SUPERVALU WIDENS PREMIUM LINE

RUSSELL REDMAN

MINNEAPOLIS -- Continuing its successful rollout of upscale private-label products, Supervalu here has expanded its Preferred Selection premium line with 39 new items.

Introduced by Preferred Products Inc., Supervalu's private-label subsidiary, the second offering of products includes tortilla chips, salsa, picante sauce, barbecue sauce, spring water, flavored iced teas, syrup, juices and cereal.

The company previously had no premium private-label presence in those product categories, according to Sara Reimers, communications specialist for Supervalu, which supplies more than 4,650 stores in 48 states. The new Preferred Selection items were made available to all company divisions in March, she said.

Priced 5% to 10% lower than national brands, the Preferred line was kicked off last September when Supervalu unveiled five soft drinks and three cookie varieties.

"When we introduced it last year, we announced we would roll out 150 items over two years. It [the second phase] is a natural evolution of that new offering," said Rita Simmer, a Supervalu spokeswoman.

So far, sales for Preferred Selection items have been "exceeding expectations considerably," Simmer said, explaining that the initial offering's success warranted the line's expansion. She declined to give sales figures.

Supervalu is among a growing number of food wholesalers and retailers that have launched premium private-label lines.

"It certainly is a trend," Reimers said. "Many major wholesalers and retailers are offering them. So it's growing."

Industrywide sales of upscale private-label products have been solid, and supermarket chains have advertised those goods heavily in print ads, store displays and signs, said Marty McDevitt, a securities analyst at Clearly Gull Reiland McDevitt & Collopy, Milwaukee.

"Most everybody is trying to push their own [upscale] private-label brands," he explained. "They're putting more emphasis on those lines. The big reason is the margin on those product lines is very good."

Margins on premium private-label items often are better than those on high-visibility national-brand goods, while both offer comparable quality, industry observers noted. Indeed, wholesalers and retailers are realizing that premium private-label brands "have more legs than they thought they had," according to Mark Husson, an analyst at J.P. Morgan Securities Inc., New York.

"They are concentrating on really developing the premium private labels into an alternative to national brands," Husson said. "Now that the quality [of private-label goods] has improved so much, it's appropriate to start attaching all the brand equity in your retail business to these products." A rise in disposable income and an improving economy probably wouldn't shake consumer allegiance to premium brands, he added.

However, grocery chains or independents with private-label items of lesser quality and limited selection are not likely to benefit from a premium brand, Husson noted. "If you're a nonpremium retailer trying to sell a premium product, you're going to have problems," he said. "The premium private brand supports an already strong [private-label] brand."