Private Label Production Continues Push in Gourmet Market


By Caroline J. Beck
June 19, 2012

When private label “generics” first reached grocery store shelves in the 1980’s, they were considered low quality options to popular branded products. Positioned as value-driven staples for the cash-conscious shopper, it took decades for this low-end reputation to wear off. Thirty years later, a dramatic shift has occurred. Private label products are now keeping pace with the fastest trajectories in the packaged goods business and, in many cases, exceeding their national brand counterparts.

Private label production is not only a popular way to expand a specialty foods line, it’s easier than ever to get shelf placement for higher-end categories like extra virgin olive oils and vinegars because the stigma of the past has been replaced with an expectation of even higher quality standards. Retailers like Trader Joe’s and Whole Foods have demonstrated that private label products can surpass their national brand counterparts not only in value but quality expectations as well. Independent, well-positioned new brands are outstripping the biggest manufacturers by leveraging package design, artisan imagery and regional identity.

Importantly, shoppers report feeling good about buying private label products. According to recent research conducted by packaged goods experts Perception Research Services (PRS) in April 2012, over half (51%) say they feel smart/savvy when they buy private label products and will go out of their way to buy certain brands. This is especially true at specialty stores and smaller, independent grocery stores known for high quality, distinctive offerings.

Over time, private label manufacturing has expanded from a purely bulk, scale business into servicing many niche specialty foods categories. According to PRS, the next wave of growth in the business is expected to be driven by greater product choice and packaging innovation. This direction represents a perfect opportunity for specialty foods producers, gourmet retailers and other food-related businesses, like restaurants and wineries, to take advantage of a growing market in a variety of ways.

THREE MARKETING OPPORTUNITIES FOR BRANDS

There are three basic areas of business growth for specialty foods producers and marketers that private label manufacturing can support.

  1. Leverage well established brand equity and expand into complementary categories or new channels of distribution

    The aforementioned examples of Trader Joe’s and Whole Foods bear repeating in that they represent what can happen when powerful brand equity is leveraged to expand the brand into new, higher-margin product lines. Whole Foods’ 365 Everyday Value line is a private label product, but receives the benefit of the company’s overall brand image for first-class quality. Darden Industries, parent company of The Olive Garden, is probably the best example of a restaurant expanding its brand into other distribution channels by selling its popular house dressing first through their own restaurant chain locations and now through mass marketer Sam’s Club. Specialty foods producers, large and small, can take advantage of their brand equity by creating line extensions. Wineries and restaurants can move from tasting room and dining room to home kitchens by offering privately-branded product lines.

  2. Augment existing product offerings to meet consumer demand or to balance inconsistent inventory levels

    For specialty foods categories that are directly affected by the vagaries of growing conditions, like last year’s low yield domestic olive crop, accessing the bulk oil and private label business can be the only solution to maintaining a retail presence in an off-year. Another advantage to the olive grower is the opportunity for product line expansion through blending different flavor profiles or offering complementary product extensions, like best-selling flavored oils and balsamic vinegars.

  3. Use private label products as a unique and sophisticated method of self-promotion

    Whether in the retail, restaurant or real estate business, finding ways to stand out in a competitive market can be solved with private or custom labeled self-promotion. Branded products are often used as retail premiums (gift with purchase), customer retention (frequent buyer programs) and corporate gifts; and the perceived quality of the product will match the brand’s own reputation.

Source: Perception Research Service International, April 2012

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