Private-label groceries

Marketplace Staff Oct 12, 2007


Tess Vigeland: David Lazarus talked a few moments ago about the pricey items at Whole Foods. But not everything in the store is top dollar.

At supermarkets throughout the country, including Whole Foods, private-label products give consumers a cheaper alternative. But are they as good as the name brands? Alex Cohen went shopping for some answers.

Alex Cohen: The Austin-Texas based grocery store Whole Foods has frequently been dubbed “Whole Paycheck,” thanks to the pricy gourmet items that line its shelves.

But, says the store’s Bruce Silverman, it’s easy to pick up a Whole Foods meal for just a few bucks.

Bruce Silverman: You got $1.29 for a pound of linguini here, you got $2.59 for a jar of sauce, pick yourself up a nice loaf of Ciabatta bread, and you’ve got, for 5 bucks you’ve got dinner for four!

Of course, you’re not buying chi-chi products from distant locales. These are items in the home-grown Whole Foods private-label collection called 365. The 365 line offers everything from organic tofu to baby wipes to Belgian chocolates.

Silverman says Whole Foods is able to provide these lower prices because the 365 line doesn’t bear the same costs as name-brand manufacturers.

Silverman: A lot of branded products, they have expenses around the products whether it means coming to the store and stocking it for grocery stores, marketing it, selling it to the grocery stores that you don’t have in a private label products.

Today, private-label products account for about 17 percent or $107 billion of a grocery store’s sales.

The category may be mainstream now, but it hasn’t always been that way. Just think back to those generic goods popular in the 1970’s.

Peter Brennan: Which were plain-label products, designed to be no frills and very inexpensive.

Peter Brennan is vice chairman of Daymon Worldwide, a Connecticut-based company which helps retailers to develop private-label products. Brennan says the word “generics” made people think “cheap,” but retailers realized those on low incomes aren’t the only shoppers looking for a bargain.

In the 1980’s, the name “generic” got a makeover and became “private label.” The look of such products got an overhaul, too. Private label packaging may not be as snazzy as the name brand competition, but it’s much nicer than the old-school mono-colored cans boldly marked beer or beans.

Peter Brennan says the quality’s improved, too:

Brennan: Depending on the retailer the product can be as good if not better than the brand. We have some customers who insist that there be product attributes exceeding the brand before they can be eligible for their private label.

Shoppers have noticed the difference.

Todd Hale of AC Nielsen says according to their research, nearly 60 percent of consumers believe private-label brands are comparable to name brands when it comes to quality.

Todd Hale: For the most part, I think private label has elevated to a level that a lot of consumers will find these days acceptable and suitable. But let’s not forget that 84 percent, 85 percent of sales come from branded products.

Hale says even when there’s no difference in quality or taste, some shoppers still want to buy something with a well known name on the package. And the bigger brands are more likely to offer shoppers options. For instance, finding private-label cream cheese may be pretty easy, but finding private-label, low-fat tomato basil cream cheese may prove tricky.

The other area where private label can fall short, says Todd Hale, is innovation.

Hale: If you look at in the cleaning category, Swiffer products that came from Proctor and Gamble, a great innovation that enabled people to clean and dust faster than they ever could before. Convenient consumer solutions are very important to consumers these days.

But, private labels may not be too far behind. Hale says many retailers are looking for ways to offer more items across a broader range of categories. And some retailers have even made it a point to develop their own private label flavors and items, such as the Trader Joe chain, which recently introduced Frosted Vanilla Shredded Wheat cereal and Fennel flavored anti-plaque toothpaste.

In Austin, I’m Alex Cohen for Marketplace Money.

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