RISING SHINE

KELLY GATES

Over the past few decades, grocers have worked hard to change the image of store brands as being cheap goods adorned with generic black-and-white labels by providing higher quality private-label goods. And, as a result, consumers have begun to associate store brands with fine-caliber products that are easy on their wallets.

According to the Private Label Manufacturers Association, New York, the focus on private-label gourmet foods in domestic supermarkets is the direct result of the abundant success witnessed by overseas grocers. The association reports that in France, Germany, Belgium and The Netherlands, retailers are aggressively introducing "regional" gourmet products to satisfy customers' diverse tastes.

In Great Britain, private-label market share in categories such as gourmet, teas, coffees, cheeses, confections, condiments, pasta and grains averages above 60%. And, with such a proven track record in European countries, it is estimated that by 2005, private-label gourmet market share will double in the United States, according to the PLMA.

Domestic grocers such as Kroger, Trader Joe's and Harris Teeter have been leaders in private label here, creating elaborate lines, including private-label gourmet brands, that have awarded them a significant consumer following in the upscale category. According to Scott Nejman, national sales manager for MSRF INC., a gourmet foods manufacturer based in Chicago, the timing couldn't be more perfect as U.S. consumers, like consumers overseas, are eager to indulge in such "culinary-advanced" products.

"The perception that consumers had of private labels even 10 years ago is very different than it is today, thanks to retailers who have worked hard to offer better-quality store brands in lower-tier categories and now in gourmet as well," said Nejman. "At the same time, consumers are also driving the gourmet category by showing more and more of an interest in unusual and upscale foods."

Nejman said consumers are spending more time at home where they're watching a host of increasingly popular gourmet-cooking shows and, consequently, cooking gourmet meals themselves. They're even decorating their kitchens with tastefully packaged gourmet foods like oil-infused chili peppers and fanciful spices that are as aesthetic as they are edible, he said.

Marilyn O'Connell, vice president of sales and marketing for gourmet food manufacturer Au Printemps Gourmet, Quebec, agreed with Nejman.

"People are certainly being more adventurous with their cuisine, but instead of sauteing garlic and adding it to oil, they want to simply buy a gourmet garlic oil that's convenient and affordable," said O'Connell. "Everything from infused oils and tapenades to jams, sauces and condiments lend themselves well to private-label gourmet, whereas extremely high-end foods like caviar wouldn't necessarily fit."

Chris Barhyte, vice president of sales and marketing for Haus Barhyte Inc., another gourmet manufacturer, based in Tualatin, Ore., noted a number of additional foods that are hot private-label gourmet items. "A lot of grocers are coming out with private-label marinades, salad dressings, pastas, dessert sauces, gourmet pickles, canned coffees and even coffee beans," he said.

Unique and complex gourmet-flavor combinations are very popular with today's consumers, said Kevin Butler, sales and marketing director for gourmet foods-maker Choice of Vermont, Whitingham, Vt. "Kroger, Spartan and Tree of Life have created top-quality Epicurean flavor combinations like apple cider honey mustard," said Butler. "The unusual combination of these private-label items enables them to differentiate themselves from their competitors and to compete with national brands that may not have the same flavors."

While grocers have a handle on which items fair well as private-label gourmet offerings, Barhyte said that no gourmet store brands will be successful without an all-encompassing, tiered approach to private labels.

"Many consumers expect quality from lower-scale products like private-label canned veggies, but with private-label gourmet foods, they expect them to be of similar quality or higher quality than national gourmet brands, which also entails more creative packaging and upscale presentations," said Barhyte.

"Those who create distinct tiers between their different levels of private-label categories and apply higher levels of quality to each tier will be successful."

Differentiating between basic private-label canned goods, upscale store-branded products and private-label gourmet also means having separate store-brand names for each, said Anne Kahn, managing partner for Kahn Research Group, a marketing research firm in Huntersville, N.C.

All can play in the private-label gourmet games, according to Nejman, who sid he he thinks the larger chains' quest to dominate the gourmet category will eventually be joined by smaller, regional and even independent grocers before it's all said and done.

"In the future, as printing and packaging technologies advance even further, even the smaller, niche retailers will be able to get into private labels, including gourmet items that consumers often choose first because of the way they look, then because of their taste," said Nejman. "But the quality will definitely have to be there, too, to keep them coming back."

Along with the inherent benefits of creating customer loyalty and differentiating themselves from competitors, private-label gourmet foods also enable grocers to more efficiently promote these items, said Kahn.

"It's harder for the manufacturers of bigger brands to do things like sampling programs and to even create a brand image in the first place," said Kahn. "Grocers already have their brand reputation that can be applied to their private labels, and to sample products they simply need to tear up a few pieces of their gourmet, private-label bread and open a tub of their own gourmet spread for shoppers to try."

Consolidating suppliers is another benefit to grocers who opt to offer private-label gourmet foods, said Kahn. "When grocers have their own brands, they inevitably use them to replace some of the national brands, eliminating both the competition and the need to interact with numerous suppliers," she said. "Once they find a quality gourmet supplier to manufacturer their private-labeled goods, they can get a variety of items from the single source instead of each item from a different company."

And, Patrick Turpin, managing director and head of the consumer products group for USBX Advisory Services, Santa Monica, Calif., said having a line of private-label goods is invaluable for competing in today's fierce market.

"With mass retailers and other large grocer chains competing so strongly against one another, grocers need to find ways to differentiate themselves," said Turpin, whose company specializes in analyzing the viability of supermarkets for grocers considering mergers and acquisitions. "One of the things we consider key to success in the grocery industry is the creation and operation of an extensive private-label line."

Turpin noted the success of Safeway's tiered, private-label program that includes gourmet foods such as artisan breads and cakes, various imported cheeses like blue cheese, feta and Gouda, as well as items like biscotti and gourmet tomalleys.

"Grocers in the U.S. are still experimenting with which products fit the private-label gourmet category and which products consumers won't buy into," said Turpin. "But as long as they find products that make sense, have a great quality compared to national brands and have lower prices, they should achieve success."