Merchandising Features / Trend Features

Packed with Private Label Potential

March 6, 2012
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The degree of store brands varies greatly across the different dairy categories.

Private-label offerings should be innovative and sold in attractive packages.

Category management will help move products.

Store brands are becoming more prominent in supermarket perishables departments.

Merchandisers are increasing their focus on private-label selections in an effort to differentiate their offerings from those of competitors and generate higher margins.

Indeed, sales of supermarket store brands increased more than 2 percent in 2011 compared to a year earlier, and further growth opportunities remain.

“Retailers are demonstrating that the same categories and strategies that are ripe for innovation and investment on the part of national brands are equally open to store brand development,” says Dane Twining, a spokesperson for the New York-based Private Label Manufacturers Association (PLMA).

And that includes dairy. While store brands are prominent in a number of dairy categories, they are relative sparse in others.

Total dairy sales were $41.7 billion in 2011 with private label accounting for 40.4 percent, up 0.7 percent from a year earlier, The Nielsen Co. reports. Total dairy unit volume was 17.5 billion with private label accounting for 41.3 percent, down 0.1 percent.

Willard Bishop, a Barrington, Ill.-based food and CPG supplier consulting firm, states that private label accounts for 77 percent of supermarket egg products; 64 percent of fluid milk; 48 percent of cultured cheese; 32 percent of butter and margarine; 17 percent of refrigerated dough; and 13 percent of yogurt.

Indeed, milk has a long history in private label, dating back decades to when retailers contracted with local dairy farmers for products and before there were refrigerated trucks to transport the milk long distances.

Other categories without such history tend to have more national and regional brands.

“Long-time stable categories, including milk, eggs, butter and margarine, tend to do exceptionally well in private label,” says Jim Wisner, president of Wisner Marketing, a Libertyville, Ill.-based merchandising and marketing consulting firm. “But it’s becoming difficult for private-label dairy to succeed in categories driven by new products and innovation.”

It is hard for store-branded yogurt, for instance, to gain a stronghold because of the dominance of national brands and their abundant varieties. Store brands also must fight for shelf space with better-established and often popular products.

There are greater opportunities, meanwhile, for private-label cheese, notes Marilyn Wilkinson, director of national products communications for the Madison, Wis.-based Wisconsin Milk Marketing Board.

Indeed, because retailers have historically marketed unbranded “cut and wrap” cheese that just featured pricing labels, those products can more easily be converted to a store brand, she states.

Craig Espelien, vice president of Consumer Products Inc., a Fort Worth, Texas-based sales and marketing consulting firm, agrees there is strong potential for private-label cheese, particularly with shredded cheese, because it is a sector in which many consumers do not shop by brand.

He recommends that, for best results, retailers carry a national brand and a private-label or regional offering with unique flavors.

“Force the customer to buy private label because it has the best overall value and distinct flavors.” he states.

To best compete with national brands, private-label dairy products also should have attractive packaging and innovative elements, Wisner states.

“Is any retailer currently offering private-label Greek yogurt?” he asks.

One of the biggest obstacles to expanding private-label dairy selections is a lack of shelf space.

Because dairy space is more limited than in some other perishables departments, retailers have to ensure that the profit they make on a product justifies the area that it takes up.

“If the space allocated to different dairy categories is wrong, such as having too much butter and not enough pudding, retailers will have dead space in one part of the case and out-of-stocks in another,” says Jim Hertel, Willard Bishop managing partner. “Because the space is constrained overall and more expensive, the stakes are higher than in ambient space.”

Espelien agrees and notes that brand and SKU rationalization are needed in the dairy.

“Sometimes there is too much variety,” he says. “Retailers need to understand what consumers want and need, and often they can drive more with less.”

Managing store-branded dairy products can be particularly difficult as items often turn twice as fast as similar national-branded selections. If the retailer does not replenish the selections quick enough, many consumers will become frustrated and stop shopping the store.

Category management resources primarily are provided by manufacturers. Because the dairy sector has a limited amount of branded supplier products in many areas, such as yogurt, there are not enough people to monitor the category regularly, he says.

“This is an issue for retailers, but more of an issue for private-label dairy because retailers can’t rely on private-label manufacturers for expertise so they have to make sure someone is keeping an eye on products,” Hertel states.

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