As food manufacturers compete for position on store shelves and in refrigerated cases, and ultimately into the shopping carts of American consumers, they’re finding new and legitimate competition from an unlikely source—grocery wholesalers with their own private-label brands.
“Wholesalers have always been a large part of the private-label market,” says Dayne Twinings, a spokesman for the Private Label Manufacturers Association (PLMA) in New York, “but now, wholesalers have increased the amount of energy and attention they are giving to their private-label brands, expanding categories and the range of products available, and making more upscale products.”
In fact, just about every wholesaler in the country—both large and small—offers some proprietary private-label brands. Companies like Supervalu, with more than 6,000 private-label items under six brand names, and Nash Finch Co., Pedina, MN, with almost 3,000 SKUs under the Our Family and Value Choice labels, are quickly becoming the norm in the industry.
“Private labels are a great opportunity for us to keep our retailers as customers and for the retailers to build customers of their own,” explains Craig Espelien, general director for store brands and strategic sourcing for Minneapolis-based Supervalu.
They create such an opportunity that in America today, one of every five grocery items sold bears a private label. Sales of private-label products topped $40.5 billion last year, an all-time high.
So what’s fueling this sudden interest in private labels among wholesalers? The answer is simple: private label is a low-cost way to make easy money and improve market share as everyone tries to address competition from the Wal-Marts of the world.
“For a wholesaler, private label has a very good margin—it’s less costly to produce and the price point is not much different than the national brand,” observes Janet Hoffman, a North American retail practice consultant and managing partner at Accenture. “On average, the margin generated by private label is two to three times higher than the national brands.”
Dan Mazur, senior vice president of center store program management at Topco, Skokie, IL, reports the 5,500 private-label items in his company’s stable of 17 brands generally cost 30 percent to 60 percent less to produce, offer 15 percent to 20 percent difference in cost to the consumer and 10 percent to 15 percent more cost reductions and margin enhancements for retailers. “For us, the costs for procurement of private labels are a lot cheaper and we are able to pass those savings on to the retailer, who then passes it on to the consumer,” he says.
Greater Profit Potential
For wholesalers, the motives behind creating and carrying private-label brands are often self-serving. “If we can build an emotional connection to our brands among the consumers, we create more loyalty [from the retailers] to keep Supervalu as a supplier,” says Espelien.
Jeff Poore, senior vice president of Nash Finch, agrees. “Private-label makes our customers more competitive and gives them greater stability, which drives more business and sales for us,” he says.
Private label is also a huge opportunity to capture sales of some product categories that are not being served by the large manufacturers. Supervalu has built an entire branding portfolio around just those product categories, and has turned them into a huge profit center.
“We created a concept called signature brands, making category-specific brands to fill a specific niche, and then brought them to a level that the store brands could never do,” says Espelien.
Particularly successful for Supervalu has been its signature Carlita brand that appeals directly to Hispanic consumers. Its other brand names include NutriPlan for pet products, Super Chill for beverages, Super Crunch for snacks, Daily Source for vitamins, Healthy Generations for health and beauty items and Stone Ridge Creamery for ice cream and dairy.