Store brands drive organic growth for grocers

Discussion
Nov 25, 2014

There were two very noticeable trends at the 34th annual Private Label Manufacturers Association’s (PLMA) Annual Conference last week in Chicago — organics and gluten-free. At least 20 gluten-free vendors were exhibiting, double last year, presenting everything from pizza to pasta. The real growth, however, was in organics. Not only did dozens of new companies exhibit this year, suppliers that have been at the show for decades were promoting their new organic lines.

The reason for the focus was made very clear at one of the educational sessions, titled "Store Brand Organics: Where Value Meets Profit." The moderator, Bob Vosburgh of PLMA, stated that in 1998 the organic space was about $6 billion and 25 percent of that was through traditional supermarkets. A mere 16 years later, the market is well over $50 billion and more than 55 percent of sales are through traditional supermarkets.

Safeway has sales of more than $400 million in store brand organics and Kroger’s organic private label program is a billion dollar segment for the U.S.’s largest supermarket chain. Walmart has more than 100 store brand products available in organics, all priced to be competitive with the national brands. Mr. Vosburgh listed private label organic product sales drivers as including the passion of consumers, who can total as many as a quarter of a retailer’s shoppers. These customers acquire organics on at the regular basis and aren’t as loyal to national brands as they might be for non-organic products.

It isn’t all non-GMO cake for retailers implementing organic store brand programs. Companies are facing issues like unavailable supplies, high order minimums, certification problems and shelf placement.

Greg Oldright, director of specialty foods at Midwest grocery wholesaler AWG, reported that the company’s Clearly Organic product line has grown beyond what management expected in its first year of deployment. Launching in April with 40 items, Clearly Organic is now up to 100 SKUs and is expected to add dozens more in the prepared foods, rice & grains, produce, meat and dairy categories in 2015.

"The program is doing very well and our retailer’s customers are starting to seek out the brand. It’s designed to give our retailers a competitive advantage in the marketplace and we provide them with point-of-sale marketing support and other promotional programs to keep everything fresh and constantly engage the customer," Mr. Oldright explained.

As far as the overall private label sector’s growth is concerned, it continues to outpace the national brands, reaching new heights for sales and market share. According the latest industry sales data compiled by The Nielsen Company, private label unit market share in supermarkets has reached 23.4 percent and dollar market share is now at 19.4 percent. Total private label sales in the United States last year surpassed $112 billion.

How will the expanded availability of store brand organics affect the sales of national brand organics and conventional foods? In what categories do you see the greatest opportunities for store brand organics growth?

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11 Comments on "Store brands drive organic growth for grocers"

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Keith Anderson
BrainTrust

There will certainly be some shoppers that substitute store brands for national brands, but in many cases the store brand will make organics accessible to shoppers that otherwise wouldn’t or couldn’t buy them—effectively growing the category. As always, this ideal scenario requires open-mindedness and collaboration between the retailers and their national brand suppliers.

It strikes me that there is a lot of upside in natural and organic products over the next 10 years, and not only in specialty channels.

Mark Price
BrainTrust

While consumers perceive a significant difference between store brands and national brands in most core categories, organic is perceived to be a high standard in and of itself. By putting organic on the label, store brands elevate themselves to par with national brands.

The greatest opportunities for store brand organics are categories where the differences between products are difficult to determine visually. Categories such as dairy and meats are high-volume categories where the organic label permits a premium price and premium margin in what has traditionally been considered low-margin categories. These categories represent some of the best opportunity for store brand organics today.

Warren Thayer
BrainTrust

Lots of retailers I speak with complain that “the days of long margins” on organic and better-for-you are pretty much over. Added competition from store brands will ramp up price pressure on national brands. This in turn will help drive unit sales in the segment—although as a whole, organic shoppers are actually somewhat less price sensitive than the norm. As prices remain under pressure volume will rise, and we’ll see more of a squeeze on product availability. That’ll drive prices higher again. But when you marry all this with water shortages and bad harvests, it’s hard to make a solid prediction of where this could go.

Ryan Mathews
BrainTrust

First some context. While the growth numbers—as reported by Ron—are impressive, one person’s “mere 16 years” is another person’s “almost two decades.”

I’d also like to see these results normalized by adding a filter of trends in supermarket packaged good sales.

Are more people eating more fresh products (organic and inorganic) than they were 20 years ago? My guess would be yes.

Are organics more popular in general than they were in the 1990s? Again, my guess is that they are.

So all things being more or less equal, increased sales in store brand organics should come at the expense of national brand organics and “conventional food.”

Which categories will grow is a guess, but an informed guess might start in the meat department, especially chicken.

Roger Saunders
BrainTrust

Small box to big box to small box, the “real estate” at most retail has a fixed amount of shelf space. If more store brands press for a greater share of shelf space, which they likely will as organics grow, the national brands will have to make adjustments in marketing and packaging to hold their share and growth potential.

Growth potential for store brands exists in the inside aisles of the store, as well as the perimeter. The best of retail operators will uncover the most promising products that can offer the strongest margins.

Camille P. Schuster, PhD.
BrainTrust

Unless consumers start buying more food in total, an increase in one type of food will be offset by a decrease in another type of food. Organics, locally grown and gluten-free are all popular now. Organics is such a fuzzy term that it is likely to stay popular in one form or another for quite some time. Locally grown will continue to stay popular as long as people are concerned about environmental issues. Gluten-free may change to whatever becomes the new “best” healthy diet. Their popularity will correspond to a decrease in other sales unless people eat more. If they are concerned about their weight they will not be eating more so something else will lose.

Mohamed Amer
BrainTrust

Store brand organics will have a similar impact as previous conventional store brands had on their national brand counterparts. This move increases retail dollar sales and improves the chain’s margins while offering a lower-price alternative to national brands thereby increasing consumers’ access to organics.

The increasing popularity of store brands is another indicator of how organics have become mainstream as a lifestyle statement. The wellness trend changes the winning formula from product attributes to healthy lifestyles.

I don’t see any one specific category offering unusually high opportunity. The opportunity cuts across all food and beverage categories. Aldi, Safeway and Kroger have done well in building their organic business and store brands.

Consumers love choices and good value. These moves should make them smile!

Gene Detroyer
BrainTrust

First, organic, gluten-free and non-GMO are all great opportunities for store brands, if for no other reason than that the business models of the large manufacturers are not geared to produce and market foods in this silo. (I am also assuming that the “organic” label does not get bastardized more than it has been.)

The obvious categories are in meats and poultry. They don’t seem to be keeping up with demand. The type of production practices in meat and poultry suggest that they never will.

Prepared meals should show significant growth. (Imagine two prepared meals next to each other, one organic and one not. Even at a premium, there would be a compelling feeling to buy organic.)

And sadly, packaged goods products will show development and growth. I can hardly wait for organic Oreos and organic Chocolate Special K.

Ralph Jacobson
BrainTrust

Organics and gluten-free are still relatively small percentages of the overall food category in the U.S., so until a national brand begins to carve out a significant share of the total food business, growth of private label organics and gluten-free is open for store brands to capture with very little challenge. Private label continues to grow as the quality improves along with assortment. National brands are well aware of this growth, especially outside the U.S. This is a true global battle.

John Karolefski
BrainTrust

Private label food products nowadays are increasing in sales to the disadvantage of name brands in some categories because of the traditional price advantage, but—perhaps more importantly—because of their improved quality that sometimes matches or exceeds that of national brand competitors. I see no reason why this formula won’t apply to store brand organics compared to national brand organics.

Sid Raisch
Guest
Sid Raisch
2 years 7 months ago

Is the growth of store brand a result of availability or is it more about consumer trust. Store brands are more trusted, and perceived to be more local.

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