Give 'em the Heater
May 1, 2005
Give ‘em the Heater
By Molly Strzelecki
Hot categories in the private label industry are racking up dollar sales and growth.
Spring is here and the baseball season has officially begun. Pitches are flying fast and furious and players are honing their skills to swing at only the right and best pitches to knock them out of the park.
In the realm of the grocery retail industry, there is no clear-cut beginning or end to the private label season. In fact, it’s safe to say there is no ‘off-season’ for private label, though summer always proves to be a busy time for manufacturers and retailers, with new product roll-outs and consumers looking for more products that fit the warm-weather, outdoor lifestyle of picnics, the beach and the like.
|Hot LIST: TOP Private Label Categories by % Gain|
|HOT category||Dollar Sales |
|% Change Vs. Yr. Ago||Dollar Share of type||Unit Sales |
|% Change Vs. yr. ago|
|REFRIGERATED Fresh Soup||$46.5||294.3%||81.5%||12.2||275.1%|
|REFRIGERATED Kefir/Milk Substitutes/Soymilk||$12.6||169.3%||3.3%||5.5||169.1%|
|Dried Meat Snacks||$16.5||143.6%||5.4%||4.5||144.9%|
|Trash Receptacle/Waste Basket||$31.9||86.5%||38.1%||4.8||54.3%|
|Imitation Processed Cheese (All Other Forms)||$11.0||56.5%||40.2%||5.7||46.3%|
|Baby Play & Discovery Accessories||$10.5||46.0%||12.8%||1.2||45.2%|
|Natural Crumbled Cheese||$10.3||33.8%||7.6%||4.6||14.3%|
|Uniform Weight Lettuce||$79.0||31.6%||13.0%||31.3||31.3%|
|Domestic Table/Still Wine||$33.6||30.3%||1.1%||7.4||25.0%|
|REFRIGERATED Uncooked Meats||$245.6||29.7%||28.3%||61.4||43.2%|
|Other Salted Snack|
|Convenience/PET Still Water||$301.9||25.0%||12.6%||140.0||14.2%|
|Nutritional Snacks/Trail Mixes||$16.6||24.8%||16.6%||4.8||35.6%|
|Chocolate Candy Box/Bag/Bar||$37.0||24.1%||2.5%||23.3||22.3%|
|FROZEN Appetizers/Snack Rolls||$39.3||22.5%||4.8%||15.5||15.1%|
|Canned and Bottled Tea||$24.3||22.1%||3.8%||15.1||23.3%|
|SHELF-STABLE Bottled Cranberry Juice||$20.7||21.9%||13.4%||8.0||21.1%|
|REFRIGERATED Handheld Non-Breakfast Entrees||$31.7||21.6%||38.4%||10.2||13.4%|
|Natural String Cheese||$101.0||20.8%||24.5%||89.5||-8.6%|
|Corn Snacks (No Tortilla Chips)||$14.2||20.4%||3.7%||11.9||15.9%|
|Natural Cheese Slices||$160.8||20.1%||27.9%||64.8||8.5%|
|Muscle/Body Support Devices||$11.2||18.3%||4.6%||2.4||11.4%|
|Non-Chocolate Chewy Candy||$61.0||17.3%||9.4%||54.7||19.2%|
|Foot Care Devices||$29.2||16.2%||11.4%||10.0||4.3%|
|Fresh Cut Salad||$238.7||14.5%||11.5%||97.9||2.1%|
|REFRIGERATED Non-Sliced Lunchmeat||$13.0||13.1%||5.1%||4.3||7.0%|
|Croutons (No Stuffing Croutons)||$19.0||11.8%||15.1%||15.1||15.4%|
|SHELF-STABLE Prepared Dinners/Entrees||$14.4||11.1%||9.4%||9.5||7.9%|
|Lip Balm/Cold Sore Medication||$11.1||11.0%||3.8%||11.6||15.9%|
|READ-TO-SERVE Wet Soup||$106.1||11.0%||6.0%||111.6||4.3%|
|Cooking & Salad Oils||$324.3||10.2%||36.9%||131.8||0.8%|
|Source: Information Resources Inc., Chicago. Total supermarkets, drug stores and mass merchandisers (excluding Wal-Mart) for 52 weeks ending Dec.26, 2004.|
Over the past year, some private label categories have had growth and sales that have been hotter than a 100-mile-an-hour fastball slicing across home plate on an August afternoon. PL Buyer took a look at sales and growth data from Chicago-based Information Resources Inc. to find out which categories are throwing heaters in the private label industry. But we didn’t just want to take a look at any old rising category. The categories had to have double-digit growth and at least $10 million in sales to make our roster, and the result was a mélange of private label categories and subcategories that reached out from food to drug and everything in between.
Because the categories on our Hot List span the store, there isn’t just one factor that has impacted growth, but instead a variety of dynamics that are all coming together at the right place and right time.
“I think [the factors impacting private label growth] are somewhat two-pronged,” says Jim Wilsky, senior vice president of category development for Marketing Management Inc. (MMI), Fort Worth, Texas. “Part of it has to do with what is going on in the industry as far as major retailers acquiring smaller retailers,” he says. Wilsky explains that when a smaller retailer’s private label program gets folded into a larger retailer’s program that may be better established, growth is inevitable. “A lot of people have negative views of all the acquisitions that are going on and certainly there are negative aspects to it. But one of the positive aspects is that the private label programs have enjoyed growth, and not necessarily new, innovative growth, but filling voids and bringing the retailer up to the level that the other retailer is already at.”
Another impact on private label category growth has simply been packaging and new product innovation. As private labelers and retailers make a run at the national brands, packaging and products must be up to snuff, otherwise that first contact with the consumer will strike out.
“Not only are there packaging innovations on current SKUs but you have package innovations that basically create a whole new item,” Wilsky says. “In other words, the old standard item doesn’t necessarily get discontinued, you’re actually building a SKU on top of another SKU through packaging.” Additionally, Wilsky adds that flavor profiles have exploded across a number of categories, and an overall growing marketing initiative for the private label industry, has helped grow a lot of the Hot List categories.
“For many manufacturers, and this would carry over to retailers, a lot of their revenue growth comes from new items,” explains Tom Aquilina, president, Aquilina & Associates, Crystal Lake, Ill. “What I see looking at these numbers, most of them are retailers getting into a lot of categories and getting into private label and these categories are really a new venture for them.”
“Retailers are stepping out and introducing and developing items that they believe will work, that they believe the category has room for, and that might or might not be a brand target. And that has taken down some of the walls that, traditionally, private label has always been built on and that is to follow the brand,” Wilsky notes.
The press is also playing a role in the growth of some categories, especially when it’s touting a product’s benefits and bonuses.
“If you look at snack mixes and nuts and olive oils,” Aquilina explains, “those are items that are expanding their offerings. And all the publicity nuts have gotten over the last year about being healthy has helped. If there is a strong base for anything having to do with health and well-being, retailers are going to build off of it.”
Calling the Play
“Anything to do with personal health and wellness is hot right now,” Aquilina says. While not the only trend throughout the Hot List, it is one of the dominant trends, with productssuch as hand sanitizers, foot care devices and cold/allergy/sinus tablets/packets all making the cut.
Within that trend, private label tooth bleaching and whitening products reigns as the top health and beauty care category, with 117 percent growth. The numbers look good, and the product reaches out to a segment of consumers that may previously had been untapped, but as with any new venture, retailers and manufacturers need to take a good strong look at the overall category before sliding in safely.
“The fact that [tooth bleaching and whitening products] are in private label suggests that it’s doing really well and that there’s a segment of the market of people that are interested but just balked at the price of the branded white strips-type products on the market,” says Tom Vierhile, director of Productscan Online for Data Monitor Naples, Naples, N.Y. ”This may extend that segment to the more price-oriented consumer.” Vierhile also notes that when teeth whitening products first hit the market on the branded side they were also hitting price points upwards of $40. “That was a huge jump when you get people who are used to buying a tube of toothpaste for $4,” he says, adding that the trend of people being “into themselves” these days is changing how consumers look at products these days.
“When it comes to fresh lettuce and products like that, I can see how that’s growing and will continue to grow,” Aquilina adds, “because for so long there was Dole and Fresh Express in the bag salad and pre-cut salad, and now retailers are getting into their own. So I see those categories expanding. A head of lettuce is a head of lettuce.” The problem could arise, however, that in categories such as the health and beauty care category, there isn’t necessarily the same level of confidence with private label offerings. “If you think about it, the millions of dollars Colgate and Proctor & Gamble spend on advertising health and personal care items, that’s a lot to compete with,” Aquilina says.
Rounding Third and Heading for Home
How long retailers and manufacturers will continue to score with these categories is anybody’s guess. Some of the categories have such a small sales base to begin with, such as private label tooth bleaching and whitening with sales of just more than $10.8 million, that continued growth seems inevitable and the sky is the limit. Yet other categories, say, private label convenience/PET still water, had sales of more than $300 million, with 25 percent growth. Just how big can these categories get?
“The only thing that can hamper growth is if it’s a commodity and the price goes up, and the retail price becomes an issue,” Aquilina says. “If retailers have to sacrifice quality to retain a certain retail price point, then the category could be at risk or that growth could be at risk.”
“If you think about water, nuts and uncooked meats, those are semi-commodities,” adds Pete Deeb, managing partner of Deeb, Macdonald and Associates, Williamsburg, Va. “A nut is a nut and one of the reasons those categories have grown and will continue to grow is because if there is quality in those items then the consumer will try and save the money. A lot of this inherently has to do with quality.”
Others say that there is no limit to how much more these categories can grow, and the proof lies beyond our borders.
“It would be interesting to compare some of these big [sales base] categories of share market here with places like the U.K. that are more developed,” Deeb notes. “That could be the end target. If you’ve got a 24 percent share here on a category, and a 35 percent or more share in the more developed countries, then long term it’s very possible we could grow to that.”
“If you look at other countries, many of these categories are double the size they are here in the U.S.,” Vierhile adds. “I don’t think that in supermarkets private label products are anywhere near tapped into the true potential they have. And a lot of these categories, some of the faster growing ones, seem to be categories where the branded products are poorly differentiated.”
Where there is no clear number-one branded product has been one of the main factors in exponential private label growth. The Hot List is topped out by refrigerated fresh soup with $46.5 million in sales. While it only holds 5.2 percent of dollar share for the total category, it’s up 294.3 percent over last year, and obviously has leaps and bounds to grow. A few years back, Vierhile notes, there were a couple branded players involved in the fresh soup category, but these days, it’s up for grabs.
“This is Campbell’s Soup category and why aren’t they at least experimenting there with this? It does suggest that there is an opportunity there,” Vierhile says.
Additionally, categories such as soymilk offer great possibilities for private label and its continued growth.
“I’ve seen a lot of supermarkets out with private label soymilk-type products,” Vierhile explains. “Aside from [branded player] Silk, there is really a vacuum there of not another strong number two [branded product]. That’s advantageous for private label.” Vierhile also points to the meat snacks category as holding opportunities, with no clear leader amongst the various products.
When Life Throws You a Curveball…
Double-digit growth and increased sales numbers are great, but analysts of our Hot List warn against taking too much stock in numbers alone.
“Most of these categories have grown over the last 12 to 18 months, and most of the growth is due to new distribution,” Aquilina explains. “On these categories that have shown tremendous growth, retailers and manufacturers could be at risk if this is a one-time growth only. These numbers are really no indicator of what level of repeat purchases you’re going to get, and repeat purchases are what has made categories dynamic in private label.”
One category in particular is deceiving, many will agree. Private label butter, which ranks in the top 25 on the Hot List showed 23.9 percent growth and $598.2 million in sales. And while those numbers are pretty incredible, it’s not the whole story.
“If you look at butter, they’ve had price increases,” Aquilina says. “Even though dollar sales are up, unit sales are down. Butter is driven by price commodity.”
“The reason butter was up so much this past year was because of the high cost of branded butter,” Deeb adds. “Butter, ice cream, cheese, those three categories were really impacted by the high cost of milk. And milk prices, butter prices and cheese prices were through the roof for the better portion of the last few months. When that happened, it was pretty easy for the consumer to make the switch to private label. The interesting thing will be to see how many of them stay with it if the prices level out. There are some commodity catgories like that that are price-sensitive.”
What is significant is the distribution and life cycle of these hot private label products. For example, with private label tooth whitening products, Aquilina notes that historically private label toothpaste hasn’t done very well, and retailers should be cautious about committing to a product as such.
“In the process of doing a category analysis, retailers should look not only where the growth of private label is, but what is the growth of the whole category?” Aquilina says. “Private label might be up 15 percent, and that would justify new distribution, but the category might only be up a couple of points.”
To be on the safe side of the play, analysts will agree that looking at the whole picture – not just the numbers – is the best bet to prevent against going after categories that are only a pop-fly when other categories could prove to be a grand slam. PLB