Natural Foods Merchandiser

A Private Label Primer for Independents


Are naturals customers ready for private label organic products? The facts speak for themselves: The Kroger Co. and Wegmans Food Markets rolled out private label organic products this year. Piggly Wiggly's new flagship-concept stores feature 100 organic SKUs. Whole Foods Market Inc. is midway through a year of promoting its expanded 365 Organics private label line. Wild Oats Markets Inc. is retooling its five or six organic house labels to present a unified front.

All this work likely is worth the effort. By The Natural Marketing Institute's estimation, 94.9 percent of organic food users have purchased store-brand foods or beverages in the past year, compared with 91.8 percent for the general population.

And these shoppers don't much care whether their house-brand purchase represents the best bargain in the store. About 62 percent of natural channel shoppers said they will try new products regardless of brand; only 40.7 percent said they make their selections based on price, NMI reported in the 2003 Health and Wellness Trends Database.

"It's not like the black-and-white generics of the 1970s," said Steve French, managing partner of The Natural Marketing Institute, based in Harleysville, Pa.

The reality is that most naturals retailers just don't do the sales volume to justify embarking on a full-scale private label program in which Your Store Here organic tomatoes take on national natural and organic brands. But industry consultants said there still is room to boost store image by picking top-of-the-line perimeter products to bear the store name.

"Private label was originally derived to get more profit into certain categories by shifting purchases from national brands over to a private label," explained Fred Arnal, who helped develop Topco Associates' Full Circle Organic brand. Arnal is managing partner in Tyler Creek Associates, a strategic marketing firm in suburban Chicago. "But one of the other functions, which is becoming equally important, is private label's ability to help a store differentiate itself from the competition."

Where their mass-market compatriots may expect to sacrifice quality for price, naturals shoppers can typically expect high quality from private label products. "Private label as a category has gotten extremely good in the last 10 years," Arnal said. "The quality bar has gone up."

Wild Oats spokeswoman Sonja Tuitele said that in Wild Oats' case, top quality in the can, jar or egg carton creates an opportunity to extend the "store experience into high-quality products that represent so much more than what you would find in a conventional store's private label."

In standardizing its private label program, Wild Oats expects to establish tiers of price and quality, with all natural as a baseline. Organics likely will be treated as premium products. "It's almost like the European model," Tuitele said, "like (U.K. retail chain) Marks & Spencer, where house brands are the premium in the store."

Private label products now account for 10 percent of grocery sales at Wild Oats. "We hope to grow the percentage of sales ... to 20 percent of sales within the grocery department," she said.

The 100-store naturals chain expects to begin rolling out the repositioned house brands this fall, and Tuitele said management envisions a time when Wild Oats-brand products find their way into customers' cupboards even if they are not sold in a Wild Oats store. "It also creates an opportunity for us to take that product out of the store and sell it in other retail environments," she said.

Until then, smaller stores that can't meet case minimums for private label runs will have to concentrate on branding what they do best. "The perimeter is the strongest point to establish with signature items. You have action centers with things you produce and sell, like meals to take home, fresh bread or items from your wonderful deli," Arnal said. "It stands to reason, if you're going to put your name on a product, it should be the very best brand in the store."

Kelly Wiseman, general manager of the Community Food Co-op in Bozeman, Mont., said a move by the National Cooperative Grocers Association to develop a new Co-op brand of commodity products has evolved into developing a national marketing plan for co-op stores instead. "The big issue for co-ops is local autonomy," Wiseman said. "It's a delicate juggling act to come up with something that works thematically for co-ops nationwide without losing local identity."

Robynn Shrader, executive director of the co-op association, said a national brand for the cans and bags of products sold in co-ops would be antithetical to the mission of the cooperative. "We're developing a national co-op brand with a strong marketing and communications component, which would leave each store to continue to do what it does best: Source quality local food products that are not mass produced."

Retailers ready to brave an organic private label program should start with basic commodity products, like apple juice, tomato sauce or cooking oil, advised Morton Davis, who handles export and marketing for Sebastopol, Calif.-based Solana Gold Organics. Solana produces private label organic and kosher apple juice, apple sauce and apple cider vinegar. "That way your private label products are easily grasped and already familiar to your customers," he said.

Even just a few private label products requires a major commitment. Solana, for example, has a 200-case per month, per SKU minimum for its products. "It is important to be realistic when creating a branded product," Davis said. "It's a tough call when we have to say, 'No, the numbers don't add up.' However, in so doing, we are able to effectively manage our private label program to the benefit of our customers."

Solana counts among its customers Andronico's Market, Trader Joe's, Shaw's Supermarkets, Star Markets and many naturals retailers, including the six-store Southern California chain Lassens Natural Foods & Vitamins.

Davis said the biggest challenge Solana faces is helping its customers with pricing strategy. "It is necessary for the retailer to resist the pressure to price low because this can translate to mediocre profits and a lowly store image," he said. "Quality products command store loyalty and consumers don't mind paying extra for a store brand they can trust."

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