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    Supermarket GROCERY Business: Dairy queen

    Improved quality, line extensions, product innovation, and high margins crown private label as the dairy aisle's royalty.

    By Richard Turcsik

    Private label has worked herself up the rungs of the dairy case corporate ladder from a me-too commodity handmaiden to a queen of style, respect, and panache. She?s done so by reinventing herself with so many new and unique products that now many national brands are the ones copying private label, and not the other way around.As retailers seek to differentiate themselves from Wal-Mart, they're putting a renewed emphasis on private label. That's no different in dairy than in any other aisle of the store. But with the possible exception of frozen foods, no other category is as hard-pressed for shelf space as dairy. So when a retailer opts to put in its own line of organic orange juice instead of the umpteenth line extension from Tropicana or Minute Maid, or perhaps an authentic Mexican-style private label cheese instead of some bland brand name, the results can be dramatic.

    "The retailers that have become acutely aware of Wal-Mart and alternative formats are very, very strong with their private label offerings," says Ann Rowe, v.p. sales at Johanna Foods, Inc., a major private label dairy supplier based in Flemington, N.J.

    "The dairy department has the highest private label dollar and unit share of any supermarket department," points out Mary Kay O'Connor, director of education at the International Dairy Deli Bakery Association in Madison, Wis. "So it's a major factor in the product mix assortment and profitability of the refrigerated dairy case."

    O'Connor says the growth of private label has had a big influence on the "branding" of some categories that for decades were sold as regional commodity products, such as milk and eggs. "Coupled with the fact that a greater number of brands will become available in the dairy department in the next several years, I think dairy category managers will have their hands full making decisions about product assortment," she says.

    Take that organic orange juice, for example. Treehugger Organics markets a line of 100 percent organic orange juice grown in Brazil and packaged in Canada. "Our initiative is 11 years old, and it was difficult the first six or seven," says Gustavo Sherman, marketing manager at Treehugger Organics, Inc. in Don Mills, Ont. "But we've been picked up in Europe, which is a little ahead of North America."

    Organic OJ offers another advantage over its conventional counterpart. "Organic is very labor-intensive, and we're creating jobs for a lot of people who are basically in dire straits," Sherman notes.

    Retailers seeking to set themselves apart with a conventional orange juice may want to take a look at the latest offering from Johanna Foods, like Wegman's has done. The retailer has shrunk the traditional 64-ounce gable-topped paperboard carton down to a cute six-ounce personal-sized version small enough to fit in a knapsack, pocket, or car cup holder. "Now Johanna is the only one doing it, and we do it in both private label and our own brand," Rowe says.

    Big-cup yogurt

    Johanna also does a big job with private label milk, cream, and yogurt. In fact, it supplies the entire Ahold group of stores, Acme Markets, and several other key chains with their yogurt. Johanna has enabled retailers to differentiate themselves by not succumbing to the pack mentality. When Dannon switched from eight-ounce to six-ounce cups, the bulk of the industry quickly followed, but not private label. Now private label offers consumers a distinct cost savings advantage—and, more important, a fuller meal. "The little bit of yogurt doesn't make a big difference in cost," Rowe says, "and when you get to the fruit-on-the-bottom yogurt, it's usually eaten as a meal replacement.

    "We can do a six-ounce, and have actually done a blended six-ounce for one of our big private label customers, but they're going back up to the eight-ounce," she adds. Johanna also offers more—a 10-count box vs. an eight-count for national brand GoGurt—in its version of yogurt sticks. "Our point of difference as a private label packer is adding value."

    One area where six-ounce cups have been catching on in private label is in the pudding category, where Carousel Foods has been producing individual pudding cups for Trader Joe's and some other upscale chains. "Clearly the market is going upscale," says David Hendin, v.p. of sales at Carousel Foods of America in Farmingdale, N.Y. "It wants pudding made with real dairy product—real milk and real cream. That's exactly where Carousel focuses. Additionally, we're looking at avenues that focus on no-sugar-added and low-carb, and we're about to launch certified organic puddings."

    Unlike some other manufacturers, Carousel makes its puddings in small batches that allow it to cool more evenly, eliminating the risk of crystals forming in the tubs. Its most popular sizes remain the 22-ounce and 32-ounce sizes. "Everyone delves into the middle first, but when you go into the outside, it's as smooth there as on the inside, so everyone has a great memory of our product," Hendin says.

    Often in private label dairy, imitation is the sincerest form of flattery, and that's where the folks at Schreiber Foods come in. Kraft's Velveeta is a PPCP (pasteurized processed cheese product), so Schreiber has reformulated its private label cheese loaf to offer a PPCP version, too. Ditto for its individually wrapped cheese singles slices. "The reason we made a move is because Kraft changed their Kraft Singles to PPCP, and we did consumer testing and want to offer our customers options," says Laura Clark, marketing manager, retail at Schreiber Foods in Green Bay, Wis. "They can stay with the cheese food and add calcium so they can add a 3-a-Day logo, or they can move to the brand equivalent, which is the PPCP."

    The PPCP product can forgo refrigeration for about two weeks, allowing Schreiber to create elaborate, creative custom-made cartons to move private label cheese loaves and slices by the pallet load. "We do bonus packs, preprices, all kinds of things," Clark says. "We've always offered merchandising and promotional programs, so we're kind of bringing that all together and creating new ones. We test them and then they go into our Tool Box that we offer retailers."

    Schreiber also does a booming business in cream cheese and cream cheese spreads and soft tubs, and continues to gain market share. "We have two new flavors—Mixed Berry and Spring Vegetable," Clark notes.

    Hispanic influence

    Private label cream cheese has been around for years, but a relatively new area for private label is Hispanic cheeses. "When it comes to Hispanic cheeses, essentially the private label business is predominantly driven not by the major chains, but really by the Hispanic distributors who brought labels with them from their home countries," says Michael Sigel, national sales manager at Wisconsin Cheese Group, the Monroe, Wis.-based manufacturer of El Viajero Brands, which makes some 20 different brands of private label Hispanic cheeses.

    "What we see out there is a sea of white hockey pucks, as we affectionately call them," he says. "We're trying to drive innovation from two standpoints: We're taking what we see in the traditional world and bringing it into the Hispanic community, and we're taking these wonderful cheeses and making them more of a mainstream item. Today the Hispanic community is Everytown U.S.A., from Dallas to Des Moines. Each nationality is different, and as a private label manufacturer that's an advantage for us because we cater to all the different ethnicities and know how to make those cheeses."

    The proliferation of private label SKUs has caused retailers to cut back on their offerings of certain name-brand items, but even private label milk has had to cut back for the latest craze—private label soymilk. Hope, Minn.-based Sunrich, which plays a role in 40 percent of the nation's soymilk, has developed a private label soymilk line. "It's clear that soymilk is more than a fad, and retailers are starting to realize that this category can generate strong sales revenue for them," says Allan Rough, president and c.e.o. of Sunrich.

    Don't worry, that soymilk will fit in the dairy case. In the world of private label, there's room for everything.

    By Richard Turcsik
    • About Richard Turcsik

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