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Private-label brands, slammed as "parasites" by Coca-Cola Co. President Douglas Ivester, are encroaching even further into brand territory as a host of grocery chains introduce new premium varieties that come even closer to the real thing.

There are no reliable figures on how heavily premium brands figure into the 19.3% unit share that Information Resources Inc. says private labels held in supermarkets during the fourth quarter of 1994. But there has been a sudden spurt in premium store lines; just within the last year, Vons, Supervalu, Topco Associates, Safeway, Pathmark and Federated Foods all have added upscale store brands.

According to Private Label, premium private label comprises about 15% of private-label stockkeeping units on the shelf today.

The premium phenomena isn't new: Great Atlantic & Pacific Tea Co.'s Master Choice has been around for six years and Toronto-based Loblaw, which lifted premium private label to an art, cranked up its President's Choice money machine in 1983.

But as competition grows and grocery profit margins still hover at the 1% mark, the lure of higher margins, more high-priced volume movement and a way to raise customer loyalty is tempting more grocery chains into the subsegment.

"It's picking up momentum constantly," says Dave Nichol, president of Cott Corp., a soft drink manufacturer. Mr. Nichol, the former president of Loblaw International Merchants who engineered the phenomenally successful 1,500-product President's Choice line, maintains the premium trend will only escalate as chains from Europe-where private label holds up to 60% of all sales-continue to buy into U.S. companies.

In an age where Sainsbury buys into Shaw's Supermarkets and Dutch chain Ahold swallows up four U.S. chains (see story on Page S-8), premium private label can only grow, says Mark Husson, an analyst with J.P. Morgan.

"All the Europeans coming into the U.S. see the potential for expanding private brands in the U.S. as being unbelievable," says Mr. Husson, a former marketing manager for private label brands with U.K. grocery powerhouse Tesco.

"Retailers in the U.S. are not as dominant in the supply chain as they should be, and the development of a credible private brand is part and parcel of what [Europeans] see as an opportunity," he says.

"The key [to upscale private label] is to establish a point of difference between retailers," says Mike Rourke, senior VP-corporate communications at A&P, the East Coast grocery chain with 300 premium SKUs under its Master Choice umbrella.

But he's mum on the subject of how much Master Choice has contributed to the bottom line, saying only: "It's been very successful."

While few figures on Master Choice's performance are available, a recent study by IRI on cookies found that Master Choice premium cookies sold $3.4 million in 1994, giving it a 3.8% share of the private-label cookie segment in A&P stores.

Key to the growth of premium private label is product differentiation. Mr. Husson says Safeway Select Southwest salsa touts ingredients including sweet corn and black beans, but the price is in line with national brands.

"The premium private label needs to be different from, rather than cheaper than, [national brands]," he says.

Ironically, premium private label almost takes on the aura of a national brand in that these lines can't lower their price. To discount premium private-label products would "cheapen the product in the eyes of the consumer," says Brian Woolf, president of Retail Strategy Center, a retail consultancy. "You lose your differentiation."

To tout that differentiation, premium private label generally relies on bright packaging, product demonstrations, sampling, signage and cookbooks with recipes. An exception is A&P, which pushed its premium product line with print and TV support from Sillery Mayer Skurnik, Stamford, Conn.

While it's on the upswing, premium private label may not be the nirvana it's cracked up to be. Take, for example, President's Choice Decadent Chocolate Chip Cookie, the chocolate-packed, all-butter delicacy.

Held up as the brand to make national-brand cookie sales crumble, it accounted for only a 0.2% slice of the 9.9% share private-label cookies held of the total category last year, according to IRI. While it was the No. 1 selling premium private-label cookie last year, with $16.9 million in sales, it came nowhere near sales of the No. 1 branded line, Nabisco's Chips Ahoy!, at $301 million, or even the 10th-ranked Keebler Sandies, at $52 million. In stores where distributed, Decadent held an 8.2% share of the private-label category, IRI found.

The other drawback is the limit to how much premium private label a chain can sustain. Though market testing will reveal at which point the segment will top out, it's likely to peak at 400 SKUs, says Peter Berlinski, editor in chief of Private Label. "At that level, [retailers have] run out of viable products."

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