Dollar sales of organic private label products have increased sixfold to $510.1 million in the last four years, according to Nielsen Label Trends data for prepackaged UPC products in U.S. food stores. Last year alone, the category grew 79.3 percent. With those kind of numbers, what natural foods store wouldn't like to carry its own branded products?
For the single store or small chain, a private label program may seem like a pipe dream. While certain categories are more difficult than others, private label opportunities exist for any business willing to do the right research and make the right contacts.
"There are two major benefits to private label," says John Maggiore, a broker/consultant with Maggiore's Sales and Marketing in Saugus, Mass. "The first is that it creates loyalty with customers. Having your name and brand in the consumer's house means more exposure and more brand recognition. The second is that private label products are less expensive than branded ones, but can have a higher margin. Therefore, you're giving customers value, yet your pay profit is higher."
A number of factors go into determining whether a particular product or category can successfully be private labeled for a single store or small chain. Is the sales volume on that item high enough? Are the packaging costs reasonable? Is the minimum order small enough? What is the product's shelf life? These are some of the questions Phoenix-based Sunflower Farmers Market faced when it opened its first store. The company couldn't use the name "Sunflower" on products because it belonged to another retailer, so instead it chose to use its tag line as a brand name: Serious Food, Silly Prices. "Rather than going for the upscale Whole Foods customer, we're targeting conventional shoppers who want to make healthier choices at reasonable prices," says Colein Whicher, the company's marketing director.
The chain now has more than a dozen stores, but it began its private label program early. "We started with our first store, which in retrospect might not have been the best idea," Whicher says.
Though Sunflower now has a wide range of private label items, certain categories are still out of reach. "We need 15 to 20 stores to support things like cereal, cookies, crackers and chips," Whicher says. "[Those products] require high-volume runs and they have fairly short code dates, so we don't yet have the sales volume to move them through."
Sunflower also operates its own distribution center, which solves one of the key issues with private-label goods: where to put them. "If you don't have your own warehouse, your distributor is going to have to stock these products for you, tying up a slot with something they can only sell to you," Maggiore says.
Some items will remain forever out of reach due to volume required to place an order. "Everyone would love to do private label," says Gary Cohen, president of Sacramento, Calif.-based manufacturer Natural Value. "The problem is, on single-roll bath tissue, the minimum order is a million wraps. That's 21,000 cases, or 15 truckloads. Where would you like them delivered? Anyone can order truckloads of anything; the question is, can you sell it?"
The type of packaging can also have an impact on whether an item can be successfully private labeled for smaller retailers. "Canned goods and glass jars are good, because it's only a paper label," Maggiore says. "If you have to commit to 100,000 labels and it doesn't work, paper labels for juice jars are a much smaller loss than corrugated boxes for cereal."
Whicher points out that certain types of packaging, such as milk cartons, are only good for one year, after which the wax coating goes bad; however, the initial run for such packaging is often 50,000 to 100,000 units. She suggests paying careful attention to individual product sales before deciding what items to private label.
"Even small stores can private label," Whicher says. Rather than going to a national co-packer with high minimum-product runs, she suggests working with local producers, especially in categories like sauces, salsas and marinades, which makes packaging easy. "Anything available locally saves you the cost of shipping, and you can get your name on a quality product but avoid lengthy trips across the country," she says.
Another option for smaller operations is to adopt a national value brand, such as Natural Value or the house brands provided by distributors like United Natural Foods, and essentially make that the private label. "Someone once described us as the Whole Foods private-label program for everyone other than Whole Foods," Natural Value's Cohen says.
"We don't sell to the supermarket chains, so our products become the proprietary brand retailers are looking for. We're available from the natural distributors, and our products provide value for smaller stores."
Retailers who want their private label program to go beyond local suppliers need to crunch numbers first. Minimum product runs, shelf life, packaging costs and item sales numbers all play a role in the decision-making process. "Go through item-movement reports to see if the demand is there," says Whicher. "If the demand is there and you can do private label at an equal or lesser price, you can win customer loyalty."
Packaging design is also a big consideration. It can be done by an in-house team, by an outside design firm or by the co-packers of specific product lines. And, obviously, finding the companies that will create the foods behind the label is key. Dairies capable of packing organic milk or eggs exist throughout the country. In other cases, the supplier might be in another part of the country or even overseas. "With something like olive oil, you probably want it to come from Italy," Whicher says.
To find co-packers or manufacturers for their private label goods, retailers can contact natural foods manufacturers directly to see if they offer private label options. But it might be simpler for retailers to attend a trade show, such as the Private Label Manufacturers Association's Private Label Trade Show held each fall in Chicago, or even send a representative to the international show. Another resource is Private Label magazine, an industry trade publication. "At these expos, you may find manufacturers who do a full range of products, and it may be possible to order five to seven items with the same manufacturer," Whicher says. "Going with one person may be wise for reasons of price and accountability."
Not every retailer has the sales volume to create a full private label line, but even the smallest of operations can use a combination of value brands and local suppliers to create brand identity and secure customer loyalty.
Mitchell Clute is a Fort Collins, Colo.-based freelance writer.
Natural Foods Merchandiser volume XXVIII/number 10/p. 26, 28