PL Buyer: Cup of Convenience
Through a special arrangement, what follows is an excerpt from a current article from Private Label Buyer, presented here for discussion.
With rising fuel prices forcing consumers to cut back on purchases at convenience stores, convenience stores have been ramping up their foodservice efforts and it’s been paying off. That’s opened up a bigger opportunity around private label food products.
"They are higher gross margin, they bring more gross profit dollars into the bottom line and they increase customer loyalty," said Benjamin Brownlow, an analyst with Morgan Keegan.
The c-store industry basically has already expanded its dollar sales in private label from essentially 1-2 percent five years ago, up to 5 percent, explains Mr. Brownlow. "So there has been a significant growth in private label dollar sales within the industry. But relative to other industries — supermarkets are north of 20 percent in dollar sales with private label, drug stores are in the high teens — a huge opportunity remains."
There are three obvious reasons that you’d look at private label as a convenience store opportunity, says Jeff Lenard, vice president, communications for the National Association of Convenience Stores (NACS).
"First, you might be able to offer it at a price that’s very competitive," he said. "Secondly, if it’s a quality that’s superior to anything on the market, consumers will have to go to your store instead of any other store for that product. And finally you tend to put a little pressure on those that are already your supplier to compete on price."
While private label presents a significant opportunity for c-stores, operators need to figure out the categories that make the most sense to get into, analysts agree.
"To the degree that private label is fresh food, prepared food, maybe even traditional private label categories like dairy, bakery and those areas, I think that makes plenty of sense for them," said Ben Ball, senior vice president for Dechert-Hampe. "Do they need a private label breakfast cereal or a private label tuna fish? No, they don’t."
Paul Weitzel, managing partner with Willard Bishop, agrees. "In some categories, I think private label makes sense. Private brand quality continues to increase. But many consumers walk into a c-store looking for the brands they trust and, if the retailer doesn’t provide those trusted brands, consumers won’t leave with a positive experience. Building loyalty is more important than ever, even in the c-store channel."
Discussion Questions: What do you think of the private label food opportunity for c-stores? What categories make the most sense? What are the challenges of developing PL programs in c-stores versus other channels?