Natural Foods Merchandiser
Private label primer for natural retailers

Private label primer for natural retailers

An overview of private-label versus name brand products and the post-recession advantages to retailers putting their names on supplements, food and personal care items

During the recent recession, some shoppers viewed natural and organic private-label brands like wallflowers at a dance: unexciting, but also safe and not too hard to get. But now that the economy is showing signs of recovery, are consumers shoving private labels aside in their desire to tango with the superstar brands once again?

New research says no and yes.

“Many consumers use private labels and store brands and find that they are just as good as name brands,” says David Browne, a senior analyst at Chicago-based market research firm Mintel. In fact, Mintel’s 2009 “Organic Food and Drink Retailing Report” found that private-label brands comprise 24 percent of organic food and beverage sales, exceeding $1.1 billion. “Unless name-brand manufacturers can attract consumers by offering something value added, unique or proprietary, or compete on price with couponing and promotions, Mintel expects that some consumers may not trade back up to name brands, especially since habits have become more firmly established over the past two years,” Browne says.

But those shoppers who connect name brands with higher quality or taste, and only started using private labels out of necessity, are “the most likely consumers to trade back as soon as they can, or at least on occasion,” he adds.

Post-recession stickiness

An April 2010 survey of more than 2,500 consumers conducted by Stamford, Conn.-based Consumer Edge Research found that the more a private label penetrates a category, the more likely it will have post-recession “stickiness.” Top private-label categories include nonorganic milk, cheese, bread, cooking oil, spices, condiments, canned vegetables and fruit, jams and jellies, peanut butter, cereal, bottled water, paper napkins and towels, facial tissue and liquid hand soap.

Categories that bear watching because they only have moderate private-label penetration but high consumer satisfaction include juice, crackers and ice cream. And the “least sticky” categories—meaning shoppers are more likely to trade up to manufacturers’ brands as the economy recovers—are energy and sports drinks; wine, beer and other alcohol; canned or bottled tea and soymilk.

But foods aren’t the only participants in the private-label dancefest. According to a June 2010 report by Chicago-based market research firm SymphonyIRI Group, “over the past year, store brands have made considerable share strides in the health care department.” In fact, SymphonyIRI researchers report that “more than 80 percent of consumers believe store-brand [supplements] products are equal to or better than national brands when it comes to quality and packaging, and 95 percent feel that store brands provide a better value than national brands.”

Private-label supplements sales are particularly strong for vitamins; cold, allergy and sinus tablets; pain relievers and gastrointestinal liquids. “Consumers are treating at home for simple ailments, and store brands are playing an important role in home-based health care rituals,” the report states.

Overall, natural and organic private-label sales are robust enough that “Whole Foods Market and Trader Joe’s have succeeded with private label to the extent that other retailers like Supervalu, Publix and Wegmans, and even Target (Archer Farms), are now competing with more private-label premium, natural or organic offerings,” Browne says.

While that may not necessarily be good news for independent natural foods retailers, a recent blog posting by Nielsen Co. Senior Vice President of Consumer and Shopper Insights Todd Hale offers hope. Hale says Nielsen research shows that households that make more than $70,000 a year had the highest increase in private-label buying between 2004 and 2008. Chances are that includes many of your shoppers.

Private labels and your store

Some retailers think a massive presence is necessary to offer shoppers a store-label brand. But private labels may be more accessible than you think—you don’t need to be a national chain to carry your own brand of supplements or beauty products, although food is a little more problematic.

Elliott’s Natural Foods, a family-run retailer with four California locations, carries hundreds of different supplements under the “Elliott’s Naturals” label. The Elliott family carefully shops for their private-label producers—evaluating ingredients (no fillers), packaging (preferably biodegradable corn bottles) and quality (complexity of vitamins). “We ask ‘are the formulations of the multivitamin more specific than something Costco has?’” says Amber Elliott, an Elliott’s manager.

Private-label products can offer stores and their customers key advantages: Because store brands require fewer marketing and packaging costs, retailers generally pay less for private label than for name brands, and can then pass along savings to customers. In addition, “research shows consumers aren’t trusting what national brands are saying, so many turn toward basic, simple, quality products that a retailer trusts enough to offer in his or her own name,” says Erin Silva, technical marketing manager at Vitamer Labs, an Irvine, Calif., manufacturer of private-label supplements.  

Your store’s name on a multivitamin or facial cream also reinforces your core natural values. And customers who enjoy your unique, high-quality product—not available at a big-box retailer—may return to your store for the label alone. Not to mention that “every time your customers open the medicine cabinet, there’s your name,” says Joni Kathleen Russell, director of sales at Reliance Private Label Supplements, based in Somerset, N.J. “It’s just the best form of advertising.” 

But it’s not always easy to offer store brands. “Quality in private labels is something that must be investigated constantly,” Elliott says. “Distributing companies change hands, new laws come into effect that may or may not be enforced, and the companies may or may not meet the changing demands of the market.” The label should advertise a consistent product, but the product itself may undergo formula or ingredient alterations. “These changes do not go unnoticed by customers,” Elliott says. 

Stand-alone or small-chain independent retailers face additional challenges. Without ordering large quantities, you may not receive deep discounts that can be passed on to customers. But many private-label producers, particularly those that market supplements and personal care items, say they will work with grocers of any size to find the right price.

Here’s a rundown of the private-label options for natural retailers.

Sell store-brand items

The costs to start a store-brand supplements line are minimal. Many established private-label producers have low minimum orders, and report that a natural foods retailer can jump into the private-label game for as little as $500. You’ll also need to design a label, which can range from $250 to $1,000 depending upon the complexity, how many you’ll need and whether you can provide the design or if the supplier needs to create your labels in-house.

While you can design your own made-to-order supplements, that can require product minimums in the hundreds of thousands, Russell says. A less expensive alternative is suppliers like Reliance and Vitamer Labs, which offer stock products you can put your own label on. Make sure you shop around for the best fit, because different suppliers offer different specialty products, like Reliance’s omega-3 infusions.

What should you stock? Elliott says her top sellers include coenzyme-Q10 and B vitamin complexes, but responsive ordering requires staying on top of current news. Vitamin D, essential fatty acids, food-based supplements and probiotics have all been strong sellers, according to Silva.

Natural and organic foods often are—ironically—the most difficult private-label product for a grocer to offer. High minimum orders and spoilage tend to limit store-brand food to only the large chains, which can order hundreds of thousands of items and then distribute those products throughout the country, says Tony Tavares, chief operating officer at Brampton, Ontario-based SunOpta Foods, a private-label food manufacturer. In addition, packaging varies dramatically in shape and size, and printing a food label requires a significant investment because it takes more design work to make an attractive food label in comparison to a simpler vitamin label.

However, some natural and organic private-label food manufacturers, like SunOpta, offer their own brands that can be a bridge between a private label and a large manufacturer’s brand. Because these labels don’t spend millions of dollars on advertising, retailers can offer the products at a competitive price, Tavares says.

Personal care
As with supplements, stores can either customize their own private-label beauty products or order from dozens of stock formulations. There are a growing number of private-label natural and organic personal care suppliers, such as Eugene, Ore.-based Bon Santé Natural Skin Care, that skip the use of parabens, phthalates and artificial fragrances.

While Bon Santé sells a wide range of products, pricier items like facial creams and antiaging creams offer higher profit margins for retailers, says company owner Cindy Summers.

Packaging helps sell personal care products, so make sure to choose a supplier that can either help you with labels and packaging or provide a variety of options to choose from.

Questions to ask a private-label producer

Beyond quizzing a supplier about ingredients, packaging, pricing, minimum orders and distribution contracts, here are three key questions you should get answered before you launch a private label.

  1. Can your company help us comply with state and federal guidelines regarding claims on the packaging? 
  2. Is the product certified by any unbiased third party?
  3. What type of product support and training do you offer?
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