There's more to private label than the label.
Store-brand products have enjoyed growing levels of consumer acceptance, in large part because retailers have matched that interest with renewed scrutiny of ingredients, product and packaging.
Making sure products meet certain specifications is no easy task, retailers told SN. Each item must adhere to a different set of criteria. Parmesan cheese, for example, needs to contain 32% butterfat in order to be considered Parmesan cheese, according to Craig Espelien, general director of store brands and strategic sourcing at Supervalu, Minneapolis. Various store-brand lines are also treated a bit differently, with value tiers and signature items undergoing differing levels of review.
Supermarkets have reason to be interested: They remain the channel of choice when shopping for store brands. According to statistics from market research firm Information Resources Inc., published by Mintel International, both based in Chicago, $15.6 billion of store-brand sales was generated by the supermarket channel in 2003. This is virtually all of the $15.8 billion for the year across all channels, excluding Wal-Mart (see chart on Page 52). It represented an increase of 5.9% in supermarket sales of store brands since 2001, as well as a market share of 99.1%.
Mass merchandisers were a distant second in the sales race, with $75 million in 2003, and drug stores raked in only $61 million in store-brand sales for the same year.
The overall specifications used to define a profitable store brand in today's world show how far the industry has come since the days of generics, and set the tone for a bright future. Retailers and vendors are playing for keeps, paying particularly close attention to product quality and packaging and keeping pace with industry trends to the best of their abilities, sources told SN.
"We're just not going to roll out an item for the sake of rolling out an item. It still has to meet all the tests and rules that go along with first brand," Phill Schneider, vice president of Center Store at Big Y, Springfield, Mass., told SN.
Inspired by the success of store brands in Europe, retailers in the United States have undertaken increasingly sophisticated private-label programs that have gained the trust of customers. Better ingredients, smarter packaging, and a reformulation of the price/value relationship have made "premium" products possible. Store brands today undergo more rigorous testing than the generation that preceded them. At both Western Family Foods, Portland, Ore., and Supervalu, blind taste tests are just part of the research and development process.
These tests pit the store brand head-to-head with the leading national brand in each category being evaluated. "Participants go to the testing area, and samples are labeled with a three-digit number. So they are testing sample 148 against 529, and that's all they know," Roy Besand, vice president of quality assurance at Western Family, told SN.
Attributes including taste, texture, aroma and appearance are evaluated. If the proposed product isn't up to snuff with the national brand leader, then that product and its manufacturer are dismissed. "Even if the supplier wants to give it to us for free, we're not going to take it unless it passes the test," Besand said.
While Supervalu's Espelien readily admits the private-label industry often operates under a "me-too" policy, following the national brands with product rollouts based on the same quality specifications, he said the consumer piece of the puzzle obtained through taste tests is invaluable to the store-brand's success.
"We do our best to either reverse-engineer a branded item, or we look at the consumer acceptance attributes and duplicate those," he said. "The spec tells us technically we are within spec, and the consumer piece tells us we have a product that customers can be happy with."
Supervalu then monitors consumer complaints and retailer audit pass rates. "Five years ago, we were at an 87% pass rate and at five complaints per $500,000 in sales. Today we're at a 97% pass rate and at 1.5 complaints per $500,000 in sales," Espelien said, noting that consumers today have more avenues by which to lodge complaints, including the Internet.
Schneider and his colleagues at Big Y work very closely with executives at Topco Associates, Skokie, Ill., Big Y's private-label cooperative, to make sure all products meet certain expectations.
"[Topco has] a terrific lab facility, and they have a site-approval process that is pretty quick and very accurate," Schneider said.
Maintaining these values over the long term involves teamwork from all parties involved, including the store-brand manufacturer, which often acts as the eyes and ears of the industry.
"Manufacturers do a very good job of keeping flavor profiles up. When brand standards change, the members will communicate that to Topco and we move on," Schneider said.
Consumers will rarely buy a product if the outside doesn't catch their eye, either graphically or structurally. So private-label packaging must be very specific. On this level, private label can come up short when compared to the national brands through no fault of the retailer. As usual, it all comes down to being a dollars game.
"We are kind of at the mercy of the vendors in many ways on packaging because if their equipment won't run an upside-down bottle of ketchup, then we won't have an upside-down bottle of ketchup," said Dave Hayden Sr., senior vice president of sales and marketing at Western Family. "Most private-label packers aren't as big, and they are going to wait to see how many branded things fail or are successful before they buy an expensive piece of equipment. So that's kind of why we're laggards, so to speak."
Yet as consumers' needs have changed, so have the shape and size of many shelf-stable goods. It's imperative that private-label packaging remain trendy, industry observers said.
"Anything that you can do to make a consumer's life easier -- whether that means a flip top rather than having to twist something off -- that might be the difference in someone buying store brand and not buying store brand," said Dr. Marla Commons, senior research analyst at Mintel International.
To that end, Western Family is working on an aseptic carton for soy milk to match that of the leading brands in the category.
"Physical structure is extremely important. You don't want to have a flimsy carton compared to a nice, big, solid, shiny national brand. You're going to lose that comparison every time with the consumer," said Western Family's Besand.
Color must remain consistent with trends in the marketplace, too. Big Y evaluates its private-label packaging every couple of years to keep it as vibrant as the other labels that shoppers will encounter when walking through Center Store aisles.
"The life of a label is about five to seven years and then they get old, or the colors change," Schneider said. "You have to protect your label and keep it as trendy as the manufacturers keep their labels."
Speaking of remaining trendy, what is a private-label supplier to do when something like the current low-carb craze threatens to change the pattern of consumer spending, even if only for a short period of time? Rather than compromise the integrity of a product by rolling it out too quickly, sources told SN private-label operators generally sit tight to assess the trend's long-term potential.
"Our goal is to come out 12 months after the brand," said Espelien of Supervalu, which supplies some 5,500 stores. "If you're a Kroger or an H. E. Butt, I think you jump on the front end of these trends and really lead them. We can't do that. If we do, then each region and each of our corporate retail entities has to commit to helping us out of any problems that might develop if the trend turns out to be a fad."
Western Family has decided to manipulate the low-carb craze to its advantage without risking monetary loss on the R&D process.
"We found about 400 current Western Family items that qualify to be eaten on a low-carb diet based on some of the parameters we've seen on what a low-carb diet is. We're going to highlight those with shelf-talkers," Hayden said.
"You don't really have to reinvent the wheel. You just have to let them know that you've got the right wheel out there," Besand added.
Private Label Crosses the Border
As with most segments of the food industry, the future of store brands promises to reflect more multicultural influences than ever before as the Hispanic population, in particular, continues to grow.
According to the report, "Store-Brand Foods, U.S." published by Chicago-based Mintel International Group, brand loyalty is a trait most seen in less acculturated Hispanics. However, as they become more ingrained in U.S. culture, "brand" loyalty tends to take on a whole new meaning.
"In general, [Hispanics] tend to be quite brand loyal. In the past, marketers have tended to assume that means brand loyal to a national brand like Kraft, but what we're seeing is that there's a disposition for brand loyalty, whether that means loyal to a national or to a store brand," Dr. Marla Commons, senior research analyst at Mintel, told SN. "With all of the U.S. Census Bureau data coming out now about the growth of the Hispanic market, they are [a demographic] that is going to need to be watched. In general, they are a highly important segment to pay attention to."
In fact, according to Census Bureau statistics, Hispanic households numbered 9.6 million in 2003. That number is expected to grow by 5.1% to 11.2 million by 2008.
Their propensity for eating meals at home combined with their need to stretch food dollars to accommodate large families also make Hispanics a prime ethnic target for a retailer's store brand.
Offering value-added services like bilingual packaging and sponsoring community events may boost store-brand loyalty -- and overall store loyalty -- among this demographic, the Mintel report suggests.
Retail Sales of Store-Brand Foods by Channel, 2001 and 2003
2001 $ million; 2001 %; 2003 $ million; 2003 %; Change 2001-2003 % Supermarkets: 14,751; 99.0; 15,621; 99.1; 5.9