KROGER BRANDS GAIN IN STRONG CATEGORIES

PAT NATSCHKE LENIUS

CINCINNATI -- A division president of Kroger Co. here said private label, including premium store brands, will continue to grow in importance for the nation's largest supermarket chain.

The executive, Robert Hodge, president of the Cincinnati/Dayton marketing area of Kroger, said the chain's own brand has made especially significant gains in the last four years in categories with strong national-brand influence, such as cold cereal and soft drinks.

Those gains are signs of things to come, he told a recent conference of the Promotion Marketing Association of America in Chicago.

"More customers will be willing to make the switch," Hodge said. "Private-label cereal items sell for $1 to $1.25 per box less than the national brands. Kroger salad dressing sells for about 90 cents less a jar than Miracle Whip. We have done a great job of selling private-label soda. It can rival Coke or Pepsi, and sells for about 30% less retail.

"We see private label growing even more," he added. "Today, these items are being demanded because of the value they represent. From Kroger's point of view and our competitors', this is great for store loyalty and great from a penny profit [perspective] vs. most national brands.

"In today's market, private label is a very key ingredient to our success. It builds customer loyalty and creates a price and value impression. Only a major philosophic change on the part of the national brands will slow the growth of private label. The '90s customer is very value-conscious. If we do not provide alternatives, someone else will," he said.

Hodge said that last year, combined sales of Kroger's private-label brands were equal to the combined sales in Kroger stores of Kraft, Coca-Cola, General Foods, General Mills, Kellogg, Frito-Lay and Pepsi.

"We actually have a larger share of market in these brands than our competitors do, with two exceptions," Hodge said. "We have been very aggressive in pursuing new leading edge products and staying in step with the national brands."

Hodge named several categories where private label's share has jumped considerably over the past four years.

"In 1990 Kroger brand salad dressing had a 5% share of market," he said. "Since then, it has been reformulated. In 1994 it has a 25% share of market. Private- label ready-to-eat cereal, which we buy [and not manufacture] had a 1% share of business in 1990. Today it represents 12% of ready-to-eat cereal. In 1990 our Nice 'n Cheesy, which is like Velveeta, had a 10% share of the category. In 1994 in my market it has a 40% share, and in other marketing areas it has as much as 50%," he said.

There has been "tremendous growth" in premium private-label products over the past several years, he added. This was a noteworthy comment, considering that Kroger's stance regarding premium store brands typically has been more conservative than several other leading chains'. Kroger offers premium private label in ice cream, fresh orange juice, coffee and bakery products.

"In some cases, when we have promoted higher-priced, higher-quality private label, we sell more units and generate more profits," Hodge said. A lot of customers have become willing to make the change from a national brand to a premium private label, he said.

Hodge said a large part of the chain's edge is its large manufacturing division. At Kroger stores, private label is a higher percentage of business than at most competitors because the chain produces high-quality products and targets the national brand. Millions of dollars have been spent on modern equipment and expanding or upgrading plants, he said.

"Our manufacturing division has shown a willingness to change products or delete items when they do not meet sales goals or customer desires," he said. "Our private-label business is heavily influenced by the amount of product we actually manufacture. We produce about three times the amount of private label [compared with what] we purchase on the outside."

He said the division is a big player in key grocery categories such as soft drinks, coffee, salad dressing, cheese, pet food, jelly and preserves, and also produces deli and bakery products, he said.

"We have the best measure of being a low-cost producer, because we sell a lot of product on the open market."