerne, N.Y., and the Hole in the Wall Gang Camp in Ashford, Conn. Neil Golub, Price Chopper's chairman, was involved in the Hole in the Wall Gang Camp, which actor Paul Newman founded, prior to the partnership.
The program is advantageous for Westport, Conn.-based Newman's Own, which donates all after-tax profits to charity, because it helps increase brand exposure, noted Mark Tilley, the brand's director of sales.
“They give us an opportunity to play in categories that we might otherwise hesitate to jump into due to the high cost of entry and the tough competitive environment,” he said.
The original Newman's Own co-branding concept was developed by Costco's senior management as a way to increase donations for, and awareness of, the Children's Miracle Network Hospitals, a nonprofit alliance of hospitals for children. The charity was one that the Issaquah, Wash.-based wholesale club operator had been supporting for years, noted Tilley.
“In 2002 Costco management committed to co-branding with us a twin pack of 96-ounce grape juice,” he said. “All of the profit from the sale of this product goes to various CMN hospitals throughout the country. In 2004, Costco wanted to help bring awareness to the family of Hole in the Wall Camps, and two 34-ounce cereal products were added to the co-branding program.”
The two varieties of cereal are the same flavors offered in the 15-ounce packages in Price Chopper stores. Expansion of the program to additional cereal varieties will depend on the popularity of the products at Price Chopper.
“Sales thus far have been very good,” said Tilley. “We might begin development of a new [flavor of] cereal for introduction in 2008 or 2009.”
As part of its effort to tap into the underserved healthy kids market, Cincinnati-based Kroger Co. teamed up with kid-friendly Disney Consumer Products last year to co-brand more than 100 children's food, beverage and personal care products. The line has since been expanded to 140 items, including pet products, according to Kroger spokeswoman Meghan Glynn.
Products range from kid-sized granola bars, fruit cups and applesauce to macaroni and cheese, cereal and Mickey Mouse-shaped hamburger patties. The packaging features characters from Disney movies such as “The Lion King,” “The Incredibles” and “Monsters, Inc.,” as well as games, mazes and activities that help kids learn about healthy eating, according to Kroger.
The line's healthier items can be identified by a “Mickey's Thumbs Up” icon and information about relevant nutritional attributes.
“The Disney name stands for something wholesome that has quality,” said Dell. “Everyone has a [Mickey Mouse] set of ears and a T-shirt.”
In addition to choosing its partner wisely, Kroger seems to have made a good decision in catering to the needs of this particular market segment.
Healthy kids products present a $20 billion incremental sales opportunity, noted Scott Klein, president and CEO, Information Resources Inc., Chicago.
When it comes to private-label products, growth potential is key, said Dell. “Anything you can do to position your private-label products as a step above the competition has value, but does it have long-term value?” he asked. “Retailers sometimes create and re-create and they're all excited, and in two years it kind of dies on the vine, and when your products are too limited, I worry about where you can go with them.”
Natick, Mass.-based BJ's Wholesale Club announced earlier this month that it was evaluating its private-label program so that it could eliminate unnecessary SKUs. “We went too much too fast into private label,” said BJ's president and CEO, Herb Zarkin, during a conference call discussing results for the fourth quarter and the year that ended Feb. 3. “We're going back and rechecking all the items — are they really the items we want to be in, are they the right quality, the right brand?”