PERISHABLES 2002

ROSEANNE HARPER

Retailers are finding that their fresh departments provide fertile ground for growing an upscale image -- and sales -- with private-label products.

While private label in perishables may have begun with white milk sold at a loss-leader price, private-label products are now a growing category in all the fresh departments, and the key is quality, retailers told SN. Therefore, the products are grown or made, and sometimes packaged, to the retailer's specifications.

Shaw's Supermarkets, West Bridgewater, Mass., epitomizes what a growing number of supermarket operators are aspiring to. Most of its perimeter departments have a product mix that's more than half made up of Shaw's own brand products.

"Bear in mind that across the store, only 23% to 24% of [stockkeeping units] are private label, but they generate 40% of total store sales, and of that 40% [of sales], perishables make up 20%," said Bernie Rogan, spokesman for the 187-unit Shaw's, which has stores in all six New England states.

"Our mantra is 'Our brand is as good as the national brand or better, and it costs 10% less' and it's clearly working," Rogan said.

While Shaw's works both quality and price into its private-label marketing strategy, other supermarkets don't necessarily put the pointer on price. They beckon customers, as Shaw's does, too, with quality.

"At Dierbergs, quality is absolutely the key," said Bernie Moran, seafood buyer at the St. Louis-based chain, as he explained the private-label marketing strategy.

And industry sources pointed to the fact that retailers across the country are increasingly busy connecting top quality with their name to make themselves stand out in the marketplace.

"Supermarkets are beginning to understand the value of marketing a superior product under their name," said Stephan Kouzomis, president, The Meal Market Solutions Group, a division of Entrepreneurial Consulting, Louisville, Ky.

Taking private label into perishables also takes the store's image up a notch, and may attract customers who would have previously gone to a specialty store or a farmer's market. Retail price is no longer the magnet, Kouzomis said.

"If you had told me five or six years ago that this would have happened, I wouldn't have believed it, because retailers weren't predisposed to spend the money on marketing to make people aware of a product's superiority. They just talked about price, but now you see more of them emphasizing the quality their name implies. Ukrop's and Wegmans and Publix have been doing it for years."

Kowalski's Markets is a case in point. After purchasing three additional stores from a local independent last spring, Kowalski's has seen total sales at one of those stores soar when they put the Kowalski's name on the store, said Bob Kowalski, the upscale chain's vice president of corporate communications.

"Sales are up 35% to 40% [year-to-date], and it's just because of our name on the store. We haven't even finished remodeling it."

Kowalski's continues to bolster its collection of private-label, perishable products. The latest, added just this year, is a premium line of meat supplied by a regional packer. Sometimes, retailers must go far afield to find a vendor that meets their qualifications. Shaw's, for instance, went to Thailand for its Shaw's brand scallops, a farmed product.

Shaw's contracts with a large number of growers and manufacturers to create products to its specifications, then inspects them upon receipt at the chain's perishables warehouse. Shaw's has no production facilities of its own.

Ukrop's, on the other hand, owns some production facilities, including a central bakery in Richmond, Va., meat-processing plants in the West, and shrimp ponds in the Honduras. But the company also contracts with processors for some of its products.

However they're sourcing the products, retailers are seeking quality, recent research shows. For consumers, quest for convenience has even been a factor.

At Dierbergs, for instance, the idea of private-label shrimp arose because associates were overwhelmed at particular times of the year -- like the holiday season -- with customers lining up at the service counter to buy shrimp and have it steamed.

"Customers know it's top quality and that we'd steam it for them, but the lines were so long [that] we were losing customers who didn't want to wait. We found that merchandising bagged IQF shrimp self-service with our name on it solved the problem.," Dierbergs' Moran said.

"When we started working with this supplier, too, we found we can have them packed in 12-ounce bags. Customers like that size."

The important thing is that the bagged shrimp -- in two sizes, raw and cooked -- carries Dierbergs' name, Moran said.

"It connects that product with the one in the service case, which they already know is top quality and they are, in fact, the same product," Moran added.

Even on the West Coast where -- except for the large chains -- private label in perishables isn't so big, Mollie Stone's Markets is making a connection between a made-to-order sandwich program and a limited selection of prepacked sandwiches it just launched in the grab-and-go case. The prepacked items are sealed with a colorful sticker that says "Mollie Stone's."

"When customers see our name on those sandwiches, they know they're the same as the ones we make at the service counter. We didn't want them to think we're bringing them in from somewhere else," said David Bennett, one of the co-owners of the Mill Valley, Calif.-based retailer.

While the private-label product mix is growing, retailers are not doing such a hot job of marketing or merchandising the items, industry sources said.

"When you have a brand, you can take advantage of co-branding. And there are areas they haven't used for marketing, such as their Web sites. They're using them as an alternate reference source, but I don't see much marketing there," said Bill Pizzico, president, Prizm Group, a Blue Bell, Pa., consulting firm.

Pizzico said he sees big potential for store-branded perishables, especially in the produce and meat departments, because the emphasis in the market today is on the center-of-the-plate.

As for milk, that subcategory is really neglected, said another consultant.

"Private-label milk is big, big business in the supermarket. More than half of milk sales -- 67.2% -- is private label, and it commands a high-gross margin. Nearly everyone buys it, and it has a great image itself. If retailers aren't using private-label milk to project a quality, upscale image for their store, they're making a big mistake," said Jerry Dryer, dairy and food market analyst, Chicago.