Retailers spruce up store brands
When Zarlacht Atiqzoy, a Dallas mother of two, went grocery shopping at a Target supercenter recently, she was surprised to find a bottle of dipping oil flavored with pomegranates and apricots.
The oil, from a brand called Archer Farms, "sounded so good and was so unusual that I didn't mind paying the $7, which isn't cheap," she says.
She was even more surprised when she turned over the bottle and learned the oil was actually made by Target Corp.
"I didn't expect Target to be so creative," she says.
Food retailers are growing more sophisticated about developing and branding their own products. They're even building brands that bear no resemblance to their store names, such as Target's Archer Farms line of gourmet oils, appetizers and frozen foods, and Safeway Inc.'s Eating Right line of frozen dinners, cereal and salad dressings.
Improved quality and savvier marketing make it harder for consumers to tell the difference between private-label, or store brands, and those developed by big food manufacturers like Sara Lee Corp. and Kraft Foods Inc. It's a boon for retailers: Sales of private-label products carry higher profit margins than the goods they buy from the traditional food companies.
Private-label sales of food and nonalcoholic beverages in the U.S. rose 4.3 percent to $44 billion in the 52 weeks ended July 14, excluding sales at Wal-Mart Stores Inc., according to market-research firm Nielsen Co. Wal-Mart doesn't supply sales data to any data-tracking firms. By contrast, sales of branded food and nonalcoholic beverages rose only 2.2 percent in that period.
"The challenge for a branded company like ours is that you have to be No. 1 or No. 2 in your category, because why would a retailer want to carry 10 products in a category?" says Sara Lee Chief Executive Officer Brenda Barnes. The Downers Grove-based maker of Jimmy Dean sausage and Ballpark hot dogs has the top-performing brands in most of its categories.
At Northfield-based Kraft, CEO Irene Rosenfeld says, "The reality is we are losing share to private-label and branded competitors," which she terms "unacceptable."
Conventional grocers are squeezed on price by Wal-Mart on the low end and by upscale natural-foods grocer Whole Foods Market Inc. on the high end.
Private-label brands are a way to fight back.
Once largely cheap generics with dull packaging, now they include different quality levels marketed at different price points, some with fancier packaging, some backed by national advertising.
Earlier this year, for example, Dominick's parent Safeway rolled out its Eating Right line for health-conscious customers, prominently displaying fat and calorie levels. That followed the success of its O Organics line of organic meats, crackers and cereals launched in December 2005.
O Organics, which has been advertised nationally, will generate about $300 million in sales this year, CEO Steve Burd told analysts last month. "Our feeling is that Eating Right will be equally as good," he said.