CHICAGO -- Crafty supermarket operators can use premium private labels as a tool in their arsenals to win back sales lost to other retailers, according to private-label industry officials.
Industry executives expect sales of premium private labels to grow for the next five to 10 years. However, they warn that to succeed with their premium private labels, supermarkets must ensure that their programs consist of unique products or items with a distinct benefit over existing mainstream private-label and national-brand products. Otherwise, sales of the existing product mix will be cannibalized.
"Premium private label can help retailers build store loyalty to defend themselves against Wal-Mart," said John Ryder, president of Cannondale Associates, which has headquarters in Wilton, Conn., and Evanston, Ill. Retailers are getting less manufacturer trade support than they have in the past, Ryder said. "That is working to drive down brand equity and open the door for premium private label. Retailers are looking to improve their margins, and premium private label can help them do that."
Ryder and other industry executives and consultants spoke last month here at a conference sponsored by International Business Communications, Southborough, Mass. In the two-day series of seminars, premium private label's benefits and shortcomings were examined, as were essentials for success in that arena.
An upscale private label must project an image of quality, said Craig Espelien, marketing director at Cal Growers Corp., a Woodridge, Ill.-based private-label manufacturer that helped develop the Preferred Selection premium label for Supervalu, Minneapolis. Advertising, promotion, in-store sampling and demonstrations are a key to initiating trial and repeat sales, he noted.
"You need to say 'premium' to every customer through the use of merchandising techniques," Espelien explained. "If you do it cheap, it is going to come across as cheap. You have to think about how the national brands communicate their products to the consumer."
Price also reflects quality, he added. "If your prices are too low, you will produce a cheap image and your premium private label will not be seen as a brand. It is important for retailers to treat your unique products as brands."
Tom Stephens, president of Brand Strategy Consultants, North York, Ontario, contends that retailers can efficiently market only two tiers of private-label products. A former vice president of President's Choice International, a division of Loblaw Cos., Toronto, Stephens said retailers must choose the marketable features of the products carefully and promote the most sensible aspects.
"There is no point in trying to go up against Procter & Gamble, because you are not going to win," he said. "There are certain technologies and manufacturing areas where you can't crack the nut. Don't attack the strong and don't attack the nonexistent or the weak, because they aren't good categories to begin with."
A first-rate premium private label can entice consumers to permanently switch their buying habits from national brands, Stephens said. "Consumers can permanently switch loyalty. We've all seen the huge explosion of Cott's program across North America. But if the gap [separating Cott, Coke and Pepsi] is narrowed, Cott will be gone. If the gap is closed, the raison d'etre for the product evaporates."
Cannondale's Ryder said retailers must scrutinize which categories to enter with premium private labels.
"Categories with very heavy advertising pose a natural barrier to private-label penetration. You might want to think twice before you enter those categories with a premium private label. You should be cautious about entering categories with a very heavy child involvement," he said, explaining that children are heavily influenced by name-brand advertising.
In general, however, consumer perception of private-label products has improved, offering retailers a way to boost profitability, said Burt Flickinger III, president of Flickinger Consulting, New York.
"The growth in private label is not linked to the recession but to a higher level of education and a higher level of awareness and a greater sense of quality and value associated with private label. Two of three consumers believe that the quality of store brands now equals national brands," he said.
A properly instituted premium private-label program will help the retailer realize higher profit margins, according to Philip Fitzell, publisher of Exclusive Brands Publications, New York, which publishes the Exclusive Brands Sourcebook, a global reference for the private-label industry.
"Everybody in the private industry should realize what a powerful tool they now own in the form of premium private label. They should also understand how to capitalize on this potential profit center," he explained. "Premium private labels are gradually changing the complexion of the grocery retail trade and are injecting new life and excitement into this business."
A licensed premium private-label program allows a retailer to differentiate itself, Fitzell said. "It allows the retailer to enter difficult private-label categories like cosmetics, healthy and nutritious foods, and gourmet foods. It gives the retailer leverage in new departments to help compete against specialty retailers."
Premium private labels show the best success with upscale retailers, according to Andrew J. Brown, senior vice president of Total Research Corp., Princeton, N.J. "If the store is high-quality, then consumers think its private-label brands will be high-quality, too. Store quality is more important to the consumers than the brand quality," he said.
Stephen D'Agostino, an industry consultant and former vice president of sales and merchandising at D'Agostino Supermarkets, Larchmont, N.Y., said his chain began stocking President's Choice products several years ago after visiting Europe and seeing the extensive in-house, premium private-label programs in the chains there.
"President's Choice was a package that was perfect for us because we had limited experience and knowledge in private label, and President's Choice brought us to the top very quickly. It was a good marriage for us because D'Ag's is thought of as a good quality supermarket in New York City," D'Agostino explained.
"Because of our trip to Europe, the first product we brought out was a D'Agostino-label European pub-style beer that gave us something to brag about in New York."
Several speakers said they expect the level of premium private label to keep growing, especially as European retailers continue to snatch up U.S. chains and implement their management and merchandising styles.
Last month Ahold USA, Parsippany, N.J., a division of Ahold, Zaandam, the Netherlands, announced its intention to acquire Mayfair Super Markets, Elizabeth, N.J. Ahold already owns the U.S. chains Giant Food Stores, Bi-Lo, Tops Markets, Finast and Edwards Super Food Stores.
"European retailers realize that they no longer have to be a contributive follower. Twenty-seven percent of all the supermarket doors in the U.S. are owned by foreign companies," said Leon Galitzin, senior vice president of strategic business development at Confab, a Baltimore-based manufacturer of private-label incontinence and feminine hygiene products.
"There is going to be even more consolidation in the U.S., the same way there has been in Canada with the major retailers and the same way there has been with most of the European countries. And they are going to bring key international control disciplines to the U.S.," Flickinger said.
Stephens of Brand Strategy Consultants also said the move toward premium private label would continue, but the future is in store-name brands. "My prediction is that President's Choice will not be a brand in the United States in five years' time. My belief is that store branding is what it is all about, and I think that any retailer who really is going to make this work will go this route."
IRI tracks premium private label in 37 supermarket categories in national and major regional chains. For the 52 weeks ended Feb. 26, total premium private-label dollar sales rose 21%. Other private labels increased 2.65%, and national brands were up 4.92%.
The top six premium private-label categories are carbonated beverages, cookies, bottled juice, cold cereal, cat food and dog food, Kubat said.
