VALUE-ADDED, SIGNATURE ITEMS DEFINING PRIVATE LABEL IN FRESH FOODS

NANCY GRIFFIN

For many years, shelves in Center Store have been stocked with store brands of non-perishable items ranging from canned vegetables to toilet tissue. But private label's "New Frontier" increasingly lies around the store's perimeter -- in fresh foods.

"Anyone with any brains today has private label fresh products," said Russ Wolfe, senior vice president for perishables with Topco Associates, Skokie, Ill., a 50-year-old cooperative that has been introducing private label lines to member stores.

"People are paying more and more attention to using their corporate brands to build their business," said Wolfe, noting the most attention is being paid to meat, produce, dairy, deli and bakery items.

"In the past 10 years there has been tremendous growth in private label, but the past three or four years, the growth in perishables has heightened," he said, citing statistics that indicate 17% of all private label items today are found in the fresh departments.

In large part, the growth of private label fresh foods can be attributed to the arrival of foreign retail conglomerates in the early 1990s. These operators, like Ahold, Zaandam, The Netherlands, acquired American chains and exported their successful European strategies in marketing private label to stateside formats.

"We're still 20% behind the U.K. and the European continent," Wolfe pointed out. "Anyone in the business pays a lot of attention to what's going on over there, and everyone feels there is real room for tremendous growth here."

Overall sales in the private label category reached a unit share of 20.1% in 1999, according to research done for the Private Label Manufacturers Association's 2000 Private Label Yearbook, compiled by Chicago-based Information Resources, Inc.

"The consumer is interested in perishables," said Dane Twining, director of public relations for PLMA, headquartered in New York.

"Almost every store is doing something on private labels in perishables, or is about to," he said, noting success stories such as Ahold's "Gold Star" line of fresh meats, which includes everything from high-end, case-ready cuts to cooked, packaged corned beef, barbequed rump roast, and smoked ham. "They're value-added, ready to throw on a grill and portion controlled."

Topco is one operator pursuing the value-added niche. In the meat case, private label, frozen hamburger patties are sold under Topco's Food Club and other labels, and supplied by Mountain City Meat Company, Denver, Colo. Jim Bernat, the processor's director of sales and marketing, said he's seen a huge growth in private label in the past five years.

"Before that we sold more of our own label," he said. "Now 75% of our business is retail private label."

Value-added items are seen as possessing the greatest potential in private label fresh foods, Bernat added. Topco customers can soon expect a line of "infused or flavored burgers," such as jalapeno, bacon/cheese and others. A prepackaged fajita kit may also become part of the lineup.

Helping this build up is the perception that national brands are not well established in perishables, according to John Waters, a partner in the consulting firm MarCom Communications in Grier, S.C.

"It's a strategic issue, another competitive weapon," he said. "Retailers are attaching more importance to building their label, harnessing their customer loyalty because of all the competition from chain restaurants."

A&P, Montvale, N.J., has emerged as one of the most progressive retailers in promoting private label fresh foods, said Waters. Though "Master Choice" -- the top of A&P's three-tier, store-brand program -- started out in Center Store, it has now made its presence known in meat and deli.

This growth is reflected in the PLMA's annual report, where IRI data shows meat was one of the top dollar gainers in private label, jumping 228% last year. However, the high number does not adequately take into account the work done behind the scenes.

"Chains are universally careful about their private labels, especially in perishables. They don't want to get bad reputations, and that care is carrying over to the grocery side," Waters said.

Milk and cheese head the list of 20 top private label items by dollar volume sold last year, according to the PLMA report. Private label milk alone earned $6.4 billion and cheese followed with $2.3 billion.

Fresh bread and rolls were third on the list, netting $2.1 billion. The fourth item, fresh eggs, gave the dairy case three of the top four sellers, totalling $1.5 billion. Butter, at number 13, sold $482.1 million. Fresh vegetables reached number eight with a total of $704.1 million.

Luncheon meats and deli entree/side dishes were 18 and 19, totalling $414.1 million and $405.9 million respectively.

Dinner sausage, refrigerated spreads, fresh seafood and cheesecakes are among the top unit gainers in private label perishable items, where sales increases ranged from 55% to 23% last year. Private label dinner sausage gained 24% by volume in sales last year, while private label fresh seafood increased 23%.

Cheescake is the category leader in the deli division with a 22.9% increase in its dollar share and a 20.1% increase in unit share, reports PLMA. The other items leading the deli category in dollar share and unit share in descending order are "all other," breakfast meats, luncheon meats, meat pies, refrigerated pasta, frankfurters, dinner sausage and canned ham.

In the bakery division, pies and cakes led in the list for dollar share/unit share, followed by fresh bread and rolls, pastry/doughnuts, English muffins and bakery snacks.

Many retailers are using store brands to create "signature items" unique to their stores, Wolfe said. They've rolled out private label deli roast beef, hams and turkey breast in their delis, as well as slicing cheeses.

"Everyone is trying to figure out how to differentiate themselves. When they develop signature items, they take ownership of them," he said.

The 50 retailer members of Topco range in sales from $0.5 billion up to $6 billion annually. Wolfe predicted the possibilities for their private label perishables are unlimited, due to a tremendous upswing in the quality of the products, the packaging and the presentation.

"I can see categories where private label products are now the leading seller because they're the best and where national brands are definitely second players," he said.

When Harps Food Stores, Springdale, Ark., decided it was time for a private label line, the independent retailer decided to start in the produce department. Like many other retailers, they turned to a trusted third-party source, in this case, J-M Farms, Ozark, Mo., one of the top mushroom farms in the country. As the partnership developed, J-M in turn began working with other suppliers to build a complete system for Harps' private label program.

"We don't just supply the produce, we do the graphics, offer a recall procedure like a national brand with an 800 number and price lookup stickers on everything," said Steven Phipps, one of J-M's marketing managers. "It's out-of-the-box thinking. It's retailer-friendly."

Among these private label produce items are a full category of mushrooms, some packaged case-ready in clamshells; 5- and 10-pound bags of Idaho potatoes, a 3-pack of Idaho bakers in a tray, a 4- or 6-pack of tomatoes, grape tomatoes, cherry tomatoes and a 1-pound bag of cole slaw.

Harps designed its store-brand line to complement, not cannibalize, other brands -- a key point in any private label strategy, Phipps explained. For example, the one-pound, private label garden salad mix on Harps' shelves doesn't compete directly with the major name-brand mixes likely to be sold side-by-side with it. But the Harps' label contains a few different items, making the product a more upscale, enhanced blend, he explained. The presence of national brands shouldn't preclude the addition of private label items, agreed Larry Saywell, vice president of sales and marketing with Mountaire Farms, a poultry processor based in Shelbyville, Del. "Virtually all the retailers have converted to a private label. In the last 10 years, growth has been significant. Before that, it was very limited."

Mountaire supplies all the private label poultry for Hannaford Bros. Scarborough, Me., as well as some of the banners under the Ahold USA group; Price Chopper, Schenectady, N.Y.; and and Albertsons-owned Acme, Malvern, Pa.

"The challenge for us is to supply the retailer with a product that is better quality than the branded ones," said Saywell. "We have to produce a better product that provides better value. We've replaced a lot of branded programs."