PRIVATE-LABEL CHEESE SPURRING DAIRY GROWTH

LAURA KLEPACKI

BALTIMORE -- Private-label cheese now represents more than a quarter of all supermarket packaged cheese sales and is credited with helping expand the overall cheese category.

"Private-brand cheese growth has bolstered total cheese growth," said William McNair, senior analyst for Nielsen North America, who spoke on the subject of private-label dairy products at the annual seminar and exposition of the International Dairy-Deli-Bakery Association held here earlier this month. "Private-label pounds grew at a compound annual growth rate of 6.5% over the past five years, while total cheese grew at a rate of 2.6% overall," he said. "It is a force to be reckoned with." Private-label natural cheese, especially in chunks and shredded, has expanded the most, followed by processed slices, cream cheese and grated cheese.

And, McNair said, the dairy case is "far and away" the leader in private-label sales share when comparing departments across the supermarket. "With 36% of dollar share going to store brands, dairy significantly beats the supermarket average of 14%. Frozen, with a 15% share, is a distant second," he said.

While private-label cheese represents 26% of cheese category sales, private label accounts for 64% of all egg sales and 58% of all milk sales.

Last year, said McNair, store-brand dairy sales outpaced overall dairy department growth, although that growth rate appears to be slowing. Private-label dollar sales grew 2% last year, compared with a 1% growth for the whole category.

He said cheese "was one of the key drivers behind dollar and unit growth of private brands in dairy. Cheese contributed 24% of total private-brand gains."

According to Nielsen, 98% of all U.S. households made at least one cheese purchase last year. Of those, 78% bought private-label cheese at least once. On average, private-label cheese buyers spend $2.46 on private-label cheese 6.6 times per year.

However, Nielsen data shows that most private label buyers were also buying branded cheeses. Even among households classified as heavy private-label cheese buyers, private-brand cheese accounted for less than half of their total cheese purchases.

"Only 20% of the cheese-buying households are only buying branded cheese," said McNair. "And only 2% are only buying private label."

With consumers buying both branded and private-label cheeses, it presents a "solid rationale for manufacturers and retailers to work as co-marketers to maximize [total] category turn and profit," said McNair. Whether a retailer would be harmed more by dropping a branded item or a private-label item, depends on the market, he said.

"It's really a category-management issue," said McNair. "A retailer will lose by not presenting an overall department that meets the needs and expectations of consumers in the marketing area."

In working with manufacturers, retailers should set reasonable pricing policies for their private brands of cheese, McNair said.

"Private-brand pricing should reflect what the retailer is doing across the chain to support the pricing image of the store," said McNair. "It should not reflect adversarial or predatory pricing against branded cheese."

In 1993 the average price for branded cheese at $3.31 per pound was 24% higher than the private label average of $2.50 a pound. Nielsen does not have data on retailer profit margins for private label vs. branded, said McNair.

He also advised retailers that heavily promoting private label may not optimize the category performance.

"Mutually plan your events that include branded and private label to create continuous interest in the category," he said.

Retailers should also distribute meal planning and nutrition information as a way to boost the category. "Displays and special coolers, along with point-of-sale [information] which centers on seasonal recipes or holiday meals can benefit the category."

He said private-label products can be used by retailers to simplify the category and emphasize choice.

"In the highly segmented cheese world, the manufacturer will almost always guide the way to new opportunities for private brand," said McNair.

The manufacturer's role in growing the category should include: price management, strong ad support, sharing data to assist in category management, product innovation, and better understanding of a retailer's positioning and strategy, and thus, how private label and branded labels fit in.

The two overriding concerns both sides should work on together are promoting the goodness of cheese and cutting costs out of the system by implementing Efficient Consumer Response strategies. ECR is an industry movement designed to streamline the distribution system and thus reduce costs.

Milking Sales

Private-label sales in '93 averaged 14% of total store sales. However, several private-label dairy products exceeded that average within their own categories.

Eggs 64%

Milk 58%

Cottage Cheese/Sour Cream 30%

Cheese 26%

Butter/Margarine 17%

Yogurt 14%

Dough 13%

Snacks 11%

Juice/Drinks 8%

The Whole Private Story

Last year the dairy department accounted for 36% of total store private-label sales. The frozen food category was second with 15%, followed by dry grocery with 11%.

Dairy 36%

Frozen 15%

Dry Grocery 11%

Prepackaged Meats 10%

Nonfood 7%

HBC 6%

Prepackaged Deli 3%