Private label or store brand food and beverage dollar sales topped $98 billion in 2011 to account for 17.6% of total food and beverage retail sales, according to Private Label Food and Beverages in the U.S., a recent report from market research firm Packaged Facts. Dollar sales rose 6% over the 2010 level.
And major U.S. supermarket chains such as Kroger and Supervalue have joined Safeway over the last few years to target the health food and organics shopper with updated, specialist lines of natural and organic private label food brands. Store brand sales have been outpacing food manufacturer’s brands and generate gross margins of around 35%, compared to 25.9% for national brands, according to the Food Marketing Institute.
In grocery aisles, the quality and progressiveness of current-generation store brand products has been a boon to shoppers maintaining a more frugal lifestyle in the current economic doldrums, according to David Sprinkle, research director at Packaged Facts. More specifically, store brand products can help ward off "frugal fatigue." Shoppers get tired of spending within their means and long to treat themselves to something expensive or at least frivolously indulgent.
These dynamics create a rich environment for the steadily improved quality and growing sales of private label food and beverages. Packaged Facts Food Shopper Insights survey data show that nearly two-thirds (62%) of shoppers now believe that private label food and beverage products are usually as high quality as name brands, and more than half (53%) believe that private label products are often a better value than national name brands. Product lines such as Wegmans store brand, Trader Joe's, Whole Foods 365, Target's Archer Farms, and Costco's Kirkland Signature rank among the red badges of savvy shopping.
Private label products provide grocery retailers with greater profit margins than national brands and allow them to meet the heightened consumer demand for value, Packaged Facts said.
Kroger Co, one of the U.S. largest grocery store networks with 2,200 locations, announced in late September the availability of its new Simple Truth and Simple Truth Organic brands that are free from 101 artificial preservatives and ingredients that some customers have said they do not want in their foods. Simple Truth Organic products are certified organic by the USDA. In addition, the Simple Truth brand offers several USDA-certified natural products, including meat, chicken and eggs.
"While organic products are available in most conventional grocery stores, our customers told us that labels can be confusing, and there's a general belief in the marketplace that organic means more expensive," said Mary Ellen Adcock, vice president of Natural Foods for Kroger. "At Kroger we understand these challenges, so we're offering our shoppers the Simple Truth Organic brand, an easy, more clearly labeled and affordable way to buy organic products."
Spanning more than 30 product categories and 250 lines, Simple Truth and Simple Truth Organic products provide much of the U.S. population access to reasonably priced "free from 101" items and certified-organic products. Categories include a wide variety of foods such as milk, salads, dried fruit, sodas, yogurt, chips and quinoa.
Kroger has increased its store-brand business over the past few years to make up about 34% of the grocery items it sells and 26.3% of grocery department dollars, compared to just 19% at rival grocer Supervalu, which operates supermarkets such as Albertsons, Jewel-Osco and Shaw's. Supervalu is also expanding its private-label business with another 1,500 new products, including a line of natural and organic foods called Wild Harvest.
Safeway, which operates regional chains such as Vons and Randalls, introduced its all-natural brand, Open Nature, in late 2010. Safeway already markets an organic line, called O Organics, and the Eating Right brand, which focuses on high fiber, low fat and other healthy attributes.
In November, Walgreens, the largest U.S. drugstore operator with around 8,000 stores, announced the launch of a ‘green’ private label called ‘Ology™’, which it said was the first nationally accessible and affordable brand formulated to be free of harmful chemicals. Exclusive to Walgreens family of companies, the Ology™ brand features a line of baby and personal care products, as well as household cleaners to offer a solution to the growing consumer demand for products free of harmful formulations.
Reuters reported in November that ConAgra Foods Inc. sealed a deal to buy Ralcorp Holdings Inc. for $5 billion, more than a year and a half after first bidding on it. The move creates a packaged food giant with $18 billion in annual sales and the largest private label company in North America with sales of around $4.5 billion.
Ralcorp is a top maker of private label cereal, pasta, crackers, jams and jellies, syrups and frozen waffles, categories where ConAgra does not have a large presence. The deal also broadens ConAgra's exposure to faster-growing retailers with robust private-label brands, like Whole Foods Market and Costco Wholesale Corp.