PRIVATE LABEL POWER

Amanda Chater

Retailers need to put the fizz back into private-label soda.

For the first year since 1998, this category's share of market is expected to decline slightly, according to Gary Hemphill, managing director of Beverage Marketing Corp. in New York. In 2004, private-label soda held a 7.4% unit share of the carbonated beverage market, up from 4.8% in 1998.

Store-brand soda is suffering because national brands have cut their prices, narrowing the gap with private-label product, he said. That's bad news for private-label brands, which have always relied on the wide price gap with national brands as a selling point.

Soda is the fifth-biggest private-label stockkeeping unit, excluding eggs, milk and butter, according to ACNielsen. Regular cola, in a 12-pack of 12-ounce cans, represented $82 million in grocery stores in 2004.

But retailers are not keen to grow market share by lowering prices.

"I think [declining sales] is a marketing issue," said Jay Voigt, an assistant store manager for Russ's Market, an eight-store chain in Lincoln, Neb. "I'll leave my prices where they're at, because they're about as low as they can get, and we run the same margins on all of our products."

West Point Market, an independent in Akron, Ohio, won't reduce its store brand's prices, either. "We don't think that would be a good idea, because once you discount your private label, you discount your brand, and people won't buy it again until it's on special," said Rick Vernon, chief executive officer.

Individual retailers are betting on a combination of price, merchandising, packaging and promotion tactics to grow store-brand soda sales.

K-VA-T Food Stores in Abingdon, Va., said having a two-tier approach helps it appeal to different constituencies. It carries Valu Time, an economy tier, and Food Club, a national brand-comparison label. The chain is planning to add a third tier, Food City Premium, which will retail at a higher price point but still be cheaper than the national brands, said Rick Kelly, category manager of beverages and salty snacks.

Wild Oats Natural Marketplace in Boulder, Colo., also offers two levels of private-label soda, both under its Wild Oats Natural brand. It has six varieties of natural sodas in a can, including ginger ale and lemon-lime. It also sells Italian soda, which is sold in one-liter bottles and comes in flavors like orange-tangerine, mango and pink grapefruit.

"Soda in a can is a good product for families, for everyday [consumption], and the Italian soda is more epicurean," said Brian Albert, marketing manager of corporate brands. Some retailers, like West Point Market, say customers buy the house brand because they have longstanding confidence in the store's name.

The store sampled 20 to 30 root beers before it selected one to sell under the West Point Market name, and Vernon said it can take up to six months before the retailer finds something it wants to put its name on. The store prefers to have one good private-label product rather than several so they won't compete with one another on the shelf.

"Private label is one of our fastest-growing categories, partly because of our reputation for quality," Vernon said. "Anything we put our name on ultimately becomes No. 1 in the category."

Aggressive merchandising is another important tactic.

At Giant Food Stores, Carlisle, Pa., at least two soft drinks are featured in a corporate-brand section of the chain's circular and on the Giant Wall of Values, a gondola featuring products that are considered the best values.

Russ's Market's own Best Choice sodas are merchandised on endcaps and between Coke and Pepsi in the beverage aisle. Voigt said he tried grouping together all like products, such as colas, but found that private-label sales improved when sodas were grouped by brand and placed near the comparable national brand.

Retailers agreed that tastings are another good way to sell their own-brand soda, especially when combined with complementary food.

Voigt of Russ's Market said he holds tastings almost every weekend, pairing the soda with foods like pizza and ice cream.

At Wild Oats, tastings held in the produce department about twice a year help sales, Albert said. The drinks are sometimes sampled on their own, sometimes with food. "There's an obvious Italian link [with the Italian soda], so it works well with Italian food," he said.

Packaging also plays a role. When Wild Oats relaunched its entire natural soda line, it sought a packaging look that would reflect the retailer's image. "We wanted to present a very clean product, because these products are natural," Albert said.

Leader of the Pack

With its private label enjoying 55% of dollar sales, the United Kingdom's Tesco offers some lessons for retailers in the United States seeking to grow their store brands' penetration, said Chris Brockman, head of research and consultancy at Food from Britain, a London-based food and beverage consulting company.

Tesco's share is large from the perspective of the U.S., where, overall, private-label products account for about 15% of dollar sales, but it's even big for the U.K., where the average supermarket's private-label share stands around 28%.

The success of Tesco's store brands lies in offering tiers of private-label foods and drinks that cater to different levels of its customer base, Brockman said. In beverages, it has grown by beginning with products in young categories, such as smoothies and energy drinks.

Tesco also puts its store-brand beverages in coolers near the cashiers or in areas away from the beverage aisle, where they tend to get lost among competing products, Brockman said.

Eight-store Russ's Market in Lincoln, Neb., takes a similar approach, selling its Best Choice soda from private-label-only vending machines in front of its stores. The cans cost 50 cents each, half the price of the national brands. One store manager, Jay Voigt, estimated he sells around 175 cans per day from the machines. -- AMANDA CHATER

The Right Place

Shelf placement and packaging color are most the important factors in merchandising private-label products, a recent study found.

In a study called "Taking the Next Step," Perception Research Services International (PRS) in Fort Lee, N.J., found that once a consumer has looked at the leading national brand, he will move his eye to the right and downward, as if he were reading. PRS suggested that private-label products be interspersed with national brands and always be positioned at or below the average person's eye level.

Packaging should contrast with the competing brands to make the products more visible. Packaging that imitates other brands can cause a private-label product to appear to be a "lower-quality knockoff," according to the study.

The study also recommended that the package itself be free of clutter that could confuse the consumer and might imply the product is cheap or hard to use, and that all key messages be in one place on the package.

At Giant Food Stores of Carlisle, Pa., private-label soft drinks are always integrated with national brands and placed to the right of them, said Denny Hopkins, a company spokesman. "We think that the majority of our consumers are right-handed, so their hand is near the private-label beverages when they reach out for a national brand." -- AMANDA CHATER