RETAILERS FEEL 'PRIVILEGED' TO MARKET THEIR OWN BEER

Barbara Murray

CHICAGO -- Privileged-label, or corporate-brand beer, as they call it, is the latest wave in retailers' own brand products, up 10.9% in dollar sales for the year ended Dec. 29, 2002, and totaling $4.5 million in a total category (beer, ale, alcoholic cider) that brings in $7.4 billion in the supermarket channel, according to figures from Information Resources Inc. here. Corporate-brand beer represents only 0.1% of the market, but it's a huge market.

Unit volume sales were also sturdy: up 11% to 271,245 units, which are expressed in 288-ounce equivalents.

Although it's growing fast, and although beer in general is about twice the size of the overall wine category in supermarkets, the corporate-brand beer segment lags behind wine, which had sales of $16.7 million last year, nearly four times the own-label beer sales.

To tap the great potential, major retailers such as Kroger, Albertsons and Safeway have put together own-brand beer programs. Some of them are imports, like Kroger's Cajuma, which has been out a year or two and which is positioned against Corona.

A much smaller chain, D'Agostino Supermarkets, Larchmont, N.Y., was one of the first to launch its own label beer, in 1989, when it rolled out D'Agostino Fresh Pub Beer, an unpasteurized brew that had to be kept cold. In that year, the beer won a silver medal at the Great American Beer Tasting, said Mary Moore, spokeswoman. It has gone through several permutations since, and is now pasteurized and brewed by the Lion Brewery, Wilkes-Barre, Pa.

A light beer was introduced just two months ago. The $5.99 price per six pack of both the light and the regular lager was due to go up to $6.29 on Feb. 19, Moore said. The new price is in line with, or a little lower than, the imports, against which it is positioned. It is now called D'Ag Select.

Privileged-label beer has evolved in the past 10 to 15 years, said Greg Skaggs, president of GK Skaggs, Irvine, Calif., an importer who developed the Cajuma brand and another Kroger brand, Hollande 1620, which is similar to Heineken.

The industry has come a long way since No Frills beer in black and white cans, which some retailers carried in their then-dubbed generic aisles, or, as Skaggs recalled, the Ralphs banner in Southern California had a generic can that just said Beer on the label, probably in the 1980s.

Cajuama (pronounced ka wam a) means sea turtle in Mexican Spanish. The beer is like a Mexican lager and has a taste profile that is similar to a Corona or another beer from Mexico, Skaggs said. It is brewed and bottled in El Salvador, by Cerveceria La Constancia, S.A., in San Salvador.

Brewers, packers or importers who work with the retailers collaborate not only on the flavor profile, but on the design of the package, to give the product the look and feel of a national brand, to get people to pick it up and try it, and then to over-deliver on product, so consumers will come back for more.

Hollande 1620, which is a reference to the year the Bavaria brewery in Holland was established, launched last April, is distributed across the country and is doing very well, according to Skaggs.

He described its taste profile as "between a Heineken and a German lager. All the consumer and retailer feedback is that they really like it," he told SN.

A spot poll among the brewers found that the retail price of a six-pack can range from $4.99 on special to $7.99, with $5.99 as the average. Since a national brand like Coor's can be priced at $7.99 for a 12-pack, this is kind of expensive, reflecting the up-market move that many private brands have taken in recent years.

GK Skaggs also has created beer brands for Harris Teeter and Trader Joe's, getting into the privileged-label business when Paramount Studios asked the company to make them a Romulan Ale.

"It was so much fun we wanted to do another such project, so we began talking to retailers around the country," Skaggs said. "We found there was quite an interest in developing a beer brand that had the look and feel of something authentic. We began talking to Albertsons and Harris Teeter and some other chains around the country. We owe it all to Star Trek. Other than that, we just import beer."

The Gluek Brewing Co., Cold Spring, Minn., brews beers for Safeway, Kroger and Albertsons.

Dave Pergel, vice president, explained why you can't use the term private label to refer to beer.

"In beverage alcohol, the retailer can't own the name, under federal law," he said, in a twist that dates back to passage of the country's 21st Amendment to the U.S. Constitution, which repealed prohibition.

To get the states to ratify it, the amendment gave the states taxing authority and regulating authority. Out of fear of mob connections, "the basic premise was they didn't want brewers to own retailers, so they made it in principle that a brewer and a retailer can't own each other. Hence, a retailer can't own a label because he then becomes the brewer," Pergel explained.

His company makes three types: craft brew such as a pale ale, a red or amber beer, and varieties that could include honey wheat, or honey golden light, black and tans, or a vanilla cream stout, as it makes for one chain; a regular canned beer, like a Budweiser, in light and a higher alcohol ice and also a non-alcoholic brew; and a Dutch style beer imported from Holland, for Safeway, called Eureka!

Also for Safeway they make a canned beer called Cedar Mountain, and a Holland beer called Eindhoven. "They do very well with it," said Pergel. It's in three Safeway divisions now -- Southern California, Arizona and northern Virginia, he said, and will be expanding it to other divisions this spring.

Gluek also makes Kroger's above-premium beer, called Lawson Creek, and a canned beer, Josef Hofbauer. It makes Albertsons' above-premium beer, Hidden River, also, as well as Brumen, their Dutch beer, and Rebenbach, a light pilsner in a can.

Pergel's viewpoint is that in an industry controlled by Anheuser-Busch as the giant, followed in clout by Miller and Coors and different regionals and different categories, and because of the consolidation among distributors, the retailer is left with fewer choices.

"A person isn't going to buy Safeway brand beer or Kroger beer. So what you do is create a graphic appeal, and you over-deliver on product. You make sure your product can cut it," Pergel said.

"The consumer feels they are getting a branded product, which doesn't have to be nationally advertised to be a brand," he said, noting that per capita consumption of beer is the second largest category for beverages in the U.S., at 40-some gallons per capita.

Retailers are just learning how to go to market with these brands, he said, and success varies by region and division. "But if they position it properly and display it on a regular basis, our brands perform exceptionally well."

Like Skaggs, Pergel says "it's been fun to do this, because it's something new."