CSI: Convenience Scene Investigation - Private Label

October 10, 2008
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The evidence is in - private label is undergoing an evolution in the convenience store channel.




Convenience stores long have held appeal for consumers on the run. For decades, harried shoppers have been dashing in to make a quick soda or beer purchase, often after filling up their vehicles at the gas pump outside the store. The in-and-out convenience factor and extended operating hours have made up for the higher prices consumers typically had to pay for national brands in this channel.

But escalating competition from other retail channels, combined with shrinking margins on best-sellers such as gas and cigarettes, is forcing an evolution of sorts in the c-store sector. And private label increasingly is playing a role in that evolution.

“Private label is an opportunity area for c-stores,” says Jim Hertel, managing partner at the Barrington, Ill.-based Willard Bishop consultancy. “In general, private label is underdeveloped compared to grocery. Private label gross margins are higher, which can help offset [credit] card fees and gas margin compression, and the current economy means that shoppers are more price-conscious.”

What’s more, private label can be a critical differentiator in a crowded retail sector.

“If a retailer is fortunate enough to create a ‘hot product’ for which they are the only source, then all the rest of the loyalty/marketing program can be built around the special offer,” adds Bill Bittner, president of BWH Consulting, Mahwah, N.J. “By getting the consumer to visit the store, the retailer has a better chance to turn them into a customer.”

Jon Bratta, director, prop-rietary brands for BP America Inc.’s ampm c-store chain (headquartered in Warrenville, Ill.), notes that more convenience retailers are getting into private label, and that the offerings and branding get better every year.

“It ranges from national chains to smaller regional players that can take advantage of their product velocity, and limited geography from a supply chain standpoint,” he says. “The products range from dairy to snacks to foodservice, and the branding is getting more sophisticated in general.”


Pump to Packaged

David Bishop, managing partner for Balvor LLC, a sales and marketing consulting firm based in Barrington, Ill., says c-stores’ ride into private label really began at the pump decades ago, when some retailers began selling unbranded gasoline. Bishop, who recently partnered with the National Association of Convenience Stores (NACS) on “Do it Yourself,” a study of private label in the convenience store channel, notes that Dallas-based 7-Eleven Inc. then advanced the c-store store brand cause with the introduction of its now ubiquitous Slurpee brand.

“Slurpee itself was a brand - a brand that hosted other brands,” Bishop says. “But it did show a slight progression.”

By the mid- to late 1990s, the c-store industry was feeling the impact of discount tobacco. Some c-store operators - such as Valero Energy Corp. of San Antonio and Enon, Ohio-based Speedway SuperAmerica LLC - saw a profit opportunity and subsequently developed private label cigarettes for sale in their stores.

By the early 2000s, convenience store retailers had begun to focus strategically on foodservice - concentrating first on the hot-dispense beverage side.

Among the first c-store retailers to develop formidable private label coffee programs were Whitehouse Station, N.J.-based Quick Chek and Wawa, Pa.-based Wawa Inc., Bishops says. Thanks to their dairy heritages, these companies already had built trust with customers in the fresh food arena. The leap to private label coffee, therefore, wasn’t much of an extension outside that trust.

Next, Bishop says, the channel saw an impressive expansion in private label prepared food offerings. And more recently, private label has been weaving its way into the traditional packaged goods arena in categories such as beef jerky and energy drinks.

“It’s really been a very interesting progression,” Bishop says. “Even as private label moves into packaged goods, we have seen that many categories, if not all categories, are potential candidates for different reasons for different retailers.”

David Livingston, owner of DJL Research LLC, Waukesha, Wis., notes that convenience retailers now seem to be adding more “signature items” such as fresh foods under their private label programs.

These private label foodservice items are becoming particularly critical as the profit margins on the channel’s two biggest categories - fuel and cigarettes - continue to shrink year after year, maintains Don Longo, editor in chief of Convenience Store News.

“Retailers see foodservice as an area where they can make up some of the lost profits,” he says.


Room to Grow

With store brands finally taking hold in the c-store sector, it might come as a surprise that private label market share still represents only about 3 percent of the channel’s in-store dollar sales, according to the Balvor/NACS study.

“Many c-stores have less than 5 percent of sales in private label, while grocery’s average is 13-plus percent of sales and 16 percent of units,” Hertel says. “It’s the potential that’s really important to tap, as opposed to the current reality.”

Still, the low numbers are somewhat misleading, Longo stresses. Because only UPC-coded items are factored into the percentages, much of the c-store foodservice area - a huge private label hotspot - doesn’t get counted.

“No one really has a good fix on that,” Longo says, “but if you would add that in, convenience stores’ percent of sales for private label would be much, much higher. And with the economy going the way it’s going, and with consumers looking at ‘trading down,’ my sense is that private label is growing rapidly in the convenience store sector.”

Outside the foodservice arena, Longo foresees a rosy future for private label energy drinks, as well as bottled water - a commodity-type item for many c-store retailers.

“They can see themselves making a greater profit by going with a private label bottled water instead of one of the national brands.”

Looking ahead, Hertel agrees that these two areas will vie with foodservice as hot growth categories.

On the energy drink side, Bishop says c-stores have a unique opportunity because the category is still relatively new.

“Red Bull is still a relatively new brand in the consumer’s mind; therefore, it isn’t as entrenched and doesn’t have the same loyalty or equity as a Coca-Cola or Pepsi would in carbonated soft drinks,” he says.

Bishop adds that many c-store retailers are using private label energy drinks as a price-value proposition, not to compete against Red Bull, but to compete against the “secondary market” of brands such as Monster Energy and Full Throttle.

Some c-store retailers have been very aggressive in introducing new energy drinks and are doing fairly well here, he says. Still, many of them are learning that it’s not as simple as putting a product into a can, throwing a label on it and expecting it to sell.

“They have to do everything the national brands are doing to build demand for their products,” Bishop says. “At the end of the day, they can probably get the consumer to try it once, but the key is to get that repeat purchase.”

Quality and the price-value equation come into play here, too, he adds.

But growth opportunities also can be found in mature categories that boast strong brand loyalty, Bishop stresses. He points to soft drinks, a declining segment, as an example. The Pantry Inc., a Sanford, N.C.-based convenience chain with approximately 1,600 stores in the Southeast, developed a private label soft drink and is selling it - and a lot of it - at a steep discount in comparison to the national brands.

“Retailers looking to grow that business, a declining business, profitably might determine that one effective way is by switching price-sensitive consumers down to a private label brand,” Bishop says. “Because the basic assumption is you’re still going to sell the same number of units, but you’re going to generate more profit as a result of shifting down to the price value.”

Private label innovation, in the right areas, also captures consumers and spurs growth.

Longo points to 7-Eleven’s recent SpeakOut Wireless phone services launch as a great example.

“That’s really big, especially with the immigrant population that’s calling home in South America or Mexico,” he says.

Of course, the product must make a logical fit for the channel and the c-store, or the private label proposition will not pay. And in categories that might not warrant full-blown private label product development, some c-store retailers are looking into control brands from companies such as Topco Associates LLC of Skokie, Ill., Bishop says.



Leading the Way

All is definitely not equal when it comes to private label in the convenience store segment. Convenience store chains pushing the envelope in private label tend to be the same ones that excel on the foodservice side, Longo says.

He says chains such as Valero (with its redesigned Fresh Choices brand and new Road Runner store concept), as well as Wawa and Kwik Trip of La Crosse, Wis., are among today’s private label leaders in the c-store category. And Whitehouse Station, N.J.-based Quick Chek just completed a major rebranding in which the chain is pushing its own brand food products.

DJL Research’s Livingston views Speedway SuperAmerica and Kwik Trip as private label leaders, noting that Kwik Trip also looks at strategies outside the store brand arena to attract more consumers to its stores.

“Kwik Trip here sells bananas, onions and potatoes everyday for 39 cents a pound,” he says. “That consistently beats the sale prices at supermarkets.”

On the private label side, Kwik Trip also wisely ties in its own brand Nature’s Touch dairy products, Kwik Quencher fruit drinks and Glazers doughnuts to school fundraising through its Milk Moola and Donuts for Dough programs (see the sidebar). These programs give consumers a compelling reason to return to the company’s Kwik Trip and Kwik Star stores - and help to ensure healthy private label sales.

Bishop singles out Wawa and ampm as the private label leaders in the c-store arena.

“I think Wawa is leading the way in many respects,” he says. “Part of leading is figuring out what works and what doesn’t, and Wawa has been very public in saying they are trying to understand and define the boundaries as to how far they can take private label or proprietary brands.”

The Wawa brand is strong in items such as coffee, foodservice and dairy, Bishop says, and the company also has done some experimentation on the control brand side. In addition, Wawa has injected an impressive marketing orientation into a classical merchandising process.

In March, Wawa announced the launch of a dinner deals campaign, offering its customers featured dinner deal items for $3.99 or a three-item combo of the featured items for $9.99. The promotion featured Wawa branded items such as soup, all-white-meat chicken strips, Ciabatta Melts and more.

Bishop says ampm, on the other hand, has been taking more of a proprietary brand approach, introducing store brands such as its déluge sport drink line and augmenting its Shadow Hills packaged snacks line.

As an isotonic drink up against the Gatorade “behemoth,” Bishop says déluge has managed to do well by connecting with a very niche (young male) market and by not positioning the product directly against Gatorade. In fact, ampm put its own spin on the formulation, highlighting various ingredients and functional benefits. The brand also sponsors a Motocross team and boasts its own Web site.

“It is very tough to take on national brands,” ampm’s Bratta contends, “Where possible, we attempt to provide differentiation versus those brands. For example, before the national brands made their splash with lower-calorie sports drinks, our product featured half the sugar content of their product - and had high levels of antioxidants as well.”

It might come as somewhat of a surprise, therefore, that ampm had no private label program outside the foodservice arena just five years ago.

“Now, from a beverage standpoint, we are offering the consumer spring water, innovative sports drinks [and] enhanced bottled water under our déluge brand,” Bratta says, “[and] green tea under our Essence brand and Horchata. And we also have about 40 SKUs of various meat snacks, nuts, seeds and trail mixes under the Shadow Hills brand.”

Bratta says the enhanced waters feature a better taste and less sugar than the national brands, while the snack products sport some unique flavors and/or differentiators such as sea salt. He adds that ampm will continue to improve its hot prepared foods, and will expand private label into different categories during 2009.

Honorable mentions go to Quick Chek and Des Moines, Iowa-based Kum & Go, Bishop says. Quick Chek is definitely “pushing the envelope” in terms of private label development and rebranding, while Kum & Go recently made a leap into private label wine - with the introduction of Napa Creek Cabernet Sauvignon and Sea Ridge Merlot.

“We are starting to see some 750-ml bottles actually coming into both the cooler and the shelves in c-stores,” he says. “It’s kind of interesting. … If you go to wine, where will you not go in private label?”



Strategic Weapon

Looking ahead, private label will be an important weapon in the convenience segment’s overall strategy for success. But Longo stresses that store brand products won’t be enough to rescue c-stores that find themselves in a trouble zone of falling sales and shrinking margins.

“I think private label is an important thing to have, but you can’t do it in every category,” he says. “You have to be smart and do it in the right categories. It should be part of your arsenal, part of your strategy.”

Bishop says private label will continue to provide offsets to declining margins in other categories and also will play a larger part in encouraging repeat store visits.

“Private label will play an increasingly strategic role in driving the economics of the convenience store retailer,” he adds. “That will take time, but I think it will only continue to accelerate as the economics play out in higher fuel prices and more.” PLB



Sidebar: Foodservice Focus

For many convenience store retailers, foodservice continues to be a growing private label focus. Making news in the c-store foodservice arena are:

• Dallas-based 7-Eleven Inc., which not only introduced Asian Rollers, focaccia sandwiches, the Three-Cheese Bite (a sausage dog with three cheeses), Go-Go Fajitas and iced coffee to its lineup, but also added new flavors (such as Slurpuccino) to its Slurpee line. In addition, the company showcased a number of local/regional concepts during its University of 7-Eleven traveling food and beverage show in Orlando last March.

• San Antonio-based Valero, which offers more space for prepared foods and meals to go in its new, larger Road Runner stores. Highlights among the many available items include the retailer’s new Cibolo Mountain premium roast coffee made with triple-filtered water, available in several styles and sold in a triple-layer paper cup; a self-serve topping bar for the stores’ own sandwiches, hot dogs, baked potatoes and tacos; and fresh-baked pastries and muffins.

• Wawa, Pa.-based Wawa Inc., which not only added a 100 percent Colombian coffee to its already extensive proprietary regular, decaf, varietals and flavored coffee lineup, but also hosted a “Hoagiefest” in June. Wawa called the fest “a harmonious campaign celebrating the almighty hoagie with special price promotions and events carried on throughout the summer.” A different Wawa “Shorti” was featured every two weeks for just $2.99.

• Enon, Ohio-based Speedway SuperAmerica LLC, which recently launched its own Gourmet Roast coffee produced from a blend of 100 percent mild Arabica beans from Colombia and Central America. (Also attracting consumers to the retailer’s private label foodservice offerings are the popular Speedy Rewards Beverage Club and Food Court Club.)

• Warrenville, Ill.-based ampm, which recently offered a mix-and-match deal for any three of its regular-sized hamburgers, hot dogs, cheeseburgers, corn dogs, jalapeno corn dogs or chicken sandwiches - for a price as low as $2.49.



Sidebar: Fresh Look

This past spring, Quick Chek - a family-operated convenience store chain based in Whitehouse Station, N.J. - announced the launch of a new brand positioning that includes a redesigned logo, revamped private label product packaging, an enhanced Web site and a new mascot called “Q.”

The 100-plus-store chain began its makeover on April 21 with advertisements, point-of-purchase materials and private label packaging flaunting the company’s new logo. The logo boasts a bright lime-green “Q” with a tail shaped like a dark-green leaf, which Quick Chek says represents a “commitment to deliver a quality assortment of fresh food products coupled with an elevated food service experience.”

Speaking of fresh, John Schaninger, Quick Chek’s vice president of sales and marketing, tells PL Buyer that the company’s private label revamp will include fresh new offerings that mesh well with customer demand.

“From updating our packaging of old favorites to creating the all-new Quick Chek product lines, these new designs will seek to provide current and prospective customers with the fresh products they desire, in a fast and friendly environment,” he says.

Together, the logo, packaging and Web site will work to educate Quick Chek’s existing and future customers about the “Quick Chek experience,” Schaninger adds, an experience he says marries fresh product offerings with a fresh attitude.

“Not only are these two elements responsible for our success in the industry to date,” he says, “but they are also the core values in which we will continue to build, develop and enhance to innovatively and effectively meet the changing needs of the marketplace.”

Quick Chek’s new branding continued with the mid-May unveiling of a new prototype store in Ulster, N.Y., the company says. The location now serves as the company’s flagship store, and marks the beginning of a five-year company-wide store redesign.

Quick Chek says the new brand positioning, logo and private label program were developed in conjunction with Lippincott, a brand strategy and design consultancy based in New York. The private label packaging, Web site, mascot, advertising campaign and sales materials were developed with the help of Oxford Communications, a Lambertville, N.J.-based marketing communications firm.


Sidebar: Give Back, Get More

Through its Milk Moola and Donuts to Dough programs, La Crosse, Wis.-based Kwik Trip Inc. not only is giving back to schools, preschools, daycare facilities and other eligible non-profits in Wisconsin, Minnesota and Iowa, but also is building shopper loyalty - and sales - for its Nature’s Touch, Kwik Quencher and Glazers product lines. The products are sold in the company’s 300-plus Kwik Trip and Kwik Star stores.Under the programs, started in 2003 and slated to run through August 15, 2010, participating non-profits receive five cents for each cap or bag top they redeem from select Nature’s Touch/Kwik Quencher products, and 10 cents for every tan Glazers price oval from the top of dozen and half-dozen boxes of Glazers donuts.

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