Shhh! It's Private!
October 1, 2005
Shhh! It’s Private!
By Molly V. Strzelecki
In some categories, private label is giving brands a run for their money
Private label. Store brands. House brands. Corporate brands or economy brands. No matter what you call them, products bearing the names and labels of retailers across the country have come a long way since their first days as generic black and white labels. These days, most private label products are equivalent to the national brand, while still sticking with the tenants of the private label philosophy: Offer consumers great products at a value price.
As the quality of private label products has increased, so has consumer awareness and profitability for retailers of private label items, especially when it comes to beverages. According to Chicago-based Information Resources Inc, private label convenience/PET still water, for example, jumped 26.8 percent in dollar sales for the 52 weeks ending Aug. 7, 2005. While the increase brought the private label segment of the category to $357.8 million in sales, the total category raked in more than $2 billion in dollar sales for the same time period, making private label water sales look like a drop (of water) in the bucket. But while dollar sales for private label products may be miniscule compared to the brands, some products are making inroads into the categories and continuing to elevate private label products to a higher status.
“There are two major challenges for private label. The first is overcoming the perception that the brand is better and worth the price,” says Jason Krause, director of marketing for Cliffstar Corp., Dunkirk, N.Y. Cliffstar is a leader in private label juice manufacturing. “As we have seen recently from several different reports, this perception is changing.
|Private Label Beverage Performance|
|BRAND||Dollar sales (IN MILLIONS)||% Change vs.YEAR AGO||UNIT SALES (IN MILLIONS)||% Change vs.YEAR AGO|
Total private label
Total private label
|Ground decaffeinated coffee |
|Instant decaffeinated coffee|
|Whole coffee beans|
|Convenience/PET still water|
|Jug/bulk still water|
|Shelf-stable bottled juices|
|Spirits (including prepared cocktails)|
|Source: Information Resources Inc. Total supermarket, drug and mass merchandise sales (excluding Wal-Mart) for the 52 weeks ending Aug. 7, 2005.|
“The second opportunity and challenge is bringing new products to market that do not have a brand equivalent,” Krause continues. “This is the future of private label. It will be answering the consumer demand in the market-place for a product. Private label will begin to take the lead on new products.”
New products are key in promoting private label. And more than just a simple new product, retailers want their private label items to be a cut above the rest. The best way to do that? Introducing premium-tier products onto store shelves is crucial to catching consumers.
“More and more retailers are looking to move into the premium, upscale-gourmet programs,” said Lester Carew, vice president of retail sales and marketing at Fort Worth, Texas-based Mother Parker’s Tea & Coffee in the March issue of Beverage Industry’s sister publication, PL Buyer. Sales of private label coffee have increased 11.8 percent according to IRI, and the “buzz” is that private label coffee will continue on a strong and profitable path.
“With the emergence of Starbucks into the retail field several years ago, and Millstone in there as well, there have been a number of retailers who have wanted to get into premium, upscale-gourmet, recognizing that the consumer today is more educated than they were yesterday and they’re prepared to pay a little bit more for a good cup of coffee,” Carew says.
Private label products that are both premium and value-added also bode well for the industry, as consumers are demanding and discerning.
“We continue to see growth in products that are high in antioxidants and products with added fortification,” Krause explains. “As the consumer base continues to take an active role in managing their health, they will choose products that provide additional health benefits.”
While private label products continue to gain momentum in the marketplace in most categories, there are still some segments of private label beverages that have yet to be conquered.
“Those of us who observe the retail segment are aware of the growth in private label products, seeing it mainly in commodity categories such as frozen items, or milk or sugar,” says Craig Purser, vice president of the National Beer Wholesalers Association, Alexandria, Va. “The commodity items have seen a great deal of growth during the past 10 to 20 years, but this is not the case with licensed beverages, especially beer.”
Few retailers have even attempted to introduce a private label offering into the beer, wine and spirits segment. Kroger and 7-Eleven are two major retailers to roll out a private label beer, unfortunately to little triumph. The one success story with regard to private label adult beverages sticks solidly with Trader Joe’s Charles Shaw, or “Two-Buck Chuck,” wine.
Purser notes that adult beverages, particularly beer, are predominantly associated with taste, experience and image, which is something that private labels do not necessarily have.
“Successful beer brands are largely determined by brand identification, which includes marketing, promotion, advertising, package, display and, of course, the product has to taste good,” Purser says. “It is the consumer who ultimately makes the decisions, and there is not a lot of interest in going with products that haven’t been tested. That’s not to say it never happens, but it’s not common in the beer, wine or spirits categories.”
Purser adds that the exception is wine, with which consumers seem more willing to taste-test and experiment.
Overall, private label has come a long way since its inception in grocery stores way-back-when. Private label beverages are giving the national brands a run for their money, and as quality increases and prices remain lower than the national brands, there is no doubt that private label beverages will continue to gain both dollar and market share. But some say long-term growth will require more creativity on behalf of private label companies rather than a follow-the-branded-leader approach to product innovation.
“Private label will grow in both the category and in the store, by moving into a more leadership role,” Cliffstar’s Krause says. “Private label beverage companies will need to bring new items to market. They will not grow by continuing to wait for brand leadership.” BI