Tom Gresham
Traditionally, private label products in supermarkets have not been designed to be distinctive. In fact, Eunkyu Lee, professor of marketing at New York’s Syracuse University, says private labels have long aimed to imitate well-known national brands while prioritizing lower prices.
Increasingly, however, private labels are breaking out of those traditional boundaries and demonstrating “more distinguished features and higher-quality signals,” Lee says. Today, more and more private label products, including those featured in grocery delis, are distinguishing themselves either vertically by showing higher quality than leading national brands or horizontally by “catering to unique consumer preferences and tastes that are not reflected in popular national brands,” Lee says.
This is part of a broader evolution in the market of the private label products that appear in grocery delis, opening up new possibilities that are being explored. Still, even with those new developments, the core benefits of private label products have remained consistent: high relative quality at every price point, distinctive branding and value pricing, says Chris Carando, vice president of sales for Elkridge, MD-based Saval Foods, which operates Deli Brands of America, a private label deli meat processor and purveyor of fresh-cut meat.
“A well-done private label item can build off of existing consumer trust in the supermarket and apply it to the products,” Carando says.
Store Benefits
Lee says store differentiation is among the primary benefits to supermarkets carrying private label items. When stores develop a reputation for differentiated private labels or for providing a great bargain with value private labels that have quality similar to national brands, “retailers can build stronger brand equity and customer loyalty, contributing to higher store traffic and better margins,” Lee says.
For that reason, Carando says private label brands are integral to many groceries’ offerings.
“Private label brands can build consumer loyalty to a supermarket location and add to the bottom line,” Carando says.
For groceries, Carando says the core component of a private label brand is value. In addition, “customers appreciate having an option in addition to the national brands. It can also create product exclusivity among supermarket competitors.”
“Supermarket private brands offer a point of differentiation and a level of control over what they offer as their ‘value proposition,’” Carando says. “In a private brand, they can customize the spec and recipe to fit their needs and customer base’s demands.”
Umberto Marconi, vice president of marketing for Green Bay, WI-bassed BelGioioso Cheese, says private label products often have the advantage of a lower price point, but that typically isn’t enough for them to last.
“In most industries, price is often a key driver when it comes to purchase intent and behavior in general,” Marconi says. “Quality, on the other hand, is often the deal-breaker; an item may be cheaper, but if it is not good, consumers will not necessarily pick that same product up again.”
When it comes to marketing and merchandising private label items, Carando says the message of value needs to be driven home with customers.
“Everyone likes to save money without sacrificing quality, and store brands offer that in an accessible and familiar way,” Carando says. “Many supermarket [private label] brands have already earned the respect and loyalty of the customer. They just need their supplier partners to support this goal.”
Lee says private labels expand demand for supermarkets. When stores offer unique private labels, especially when customized to local tastes, or bargain private labels of acceptable quality, “a retailer can expand the aggregate category sales volume.” In addition, private labels provide opportunities for upselling when groceries offer private label products that are higher quality than leading national brands, he says.
For retailers, private labels are not meant to drive out national brands but to complement them, Lee says.
“Retailers must think strategically to select the right set of national brands and private labels to create value for diverse consumers while maintaining profitable and sustainable relationships with the suppliers,” Lee says.
The Deli Market
Lee says deli is one of the categories with the greatest potential for private labels because it allows retailers to emphasize freshness, local sourcing and hand-picked/hand-crafted image over the mass-produced national brands with longer shelf life.
“The COVID-19 pandemic has also increased consumers’ interests in cooking and consuming more food at home as opposed to dining out,” Lee says. “The growth of high quality private labels and introduction of multi-tiered private labels within a same category (e.g., carrying a premium private label, a national brand equivalent private label and a bargain private label all within the same product category, such as deli meat) has been a definite trend in private label marketing in general.”
In addition, Lee says, an “important way for distinguishing private labels, in the deli category in particular, can be the power of bundling and culture positioning, through which a retailer can promote purchases of multiple complementary items and position itself as a comprehensive solution provider (food culture trend setter, consultant) as opposed to a mere seller of individual grocery items.”
Marconi says BelGioioso’s conversations with national retailers that carry its branded products have yielded a range of perspectives on private labels. Some don’t see space for private label in the deli cheese area, while others carry private label deli cheese as an option to a national brand or as a category leader that is the opening price point item.
“In the end, we are aware that all players have a different growth strategy, and we know that there’s enough room for both branded and private label cheese,” Marconi says.
Products of Interest
The pandemic has impacted which deli-related private label items hold particular interest to consumers.
“The categories of sliced and ready-made entrées have had increased demand due to the pandemic,” Carando says. “The need for contact-free deli items, shifting away from traditional deli cases, greatly increased since 2020.”
Carando believes “pre-sliced deli and portioned prepared food products will continue to grow. Grocery stores are seeing positive feedback from offering ready-to-reheat and simple ingredient proteins like meatloaf, short rib or pork loin. These offerings also improve the exclusivity of products within a location.”
On a related note, food stores have become much more competitive with restaurant takeout, says Peggy Davies, president of the New York-based Private Label Manufacturers Association (PLMA). As part of that trend, “retailers are distinguishing themselves by launching private brand prepared foods,” she says.
Davies notes sales of private brand prepared foods soared 18% to $409 million in food stores for the four weeks ending Nov. 28, 2021, according to the PLMA/IRI Unify market data platform.
Marconi says BelGioioso has some clients that requested private label cheeses or that preferred having dedicated labels.
“Most of them agreed with us that including a clear indication of BelGioioso as the manufacturer of the cheese they are offering their customers would be beneficial for their business,” Marconi says. “Some of them asked to include our company logo, making them co-branded cheeses rather than pure private label.”
Among examples of private brand innovation nationally in the deli department, Davies points to several examples:
H-E-B’s Meal Simple store brand line of prepared foods.
ShopRite’s Bowl & Basket rotisserie chicken.
Hy-Vee’s HyChi Asian prepared entrées.
Safeway’s Signature Café deli dips, including artichoke and jalapeño dip, fresh hummus and guacamole.
Albertsons’ Signature Reserve olives stuffed with blue cheese.
Kroger-brand pre-packaged deli sides, including Southern-style and Egg Mustard Potato Salad. Kroger also has expanded its Home Chef exclusive brand of prepared foods.
“These and other store brand deli foods are a powerful driver of shopper and consumer loyalty to retailers,” Davies says.
The Challenges
Among the biggest challenges associated with private label, Marconi says, is how difficult it is to maintain the balance between quality and price and to maintain healthy margins.
“The other big challenge that comes to mind is supply chain,” Marconi says. “During the pandemic, most industries have experienced unprecedented disruptions of their supply chains that compromised the ability to source ingredients or key elements for products.
“Supply chain issues are hard to deal with and in the case of private label products, most retailers that carry the items do not control the production process, nor their supply chains. If we add to that the labor market situation, we can better understand the incredible shortages experienced during the pandemic in 2020 and 2021 and that are carrying on in 2022. These shortages are also directly related to price, with the ongoing impact of inflation that continues to apply pressure on both manufacturers and consumers.”
While branded products tend to focus on one category, Marconi says private label products “tend to have a broader variety of items made under the same brand name. Whether this creates added value is debatable; for sure it gives more opportunity to private label products to be picked up.”
“It is easier for consumers to associate the quality of one to the quality of the entire line of different products with the same store brand,” Marconi says. “At the same time, any negative experience or association with any of the products may reflect on the entire private label line.”
Carando says private label producers will always face certain pressures that they must meet to thrive.“In the PL space, manufacturers like us need to be flexible, nimble and efficient to deliver the requested products consistently and at an acceptable margin,” Carando says. “Private label needs to be a true partnership between the manufacturer and supermarket. This is a business relationship that must be earned through trust, frequent communication, service and consistency.” DB
