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Private Labeling:
An Old Concept Going Upscaleby David G. Jackson
House Brands--you know, the canned goods at the cheap end of the shelf at your local supermarket--they’re inexpensive and taste OK if you aren’t particular. At least that is a common perception of private labels among many otherwise knowledgeable consumers. However, this opinion is changing as more and more companies, from major grocery chains to specialty shops and restaurants, are upgrading their house brands and customers’ attitudes along with them.
A recent study conducted by Phil Lempert’s Supermarket Shopping and Value Guide reports that store brands (or private labels) have shot to the top sales position at supermarkets with nine out of ten shoppers buying store brands from time to time. Why? They cost less than national brands and usually offer the same quality. And sometimes the store name carries even more weight with consumers than does a national food brand. One of the world’s great stores, Harrods in London, England, for instance, uses only "Harrods" private label products in its internationally famous food section, selected from manufacturers all over the world.
According to Lempert, "...now that supermarkets cater to many customers’ gourmet tastes, store brands often equal or surpass the quality of name brand items." Most major grocery chains have food-testing experts and laboratories that evaluate their store-brand products for quality and then send them to vendors for their opinion.
The Private-Label Revolution
Store brands started at about the turn of the century. Their popularity grew progressively until national brands began advertising on television, an expense that many local and regional chains could not afford. A recession in the early 1970s fueled a resurgence in private labels because food shoppers wanted bargains. Retailers began to offer "generics" that were low-cost standard-quality products, often packaged in austere, minimalist wrappings that reflected the general retail climate. According to many consumers the flavor of these products was commensurate with their appearance.
When the economy began improving in the 1980s, shoppers started to purchase nationally-advertised brands again. Retailers responded by improving their store brands’ quality as they expanded the variety of private label products. Many firms developed "premium" private labels that were designed to compete with leading brands, and in some cases to surpass their quality and price. And they were profitable, mainly because they didn’t include the markup for costs of national advertising.
Lempert recently made up a fifty-four-item shopping list that was submitted to four of the nation’s top supermarket chains. The plan was to place all of the store brands in one basket and national brand products in another, add up the bills and compare the two. The total prices for each of the four baskets of national brands were within a couple of dollars of each other. The store brands ranged from $24 to $44 less expensive than the national brand names.
This is not a complete story, as Lempert stressed. You still have to compare the quality and taste of store brands, in addition to price. Compare ingredients lists, package sizes and net weights with the national brands. Read carefully to make a meaningful comparison.
An Opportunity for Barbecue Sauce Private Labels
"One thing is for sure," said Carolyn Wells, executive vice president of the National Barbecue Association, "barbecue is increasing in popularity. Sales of charcoal products are increasing as well as the concept of patio kitchens--moving the meal preparation center outdoors. Coupled with a beef industry major advertising campaign, the barbecue product industry has shown a steady growth for the last four years." Add to that the increasing numbers of barbecue sauce brands that are appearing on the market, and the future looks good.
Among the leaders in the private label industry are barbecue sauces and supplies, especially charcoal, in several forms. The co-producing of products is common, but in barbecue sauce the trend is to take a known product and put it under a private label. While custom recipes can be made, they are usually expensive because of the limited production. A good private label barbecue sauce, however, can be made at a low cost when the production involves using a known product and placing a private label on a standard size container (the use of a special container would increase the per-unit cost). For charcoal briquettes only a different package is necessary to create a separate product.
Buck Creek, Inc. in Columbia, Missouri, is as manufacturer of barbecue sauces and hot sauces that has been in business for five years. Company President Mike McMillan admits that his products are on the expensive side, but says it is because they use better ingredients and sell to upscale markets such as specialty stores and direct mail. While the private label segment comprises only about 5 percent of the company’s business, McMillan says that sales in this segment alone increased 20 percent in 1998, and are still growing. Some of his other private label clients include automobile dealers, lumber companies, and even a mobile X-ray service that visits nursing homes.
"We can make a high quality label, either with the Buck Creek name or without it. We have a computerized labeling setup that will produce a beautiful label at a low cost," he said. And the turnaround time is short because the process only involves changing labels on a standard run of a given flavor. Buck Creek uses only their own recipes for private labels and has a minimum order of ten cases of 19.5-oz. containers. "We have a good business in private label sales," he said. "There is lots of opportunity out there."
While most firms producing private label barbecue sauce indicate that these products add up to about 5 percent of their business, Jardine Foods of Buda, Texas realizes about 20 percent of their business from private labels, a division that has been growing steadily for them during the past four years.
This company, which has a full line of hot salsas, sauces and other products, has been running for seventeen years, makes 600 store keeping units (SKUs), and contract labels for several companies. Their products are sold all over the United States and in Europe and Australia. Although they do some custom production using a customer’s recipe, they utilize their own brands to a great extent, including the main ones which are: D. L. Jardine, Shot Gun Willies’, and 7J Ranch. They also can provide help with labels, and have professionals available to work out production problems.
"We have a real fast turn-around from start to finish of a product run. The minimum size of orders depends on batch size, frequency of orders, and how much of the product is ordered over the year," said Rick Wallace, director of planning and packaging.
The Grocery Store Angle
Whole Foods Market based in Austin, Texas, is a fast-growing grocery chain that started out specializing in organic/natural foods. Beginning in 1981, the chain expanded to more than one hundred stores in twenty-one states, and now operates Bread & Circus, Wellspring Grocery, Bread of Life, Fresh Fields, and Merchant of Vino, which are all well-known regional markets. They hope to increase their number of stores to one hundred seventeen outlets by the end of 2000.
The Whole Foods Market offers their private label high-quality products only through their stores. Private Label Director Lex Alexander says that he chooses products in a number of ways including attending food product trade shows, reading trade journals, following up with private referrals, and sometimes simply finding a really good product on the market. "One of the things we do is to allow individual store managers and regional managers to determine product mix," Alexander said. "This allows for our Southwest area stores to carry more chile products than our Midwest stores would carry, for example."
Whole Foods Markets has three private labels: "365" is a value line that is the same price 365 days per year, "The Whole Foods" label is premium quality, and "Whole Kids" is organic foods that are made especially for children.
Charcoal Products Show Private Label Growth
You might think that most folks don’t pay much attention to the brand of charcoal briquettes they use to barbecue dinner. However, studies show that most serious barbecuers are well aware of the differences in the various charcoal products.
All charcoal products are made in a kiln where raw wood is placed and set on fire. The kiln is sealed, air is withdrawn, and seven to ten days later you have charcoal, which comes in three forms. From the kiln are taken lump and sawdust.
Most of us are familiar with briquettes. These small lumps of charcoal are made from charcoal sawdust mixed with a slurry that is passed through a stamping mill to produce the uniformly-sized products. This slurry can have essence and flavoring mixed with it, as well as a petroleum product that makes the briquettes easy to light.
Humphries Charcoal in Brookville, Pennsylvania, has been in business for more than one hundred years, and has been manufacturing charcoal for fifty years in the hardwood forests of Pennsylvania. Their primary market is in the northeast U.S. and in Canada.
"Most backyard barbecue cooks use briquettes while most restaurants and caterers use lump," said Steve Rowe, director of marketing. "We even make granular charcoal used by metal processors, but that is a specialty unto itself." Private labeling is a small but growing segment of their business.
"Basically, all a private label customer has to do is provide the bags and we can fill their orders quickly. We can also provide the bags and can assist a customer with a design. Our minimum order is 25,000 bags."
Humphries keeps their charcoal organically pure and suggests that it is often good to add sweet woods from fruit trees to enhance the flavor of the meat as it cooks. "I really don’t like the ‘easy-light’ charcoal because the petroleum products leave a taste on the meat and a coating on the grill," he said.
Rowe feels that the charcoal business is on the rise. "Back in the seventies when gas grills were introduced, charcoal manufacturers took a hit. Today, however, as research from the Barbecue Industry Association shows, more and more people are buying charcoal-fueled smokers, and many consumers prefer to own both a gas grill and a charcoal grill so that they can experiment with recipes and various fuel flavorings.
One company that has been successfully selling flavored charcoal is Chef's Choice Mesquite Charcoal in Carpenteria, California. "Just give us bags and we will do the rest," said Owner Bill Lord. "Our mesquite supply and production facilities are in Mexico [from where there is no import duty on charcoal products], and we feel that we are very competitive for private labels." Lord, whose company has been in business for twelve years, says that his sales growth has been 40 percent for the last three years.
Chef’s Choice can provide 8,10, 20 and 40-pound sacks of products. In addition, they have a professional graphics firm that can design logos and packages. All of their sacks are produced locally except for the 40-pound style which is imported from Taiwan, and the minimum order is 10,000 sacks.
One problem right now is that mesquite is getting harder to obtain, so the company is making arrangements to compensate. "We are planning to increase our production of oak charcoal, both in briquettes and lump," Lord said.
Tailoring Products for Export
Albert Cabala is the president of American Food & Beverage, Inc., a food broker and export management company in Plantation, Florida. "We work with suppliers to sell and ship products to islands in the Caribbean and to Central America," he said. "American products are popular because of perceived higher quality than the locally produced foods [in those countries]. Private labeling is an important factor, with chains using their own labels on foods that are advertised as ‘Produced in the USA,’ thus giving perceived quality status to these products."
Barbecue sauces are increasing in popularity in the Caribbean and Central American markets because of the popularity of outdoor cooking. This is an opportunity for both name brand and private label products.
As a food broker, American Food & Beverage does not actually produce or package products, but can assist companies with packaging and labeling of private brand products. "One thing we can help with," said Cabala, "is making sure that cultural differences are taken into consideration. For example, a brand name in the U.S. may be perfectly innocuous, but it may have a different and unacceptable meaning in another country. It helps to know these things in advance." Also it helps to know the market. "Some products sell better if they are packaged to appear less expensive," Cabala said. "Also, sales are on a country-by-country basis. What sells in one small nation may not sell at all in another."
Large and midsize companies can work to develop a new market if they are willing to take the time. But a small company may want to consider the problems before making a commitment. "One of the things that people have to realize is that things take longer to accomplish in Caribbean and Central American countries. The pace is slower, holidays are different, and each country has its own rules and regulations. That’s why a knowledgeable broker is needed both to help develop a product that will sell in foreign markets and to ship the product to its destination."
There are many organizations, some sponsored by the U.S. Departments of Agriculture and Commerce, to assist manufacturers who want to consider the export business. "There is a lot of overlap from the various organizations, but the help is there if you are willing to put up with a little bureaucratic red tape," Cabala said.
Private Labels are Fast and Effective
There is a world of opportunity for both manufacturers and retailers who want to provide label barbecue products to their customers. Using established customer-proven recipes and charcoal products, the continuing growth of the barbecue industry makes private labels a viable part of the food industry.
David Jackson is a Contributing Editor for Fiery Foods & Barbecue Business Magazine, and has spent the last forty years working in national public relations, editing several publications, and writing books and articles on numerous subjects.
Sources
National Barbecue Association
11514 Hickman Mills Drive
Kansas City, MO 64134
PH: (816) 767-8311Whole Foods Market
Private Label Division
718 Iredell St.
Durham, NC 27005
PH: (919) 286-0145, ext. 372
Buck Creek, Inc.
3910 Gorham Oak Drive
Columbia, MO 65203
PH: (800) 394-9280Humphries Charcoal Company
P.O. Box 440
Brookville, PA 15825
PH: (814) 849-2302
Jardine Foods
1 Chisholm Trail
Buda, TX 78610
PH: (800) 544-1880Chef’s Choice Mesquite Charcoal
P.O. Box 707
Carpenteria, CA 93014
PH: (805) 684-8284
American Food & Beverage
7951 SW 6th Street, Suite 212
Plantation, FL 33324
PH: (954) 452-5100
Good News for Private Labels
A recent Gallup poll showed that one-third of 1,000 surveyed shoppers are switching more between national brands this year than they did last year, with 86 percent saying that private label products are equal or superior to national brands.
Source: Fortune, May 1999, as reported in The Foodville Gazette, 5/17/99.