Nov 01, 2004
FRESH FOOD: The new frontier
By Meg Major
When it comes to private label perishables, meat and produce are definitely where the action is. The fresh frontier is still ripe for taming with store-brand programs, and supermarket operators are seizing on premium-quality products as the way to differentiate themselves from competitors. Given meat and produce's dominant positions among fresh departments, it makes sense for operators to put most of their store-brand emphasis there.
They are obviously the signature product categories that are the most important when it comes to getting it right," says Jim Hertel, s.v.p. of Barrington, Ill.-based Willard Bishop Consulting, citing recent consumer research confirming that the two departments are the most important to shoppers and exert the most influence over their choice of which store to shop.
Hertel suggests the industry has only just begun to scratch the surface of this fresh opportunity. "To be really successful long-term, retailers must begin to think and act like brand marketers: identifying unmet consumer needs, developing products, and creating positioning, in addition to merchandising." It requires new skills, new processes, and the willingness to commit to a longer-term horizon. And the industry's success with store branding in the center store will scarcely serve as a model for how to conquer the fresh frontier.
"Many retailers have become quite adept at attracting 'vendor resources' from their CPG manufacturer partners, intellectual capital delivered in the form of category management and special projects," says Hertel. "Yet as retailers move into private branding in perishable categories, they will need to be much more self-sufficient than has been the case in the center store for some time now."
One retailer moving in that direction is Pleasanton, Calif.-based Safeway Stores. Its chief executive, Steve Burd, recently told the investor community about his chain's plans to change its philosophy regarding supplier allowances, in favor of a dead-net pricing approach over the next five years, opening the opportunity to build business organically through differentiation.
At the Prudential Equity Group's "Back-to-School" conference, held in September in Boston, Burd said he believes Safeway could be the first national supermarket chain to offer distinctiveness to its customers through the quality of offerings in its fresh departments -- and above all, in its meat departments.
"When we talk about differentiation, we mean that we intend to become famous, literally famous, for having the best meat, which means to us we must have the most tender product," said Burd, referring to Safeway's Rancher's Reserve line of select Angus aged beef, which the chain unveiled about a year ago and has been aggressively promoting in many markets ever since.
Safeway is hardly alone in promoting a branded signature beef line: The Kroger Co. boasts its own Cattleman's Collection line, and Albertsons touts its Blue Ribbon beef line, marketed as Jewel Blue Ribbon in Chicago-area Jewel/Osco stores and Lancaster Blue Ribbon in its metro Philadelphia Acme Markets unit.
In addition, several regional chains have also upped the ante by expanding their signature meat programs. Among them is Indianapolis-based Marsh Supermarkets, operator of 67 Marsh supermarkets, 39 LoBill Foods, eight O'Malia Food Markets, 164 Village Pantry convenience stores, one Arthur's Fresh Market and two Savin*$ units in Indiana and Western Ohio.
On the heels of a successful June rollout of the Maverick Ranch branded line of all-natural beef at its O'Malia's division, Marsh in late September went private for its latest addition: Premium Gold Ultra all-natural and antibiotic- and hormone-free Black Angus beef.
So far the new line's performance "has been absolutely amazing," reports Dewayne Wulff, Marsh's v.p. of meat merchandising. "Out of the gate, I originally selected only 16 of our [demographically friendly] Marsh stores to carry the product. But with the absolutely fantastic customer response we've had, nearly every store has requested the product."
Wulff says the new line is similar to Marsh's existing Premium Gold Angus beef, "but in this case is segregated at birth and never given any antibiotics, growth hormones, or pesticides. It is USDA source-verified, which will allow us to trace it back all the way to the farm."
Many of Marsh's meat managers report sales of the Premium Gold Ultra store brand have doubled or tripled compared with "the similar prime Laura's Lean items that we had previously only carried," says Wulff.
Marsh's focus on store-brand programs has even helped cushion the blow from the spate of unprecedented spikes in beef prices in recent months, adds Wulff. While the chain had seen "a significant reduction in the movement of steak over the summer months -- luckily for us, earlier this year we introduced Marsh Lean Cuts that offered some value cuts that can be used for steaks, coming out of the round and chuck, which gave customers a nice alternative. But obviously, when you're selling a flatiron steak for $4.99 per pound vs. a T-bone steak at $10.99 pound, it's not quite the same."
The current emphasis on proprietary signature meat programs is an extension of an initiative spurred by chairman Don Marsh, "who challenges us to make sure all of our meat programs are unique and different," notes Wulff. The chain launched a signature pork line four years ago that continues to be successful. The line is sourced from "six Indiana-based pork farmers who have a passion for top quality and work under the National Pork Producers Council's strict quality assurance standards to guarantee quality and taste."
The ascendancy of such signature meat programs at retail has prompted packers to sharpen their own operations. "The onus is now on suppliers to make sure the programs and resources we provide are yielding measurable results that benefit retailers," says Norman Bessac, v.p. of marketing for Wichita, Kan.-based Cargill Meat Solutions. "There's a lot more to it than just selling them a nice product with a fancy label slapped on it -- it's a whole system."
While the product is certainly an important part of that system, Bessac says the most successful meat retailers "understand the way consumers look at the category, and in turn build a value position around those insights by focusing on key benefits and clear reasons that make it meaningful to the consumer."
Cargill has built its corporate strategy around that same focus, says Bessac, rather than just concentrating on having a national brand. "We firmly believe the best way for our company and our customers to succeed is to look at the category's performance and align ourselves to focus on appropriate growth opportunities." And these days, growth opportunities apparently look stronger than ever in private label.
"Even though most of the items in the meat category have not been labeled with a name or brand, it has always been the first thing customers associate with a store they frequently patronize. So I think as we move forward with branding, we have to build off that foundation and strengthen that value proposition. To expect a different dynamic to occur requires far more than expanding your offering with a fancy label."
The trend hasn't been ignored on the poultry side of the meat case, either. "We estimate that private label chicken has about a 25 percent share of refrigerated chicken sales and has been growing rapidly," observes Chris E. Jones, director of retail sales for Atlanta-based Gold Kist Inc., the nation's third-largest integrated chicken company.
The house-brand poultry programs that will take a leadership position at many chains are of a quality that is equal to or better than the advertised brands, says Jones. "That's one of the reasons that Gold Kist has been so successful in this category. We see this trend continuing as so many retailers are using their private label products to be their strategic point of difference from their competitors.
"Private label poultry programs have really progressed over the last 10 years, when there were very few branded private label programs," Jones adds. "Since then, many retailers have started to follow the European model of branding and building their own private label. For the near term, we see private label continuing to increase share. We also expect more retailers will start to build premium brands that are better than the major advertised brands, with their own strong marketing programs."
But a lot is riding on store-brand fresh meat, and retailers trying to have an impact on the category have to make sure food safety, customer service, and package integrity are top priorities. "The retailers must be concerned about the ability of their private label processor to provide a safe, consistently high-quality product," stresses Jones. "It's their name and reputation that's on the package."
Produce going private
Meat isn't the only perimeter category reaping rewards from proprietary branding. The trend is transforming the produce department at some operators, especially in the value-added category.
"Private label salads are a tremendous growth category for retailers," says Leslie Tripp, director of marketing at River Ranch Fresh Foods, LLC in Salinas, Calif.
Because the produce department is always at or near the top of consumers' lists of reasons they shop a particular store, Tripp flags "retailer's own brand" produce programs as highly effective in building store equity and consumer loyalty. "Packaged salad programs, in particular, allow stores to offer quality and great value with uniquely available items."
Although the packaged salads market has become fairly crowded with national brand players and line extensions, Tripp says, "There are still opportunities to fine-tune selections by making the offerings more customized to the local shoppers' needs and by offering unique blends and kits not available from the national brands."
Like Jones at Gold Kist, Tripp also urges retailers to stay on top of cold chain management regarding packaged salads, given that store-branded fresh labels signify a more "personalized promise" of freshness and quality on the part of retailers. "Once packaged, keeping the product properly chilled throughout the entire supply chain, from processing to dock to distribution center to retail back room to store shelf to home refrigerator, is critical to overall customer satisfaction and repeat purchase."
For packaged salads, he continues, "Every five minutes out of refrigeration reduces shelf life by two hours, while an hour out of refrigeration takes a day off potential shelf-life. Most cold chain breaks today happen at the back and front of the store, or on the way home."
Establishing and maintaining brand integrity are more vital than cutting costs in the service of margins, he adds. While it's essential to be competitive with store brands, "Retailers risk undermining their programs if their primary focus is on buying at the lowest price," Tripp says. Instead their due diligence should be directed at finding suppliers that can deliver top-quality, consistent supply; audited food safety programs; and high service levels.
After all, there's little that's more costly than trying to rehabilitate a store brand that's been tainted.
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