Private Label Resurgence

Grocery wholesalers are boosting margins and market share with private-label brands.


Other wholesalers have found similar success within very limited grocery segments, most notably, the markets for ethnic and natural/organic foods. Among them is Rhee Bros., a wholesaler that started with a small warehouse in Silver Spring, MD, in 1976, supplying Koreans living in the United States with real Asian foods from overseas. Today, Rhee Bros. carries more than 10,000 items, including five proprietary private-label brands, that it distributes to more than 1,500 stores nationwide.

Now based in Columbia, MD, the company expects to surpass $500,000 in revenue this year, due in large part to its private-label brands, says David Lee, its president. Those brands include Assi, Issine, Hana, Kabuto and Emperor, and include about 3,000 unique SKUs.

But perhaps no market segment has been more ready for private-label growth than the organic/natural foods segment. Because this is still a very new category for many customers, brand loyalty is still a few years away, say most experts, and the higher price point that the national brands command makes cheaper private-label items a very desirable alternative.

Two wholesalers, United Natural Foods, Dayville, CT, and Tree of Life, St. Augustine, FL, have always had a lock on the organics/natural foods market. Now many of the stores they supply are launching their own private-label brands. Whole Foods Markets, Austin, TX, and Wild Oats Markets, Boulder, CO, have both already developed a huge stable of private-labels, and other, more traditional supermarket chains are doing the same—including Kroger (Naturally Preferred), Shaw’s (Wild Harvest), Giant Food (Nature’s Promise) and Loblaws (PC Organics).

It should come as no surprise, then, that other wholesalers are also making forays into this very specialized market as well. Topco recently launched the Full Circle brand of natural and organic products. Pittsburgh’s Giant Eagle carries more than 30 items under its Nature’s Basket label.

ssociated Grocers of Seattle now features a number of organic/natural food products under its Western Family line. And that’s just the beginning.
“Expect to see a lot more specialization from the wholesalers, especially in ethnic, gourmet and organic,” predicts John Block, executive vice president of the Food Marketing Institute in Washington and president of its Wholesale Division. “They’re making sure that their operations fit the demographics of the communities around them and those they serve.”

Are Retailers Buying It?
With food being such a low-margin business, wholesalers can only expect to make money from their own proprietary private-label programs if retailers buy the product. That is exactly what wholesalers are banking on, and they are going out of their way to make it as easy as possible for retailers to do just that.

The biggest thing they’ve done so far is empower the retailers who carry their brands to compete with other emerging retail formats, like mass merchandisers, warehouse club stores, dollar stores, chain drug stores, convenience stores and limited-assortment stores.

“As a retailer, I know I’m not going to beat Wal-Mart on price, so I’ve got to give the consumer another reason to come back to my store. Private label gives me a competitive advantage because he knows he can’t buy this stuff at Wal-Mart,” says Richard Kochersperger, a professor of food marketing at St. Joseph’s University, Philadelphia.

“Our private branded product is a critical tool in their arsenal to combat these stores,” says Poore of Nash Finch. “They can offer differentiation between themselves and the mass merchandisers. We offer them an opportunity to compete and still offer the quality of the national brands at an equal or lower price than what they’re charging.”

They’re also minimizing the risk to retailers. “The risk—the quality control process and the ability to maintain the level of quality so that customers want to take a chance with that brand rather than the national brands—falls on the wholesalers,” notes Hoffman, who is based out of Accenture’s San Francisco office.

Wholesalers do not generally launch a brand without first testing the waters. “They do selective categories before a large-scale brand launch,” she continues. “They’ll start with dairy or bakery or frozen first before going through the whole store.”

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