Special Report: Hot List - Foods

May 20, 2008
/ Print / Reprints /
ShareMore
/ Text Size+
The economy might be cooling, but sales of store brand consumables continue to heat up, thanks to a combination of across-the-board price increases, improved private label penetration and targeted new product development.




According to the U.S. Department of Agriculture (USDA), food prices jumped 4 percent during the past year, the highest annual increase since 1970. But in several individual categories - many of which include pantry staples - the increases were much more significant. For example, the USDA reports the price of eggs jumped 35 percent between January 2007 and January 2008; tomatoes, 25 percent; milk, 18 percent; cheese, 14 percent; poultry, 8 percent; apples, 8 percent; fresh vegetables, 6 percent; cereal/bakery products, 6 percent; coffee, 5 percent; and beef, 5 percent.

It’s no surprise, then, to see many of those same foods and beverages - along with products made with them (pizza crust/dough, egg substitutes, tomato juice, breakfast bars, pancake mixes, etc.) - on this year’s private label foods Hot List. The list is a compilation of store brand consumables with at least $10 million in annual sales that posted double-digit dollar sales gains in U.S. food, drug and mass merchandise outlets (excluding Wal-Mart) during the 52 weeks ending Jan. 27, 2008.

Based on figures provided by Chicago-based Information Resources Inc. (IRI), the 2008 foods Hot List includes a whopping 72 product categories - up from just 47 a year ago - from every corner of the supermarket.

“Consumers no longer have a quality fear when it comes to eating private label foods,” says Doron Levy, president of Toronto-based Captus Business Consulting. “That wall is really coming down.”


Dollar Gains Outpace Unit Growth

Not surprisingly, 62 of the 72 categories on this year’s foods Hot List posted dollar sales gains that are higher than unit sales gains. In fact, 11 categories - mostly in the dairy department - actually saw unit sales decline. As a result, reports Dan Raftery, president of Antioch, Ill.-based Raftery Resource Network, dollar sales of all Hot List food categories combined surged 18.5 percent over the past year, while unit sales edged up only 0.5 percent, thanks to unit sales declines in the top four dollar-volume categories (skim/low-fat milk, fresh eggs, whole milk and shredded natural cheese). Together, these categories represent almost $10.3 billion of the $14.8 billion in total sales realized by Hot List food categories.

“If you apply the 80/20 rule,” Raftery says, “you’ll see that 80 percent of Hot List sales are generated by 11 percent of the Hot List categories.”

That means most categories on this year’s list are relatively small (57 of 72 had less than $100 million in sales last year). In addition, 43 Hot List food categories also recorded lower-than-average private label dollar shares, making sometimes modest gains seem more significant.

However, a surprisingly high number of Hot List food categories boast store brand dollar shares in excess of 30 percent, including frozen carrots (81.1 percent); fresh eggs (69.3 percent); refrigerated whole milk (63.9 percent); refrigerated skim/low-fat milk (62.9 percent); powdered milk (56.2 percent); refrigerated meat spread/salad (52.4 percent); frozen raw shrimp (50.3 percent), refrigerated handheld non-breakfast entrees (49.2 percent); natural shredded cheese (46.3 percent); frozen orange juice concentrate (45.6 percent); nutritional snacks/trail mixes (34.9 percent), frozen tortellini/tortelloni (34.7 percent); evaporated/condensed milk (33.5 percent); and natural cheese slices (30.9 percent).

“A lot of these [high-dollar-share] categories are very price-sensitive; i.e., consumers really react to differences in retail pricing,” Levy says. “If branded shrimp is $10 and private label is $7.99, the customer will pick up private label every time because they don’t see any quality difference in these categories. There’s not a lot of brand loyalty here. How many consumers even know the leading branded supplier of frozen raw shrimp?”

Sheila McCusker, editor of IRI’s Times & Trends newsletter, is not surprised to see well-established private label categories experiencing large gains.

“Consumers who have historically been light private label purchasers are most likely to begin with categories where store brands have already been ‘proven’ and where there’s broad availability,” she explains.


‘It's the Economy, Stupid'

And just what’s prompting those “light private label purchasers” to finally give store brands a try? In addition to the aforementioned price increases, the current economic situation has many consumers rethinking their purchases.

“If you look at the numbers,” Levy says, “the economy isn’t doing that poorly; we’re not in a recession. But the ‘psychology of recession’ has taken hold, nonetheless, and consumers are reacting to it brutally by switching to private label to save money.”

The proof is in the share points (dollar share of type change vs. year ago). According to IRI, private label took share points from the national brands in 69 of 71 Hot List categories, including 21 in which store brand share jumped more than 2 percentage points. Most notable were refrigerated pork product hocks/feet (+10.3 share points); refrigerated meat spread/salad (+6.3); nutritional snacks/trail mixes (+5.8); refrigerated side dishes (+4.2); frozen sweet goods, no cheesecake (+3.4); frozen tortellini/tortelloni (+3.2); other dried fruit (+3.2); egg substitutes (+3.1); refrigerated pizza crust/dough (+2.9); and refrigerated kefir/milk substitutes/soymilk (+2.7).

Interestingly, store brands gained share even in the 11 categories for which unit sales declined. So even though consumers are purchasing fewer gallons of milk in supermarkets, drug stores and mass merchandise outlets, when they do buy milk, more of them are picking up a private label vs. a national brand.

“This year marks a turning point for store brands,” McCusker says. “After five years of relatively flat share trends, private label as a whole is [finally] picking up steam. The combined effect of a weak economy and staggering price increases in some categories has created real change in consumer shopping and purchase patterns.”


Retailers Do Their Part

Of course, the economy isn’t the only driver behind store brands’ recent growth. Retailers also are doing their part to jump-start private label sales.

“Slimming margins on the national brand side have prompted many chains to focus on private label in an effort to improve overall profitability,” Levy says. “There’s a real drive to develop a private label version in every category.”

In addition, he says, many retailers also have reduced the number of brands they carry in any given category, giving those that remain - including private label - a bigger piece of the pie. And in a handful of small categories, some chains have implemented the “100 percent solution,” offering only one brand: their own. (Think refrigerated pork products, other dried fruit, sunflower/pumpkin seeds, pork rinds, ready-to-use piecrust and other low-dollar categories lacking a well-known national brand.)

But private label’s success isn’t due only to store brands’ higher profile on the shelves. “Major retailers such as Safeway and Kroger have invested substantially in building private label offerings that really resonate with consumers,” McCusker says. “[They’re] aligning private label development with major underlying consumer trends.”

Levy agrees.

“There’s a huge push toward healthy living and organics, and many retailers have created separate private label brands for these items,” he says. “Some chains are starting to drop national brand organics altogether in favor of private label because there are enough private label organic products available now to fill the shelves.”

Retailers also are putting much more private label emphasis on convenience foods, evidenced by the fact that 41 percent of all Hot List food categories are either frozen or refrigerated. Refrigerated options also tap into growing consumer demand for “fresh” and “homemade.” In fact, Raftery says, “temperature-controlled” categories represent 85 percent of all dollar sales on the foods Hot List, underscoring the importance of frozen and refrigerated products not only to consumers, but to the retailer’s bottom line.


The Take Away

In terms of dollar sales growth, the top 10 Hot List foods categories include refrigerated pork products-hocks/feet (+140.9 percent); refrigerated side dishes (+107.9 percent); single-serve frozen dinners/entrees (+107.2 percent); other dried fruit (+81.4 percent); refrigerated pasta/noodles (+62.1 percent); refrigerated flavored spreads (+54.6 percent); refrigerated crust/dough (+46.6 percent); frozen sweet goods, no cheesecake (+46.4 percent); refrigerated kefir/milk substitutes/soymilk (+46.0 percent); and IQF turkey/turkey substitutes (+42.4 percent). But, as Raftery points out, many of those categories are relatively small in terms of total dollar sales and were likely impacted by the addition of a private label by just one large retailer.

To find the “really hot” products, retailers might want to look at categories that not only posted double-digit dollar sales gains, but also racked up higher-than-average dollar sales, dollar share, dollar share change vs. a year ago and/or price per unit. Which categories meet all four criteria? Nutritional snacks/trail mixes, natural cheese slices, frozen fish/ seafood, cooking/baking nuts, and frozen raw shrimp. 

“Those categories are where retailers will get the most bang for their buck,” Raftery says. However, retailers that have already maximized their private label SKU count in the obvious categories might want to take a look at smaller categories with low private label penetration (refrigerated yogurt drinks, shelf-stable bottled fruit juice blends, refrigerated appetizers/snack rolls, novelty non-chocolate candy, frozen breakfast entrees, refrigerated tortillas, etc.). “There are a lot of opportunities there for store brands to really stand out because there’s not a big crowd,” Raftery says. “A lot of the big share gainers are pretty small categories that likely have been influenced by one large national retailer taking on a private label product. But that shows what savvy retailers can do in a small category just by introducing a good quality private label that taps into key trends.”

The time is right for private label, McCusker concludes, particularly in categories experiencing high price increases.

“Retailers have a unique opportunity to build relationships with consumers through their private label brands at a time when consumer[s] will be highly receptive to this dialogue,” she adds. “Positive experiences now likely will have staying power when the economy picks up again.”


Sidebar: Market Snapshot of Food Prices

The cost of raw materials is rising quickly - don’t expect a slowdown anytime soon.
 
The many factors responsible for today’s economic slowdown are piling up and are ready to tumble like dominos. These are difficult times, indeed, for the world’s business economy. The pressures of limited supply and increased demand are affecting every aspect of retail, but they are hurting the grocery store especially, and on a very personal level.

According to the U.S. Department of Agriculture’s (USDA) Economic Research Service, the consumer price index for all food increased 4 percent from 2006 to 2007, the highest annual increase in 17 years. And the USDA makes note that this trend is expected to continue throughout 2008.

High and low price events are common occurrences in the agricultural market. However, the Food and Agriculture Organization of the United Nations (FAO) says instances of high prices often tend to be short-lived compared to instances of low prices. The current economy has been in a steady decline for more than two years, and food prices have been on the rise for just as long - a cause for concern for economists and consumers alike. 

What distinguishes the current state of the agricultural market from past economic downturns is the hike in world prices for nearly all major food and feed commodities, FAO says. High international prices for food crops such as grains continue to ripple through the food supply chain, contributing to a rise in retail prices for such basic foods as bread, pasta, meat and milk.

What makes this particular downturn critical is that the economic effects are so widespread. Global markets have become increasingly intertwined. As a result, linkages and spillover effects from one market to another have increased in recent years among agricultural commodities and in the financial sector, FAO explains.

Throughout the United States and the world, concerns are mounting regarding food price inflation, fueling debates about the future direction of agricultural commodity prices in both importing and exporting countries. And with no end in sight (or at least the much-needed immediate sight), FAO predicts the cost of food production will remain high or continue to rise for the next 10 years. But will retailers, manufacturers and consumers be able to hang on for that long?
 
The chart below provides a current snapshot of the price increases specific key categories have experienced over the past year or past two years. PLB
 
Price increases between 2007 and 2008
Eggs -- 35%
Tomatoes -- 25%
Milk -- 18%
Cheese -- 14%
Poultry -- 8%
Apples -- 8%
Fresh Vegetables -- 6%
Cereal/bakery products -- 6%
Coffee -- 5%
Beef -- 5%
 
Source: USDA Economic Research Service
 
Price increases between 2006 and 2007
Wheat -- 35%
Corn -- 28%
 
Source: USDA Economic Research Service
 

Did you enjoy this article? Click here to subscribe to Private Label Buyer.

Recent Articles by Denise Leathers

You must login or register in order to post a comment.

Multimedia

Videos

Image Galleries

September 2014 New Food Products

This month's new food products include cane sugars, barbeque sauce, condiments in squeeze bottles, cinnamon snack seasoning, and jalapeno tzatziki, ice cream, herb toasts, corn puffs, instant coffee, coconut water, and a water enhancer.

Podcasts

Coming with a clear, comprehensive plan was the key to success for Longo Brothers Fruit Markets when the grocer decided to roll out a two-tier private label strategy, Jenny Longo and Robert Koss tell PLBuyer editor Chris Freeman in this podcast.

More Podcasts

Private Label Buyer Magazine

PLB September 2014 cover

September 2014

The September 2014 issue of Private Label Buyer includes a convenience channel update, as well as category insights on frozen store brand trends and health and beauty items. Check it out today!

Table Of Contents Subscribe

Private Label Segments

Which segment of private label will see the biggest growth over the next year?
View Results Poll Archive

Clear Seas Research

Clear Seas ResearchWith access to over one million professionals and more than 60 industry-specific publications,Clear Seas Research offers relevant insights from those who know your industry best. Let us customize a market research solution that exceeds your marketing goals.

PLB Marketplace

STAY CONNECTED

facebook_40px twitter_40px  youtube_40pxlinkedin_40pxgoogle+ icon 40px