There once was a time, as recent as a decade or two ago, when private label products were synonymous with bargain-basement commodities. Not anymore. Shoppers’ belief that store brands are cheap because of second rate quality is fast fading. Case in point: three-quarters of households surveyed in 2019 agreed that private label is a good alternative to name brands, based on the April 9, 2020-published article, The Fight To Remain Relevant If the U.S. Enters a Recession, by the New York -headquartered global market research firm, The Nielsen Corp. What’s more, on the retail side, the share of private label dollars in the top price tier rose from 5.9% to 7.2% between 2016 and 2019, according to data in this same article. Premiumization is one reason why the global private label food and beverages market is forecast to grow, according to the August 2020-released report, Global Private Label Food and Beverages Market 2020-2024–Projected to Grow by $215 Billion Over the Forecast Period, by Dublin, Ireland-based ResearchAndMarkets.com.
“Our private label products are positioned as a higher quality than national brand equivalents,” says Paul Kneeland, vice president of fresh operations at Gelson’s Markets, a 27-store upscale chain headquartered in Encino, CA. “Customers understand that the Gelson’s name on any private label means the product quality is superior. In the deli, we offer a hummus, a guacamole, fresh soups, quiche, pastas, etc.—all items that are brand relevant and fresh but also flow with the Mediterranean Eating Lifestyle. The biggest advantage is that private label makes the product unique to your brand and company. Nobody else can carry that brand but you. Having a unique assortment in the store attracts more customers because you are the only place that carries that item. Plus, when it comes to COVID, I believe customers want products they trust, and that helps us because we have been a trusted brand in SoCal for 70 years. Disadvantages can be minimums sometimes but, in the deli and with prepared foods it is less of a concern than it is in center store.”
HAVE A PLAN
Every retailer’s customer base is unique, therefore every retailer’s strategy for serving their customer base is different, and no one strategy applies to all retailers, says Dane Twining, director of public relations for the Private Label Manufacturers Association (PLMA), in New York. “Our organization provides retailers with access to suppliers that meet their needs for new product ideas, unique capabilities and innovation.”
From Feb. 1 to 5, 2021, PLMA launched its first major online trade event, PLMALive! presents Private Label Week, for U.S. retailers to connect leading suppliers of private label products in the U.S. and internationally. The final two days of the event focused specifically on suppliers for perishable products for the deli and dairy departments as well as chilled prepared and ready-to-eat foods, meat, produce, fresh bakery and frozen foods.
About one-third of deli sales are private label products. Specifically, the dollar share of private label for total U.S. supermarket delis for the 52 weeks ending Sept. 26, 2020, was 31.1%, according to Nielsen data as provided by the PLMA. If deli data for mass/club/dollar stores and drug chains are added, this number jumps to 36.6%.
PICK YOUR PRODUCTS
The deli pizza category ranked highest with over half (50.2%) of sales as private label, based on Nielsen data for the year ending Nov. 28, 2020. Private label fully cooked meat represented 33% of sales, lunch meat (29%), prepared foods (25.9%) and cheese (25.7%). These are the top five deli categories with the largest percentage of private label dollar sales. Rounding out the top 10 are dips/spreads (19.9%), meal combos (13%), condiments (10.6%), desserts (7.8%) and olives/pickles/marinated vegetables (3.2%).
The three deli categories with the largest increase in private label dollar sales in the last year were olives/pickles/marinated vegetables (63.5%), cheese (18.8%) and lunch meat (15.5%).
“The first step in adding or expanding offerings of private label products in the deli is to go out and find the industry leaders who currently are manufacturing the type and quality of product you want to offer. In other words, canvas the marketplace,” says Elias Demakes, vice president of sales and marketing for Lynn, MA-based Demakes Enterprises, Inc., which currently sells half of its proteins such as deli meats under its own Old Neighborhood, Thin N’Trim and Waterhill Natural and Organics brands and the other half as store brands to retailers that include Kroger, ShopRite, Big Y, HyVee and Meijer.
Most simply, yet still successfully, delis can carry just one private label item.
“For example, we have a gorgeous piece of USDA choice roast beef that can easily be featured as a deli’s signature item,” says Victor Girgenti, president and CEO of Sands Point, NY-headquartered Longview Trading, Inc., which builds custom programs for private label deli meats, cheeses and salads for retailers such as Kings Food Markets (purchased by Albertsons in 2020) and Giant Eagle. “Mostly, it’s best to have at least four items to have a large enough presence to drive shoppers to the section. For example, we recently worked with a small mid-Atlantic retailer and the deli director wanted to start with the four basics: roast beef, ham and two types of turkey. As soon as they got these, they started expanding with a maple turkey, black forest ham, Virginia ham and an Italian roast beef. A great way to determine what to add next to build the line is to offer an item as a flavor of the week or month and look at sales.”
Demakes Enterprises’ Demakes says his company has had success in growing sales of organic private label deli meats. This is backed up by the Bellevue, WA-based Hartman Group’s May 2020-released Organic and Beyond 2020 report, which revealed that over three-fourths (83%) of consumers surveyed agreed that organic private label is as good as national organic brands. Plus, over one-third (35%) of organic shoppers said they are purchasing more organic store brands than a year ago. This makes sense, as a barrier to organic purchase is the price, and private label is typically less costly.
“In cheese, delis will often start with a basic like Muenster, Swiss or Provolone. We offer high-quality cheeses. Even the American is rich and creamy,” says Longview. “For salads, potato, egg, coleslaw and tuna are staples.”
Kontos Foods, the Paterson, NJ-based artisanal producer of over 60 types of flatbread, has looked at private label and participated in past PLMA shows.
“We’ve spent 35 years building our brand; however, we are willing to discuss private label opportunities that make sense,” says Warren Stoll, marketing director. “For example, our breads are kosher and halal. That means we don’t use ingredients like egg or butter.”
SET A PRICING STRATEGY
Keeping shoppers coming back is a big reason behind building a store brand program.
“Private label plays a role in loyalty,” says Eric Richard, education coordinator for the International Deli Dairy Bakery Association (IDDBA), in Madison, WI.
Indeed, while different factors contribute to loyalty, private label is most significant for medium-cost and premium supermarkets, according to the 2016-published article, “The impact of private labels on consumer store loyalty: An integrative perspective, in the Journal of Retailing and Consumer Services”.
“I go to deli operators that say they have to carry a major brand name deli meat line because their competitors do, and here’s what I tell them. If they sell that brand for say $9.99 to $10.99, they’re not getting a full margin. Instead, carry that brand, move it up to $12.99, get a full margin, and then sell a good quality private label product at $9.99 at full margin. That way, you get a full margin in both places, and lock in customers who want that name brand and those who want to pay less but still get good quality,” explains Longview Trading’s Girgenti.
One key point to a successful private label program is promotion.
“Since the manufacturer is investing in the quality of the product and not its marketing and advertising, it’s essential the retailer support its private label program. Retailers that do a good job supporting these programs will have the most success,” says Demakes Enterprises’ Demakes.
The future of private label looks bright. In fact, the October-released 2020 Power of Private Brands report by the Arlington, VA-headquartered Food Marketing Institute, found that 33% of U.S. consumers said they will purchase more private brands than before the pandemic. Additionally, nearly all (93%) of food retail executives said they believed store brands to be extremely or very important.
“Private label will continue to grow in all categories – especially in trusted brands, known for quality and at a perceived value – the experience equals the cost of the product,” says Gelson’s Markets Kneeland. DB