Home » Category Focus: Private label beverages stay competitive
Walk through any supermarket around the country, and two main types of beverages will stand out: private label and national brands. In a shakey economy, private label beverages are finding ways to stay in and stay strong. Private label drinks are creating new flavors, packaging innovations and sizes while keeping their prices low.
“Private brands are increasing their market share and providing the consumer a place to get a product that’s as good, if not better, than the national brand,” says John Graham, chief customer offer for Clement Pappas, Carneys Point, N.J. “[Private label] beverages are finding a niche where before maybe the consumer wasn’t aware of them.”
The rise of private label beverages is slow and steady but Graham says the quality is there, and the key is to get consumers to take a private label beverage home and try it.
“There’s a real sophistication that companies like ourselves have stepped up to the plate to help retailers change the way they do business in private label,” says Pat Nicolino, vice president of marketing at Clement Pappas.
In addition, Nicolino mentions that the volatile economy could be positive for private label.
“The fact that the economy is in a very soft position should, according to any thoughtful financial analysis, also be another positive factor,” she says. “We think it is. We can’t prove it, but we think so. If it was just the economy that was squeezing people and they didn’t trust in the product, you wouldn’t see the sales that we’re seeing. It would just be an act of desperation â€”‘I want something cheaper’ â€” but that’s not what we’re seeing at all. The offerings are broad because the consumers want them and the consumers trust them.
“Ten years ago, in most cases, retailers looked at their own brand as a sort of nice, ‘need to have,’ but it was just all about value and price. Many retailers now are doing a wonderful job of rethinking and realizing that their own brand really is a brand,” she adds.
Private label beverages want to compete with branded products, and additions such as enhanced waters or teas with antioxidants are making their way into the store brands, Graham says.
For example, in May, Clement Pappas introduced Bombay Organic RTD teas in Raspberry White, Lemon Black, Spearmint Green and Peach Red flavors.
Private label beverages are making strides to become known and sought after in the market. Certain private label beverage categories are increasing their market share and others are falling short.
According to Information Resources Inc., Chicago, private label cappuccino and iced coffee increased 148 percent during the year ending July 13, 2008, and earned the category $2.1 million. The number is small compared to the year-end result of the overall cappuccino/iced coffee category, which earned $257.6 million, showing the relative newness of the private label in the category as well as the popularity of branded RTD products.
Private label ground coffee fared well, earning $201.8 million, an increase of 21.6 percent.
IRI also found that private label shelf-stable bottled fruit juice blends earned $15 million, an increase of 28 percent, but private label shelf-stable bottled juice and juice drink smoothies earned nearly $382,600, a decrease of 24 percent from the year prior. National brands, again, dominate that category.
Standing out against nationally branded beverages can be a challenge, says Jim Hertel, managing partner at Willard Bishop LLC, Barrington, Ill.
“Many of these categories within both non-alcohol and alcohol beverages, in the carbonated soft drink aisle, bottled water and beer, have a pretty sophisticated direct-store-delivery system, which provides a lot of shelf presence, and that leverages in the hands of the branded suppliers,” he says.
Pricing also is affecting private label sales, he says.
“People are shifting down and private brands are a good alternative,” Hertel says. “I would judge that is probably true in water, but because the private brands’ footprint is so small in a lot of the other beverage categories, I don’t think that there’s any kind of meaningful sales momentum.”
For the last dozen or so years, carbonated soft drink prices have remained low, leaving less of a price gap that can be carved out for private label, he adds.
IRI found still bottled water is the private label category with the most earned dollar sales, with $688.6 million for the 52 weeks ending July 13, 2008. Private label bottled water increased 13 percent from the year prior.
Packaging innovations in other categories such as larger sizes in shelf-stable and chilled juices, have benefited from the sloping economy, Hertel says.
“The big trend is really where prices are going up so much faster, and as a result people have no choice but to try and find ways to economize.
“It’s really all about looking beyond gross margin percent and understanding the ability to enhance price image and the ability to build shopper loyalty,” he says.
The global perspective
Private label beverages sell better in Europe than in the United States, but why is that? Simon Maddrell, head of non-alcoholic global research for Euromonitor International, London, has the answer.
“It’s pretty much the nature of the market,” he says. “In markets which are beginning to tighten, you’ll see private label beginning to do a bit better, but in markets where the retailers aren’t particularly strong, then you won’t see private label doing so well.”
In Germany, retailers and discounters are strong so there is a high penetration of private label products and also a good amount of research and development for the retailers as well, he says.
Maddrell adds that private label fruit and vegetable juice is about 55 percent of the shelf space in Germany, whereas in the United States, it is only 17 percent.
In terms of carbonated soft drinks, the United States has Pepsi and Coke, Maddrell says, and keeping pace with them on the private label scale is more difficult. Europe is driven by high-volume, low-value carbonates, so there is more room for private label.
The fact that retailers have the power to place their private label products wherever they want also creates an interesting dynamic at retail, Maddrell says. For example, “when you go into a retailer, you’ll get a chilled product sitting next to an ambient product,” he says. “The retailer wants to put their ambient product next to a chilled product because it’s a lot cheaper and consumers perceive they are buying an essentially chilled product.”
For private label, branding is not as important as volume and pricing, he says. And generally they will follow suit with what the nationally branded beverages are creating.
“[Private label beverages] really are penetrating every single kind of tier of drinks,” Maddrell says. “The global trends really do depend on strength of retailer, size of sector and the demographics as well. The retailers look at expanding to where their products will do better.”
I want to hear from you. Tell me how we can improve.
Beverage Industry’s December issue highlights five beverages brands that are “shooting for the moon” in terms of innovation. Also in this issue, we spotlight the premiumization of the private-label beverage market, the latest trends impacting the use of tea ingredients in beverages, the growth of beverage sales in the eCommerce platform, and much more!