Breakfast On The Go

Retailers need to maintain reasonable price gaps with today's deeply discounted national brands, as cost-conscious consumers look for high-quality, affordable breakfast choices.

Who knew that a little 4.8-ounce Egg McMuffin could pack so much weight?

McDonald's aggressive $1 value breakfast menu, along with other low-priced morning offerings from fast food and quick-service restaurants (QSRs) such as Burger King Wendy's and Subway, can be viewed as either a bright spot for foodservice during tough economic times or a threatening menace to national and store brand alternatives at grocery stores.

Either way, store brand options largely have held their own or even thrived as consumers continue to seek quality products at a lower price point, notes Mintel International, a global market intelligence firm, in its "Breakfast Foods — US" November 2009 report.

The numbers bear this out. According to The Nielsen Co., based in New York, the private label frozen breakfast segment (excluding waffles/pancakes/French toast) has really heated up, posting 15.8 percent and 25.1 percent increases in dollar and unit sales, respectively, during the 52 weeks ended Aug. 7 (food, drug and mass merchandiser stores, including Walmart).

Easy, portable items are performing well, too. Private label breakfast bars logged 7.7 percent and 9.9 percent gains in dollar and unit sales, respectively, while store brand granola/yogurt bars realized 6.3 percent and 5.8 percent gains.

Cereal aisle price wars

The notable negative spots in the data were the hot and ready-to-eat cereal categories, which saw dollar sales declines in both the total category and the store brand subsegment.

"Private label demand is down in ready-to-eat cereal due to the significant discounting being done by branded manufacturers" to hold onto or gain more business, says John Sterling, vice president of marketing and category management, Ralston Foods, based in St. Louis. "Branded discounting has only taken dollars out of the category as the category continues to experience volume decline."

He notes that national-brand-equivalent (NBE) formulations are where the vast majority of private label volume exists. Premium and super-premium branded items represent only a small market right now within cereal, and value-tier items could reinforce some consumers' perceptions that store brands are not as good as national brands.

In the past couple of years, national brands have downsized package size to facilitate lower pricing, but packaging is now at a size that would be difficult to shrink further.

"There has been some success with small 7-ounce or 8-ounce sizes that have been priced at or near a dollar to compete with dollar formats and to attract consumers on a tight budget," Sterling notes. "The problem is that it is difficult to make a profit on these items."

Not all retailers want to grow their own label, Sterling says, so some of what observers would call "underperforming" approaches might be so by design. However, he outlines several factors that contribute to a weak store brand cereal franchise: a too narrow product assortment, particularly with children's cereals; everyday price gaps with national brands that are too high or low; national brands that are priced slightly below or even greatly below the store brand; not enough promotional support, particularly with retailers that offer an extreme high-low approach with national brands; and packaging graphics that do not resonate with consumers.

"Typically, price gaps need to be at least one dollar," notes Sterling, "and slightly higher for kids items because of the significant branded discounting."

Essentially, national brand promotions revolve around significant discounts, which eat into category dollars more than a private label promotion ever could. In fact, store brand promotions typically deliver a higher penny profit and do not negatively impact the category, Sterling says.

"In terms of a unique program, we try to offer our retailers a no-cost tie-in with a third party to bring added value for their customers," he says.

For example, Ralston Foods has worked with Rand McNally on separate occasions to offer a free children's atlas of America and a set of flash cards boasting fun facts about all 50 states (free, but with a small shipping fee).This campaign was performed at no cost to the retailer because Rand McNally was able to use the mail-in information to sell additional products.

"This brought added value to consumers, tied in with education and back to school, and helped bring the endorsement of a well-known national company to the retailer's private label," he says.

Healthy still matters

Many consumers have turned to breakfast items that feature heart-healthy and/or low-sugar formulations and unique taste attributes, Mintel reports.

"Consumers are trying to achieve a healthy lifestyle, and are more aware of what they are eating," says Mark Fields, senior product marketing manager for Manawa, Wis.-based Sturm Foods Inc. For this reason, he notes, premium hot and ready-to-eat cereals are growing significantly.

"[Consumers] also want to read about the product's story on its label and learn about the safety of its supply chain, in light of the summer egg recall," he adds.

Fields notes that store brand hot cereals need to maintain a reasonable price spread between their national counterparts, as well.

"When a national brand is priced lower than the store brand, it creates confusion and erodes a retailer's opportunity to create a profit," he stresses. "Also, it starts to set a precedent."

Fields says retailers should treat their store brands as, well, brands — brands that mesh with their customers' needs and values.

Also, by taking the house brands out of the center store, they can promote more shopper awareness of the product.

"Consumers can forget about center-store items like oats," Fields says. "Look at the category and when perimeter, such as during the holidays for baking purposes, for example."

Frozens heat up

Consumers looking for breakfast sandwiches and portable items similar to $1.99 fast food grab-and-go biscuits and sandwiches are turning to the frozen aisle, where a sandwich can be found for about half that price.

"Demand is up for frozens," says Rick Schultz, vice president of sales and marketing for SK Food Group, based in Seattle. "A majority of retailers are going after breakfast bowls and sandwiches with their private label programs because QSRs are into them."

Many retailers are launching healthful, portion-controlled options too with lower sodium and fewer calories, cage-free eggs as ingredients and/or no artificial colors.

"Sometimes costs outweigh the benefits, though," Schultz says, noting that cage-free eggs, for example, can cost double.

"Price is ultimately king with consumers," he emphasizes. "They may say they would only buy a certain thing, but only a few really do."

Retailers also are requesting their packaging be greener — recyclable and sustainable — Schultz says, and of the same size and shape as the national brands, which have been moving to a smaller footprint to use retail space more effectively. He notes that until a few years ago, it was difficult for retailers to come up with frozen handhelds that equaled the quality and price of their national brand competitors because they couldn't purchase the components cheaply enough to be profitable.

"Most of our accounts getting into private label breakfast want to match up to national brands, period — with the product, package and price — but they are not really experimenting outside the bounds," Schultz says.

San Antonio-based H-E-B, on the other hand, has a commitment to be better than the national brands, Schultz says.

"They are very progressive, and are right on or ahead of the trends," he explains. "They won't wait one to two years to watch the market; they will get on point and start developing quickly."

He adds that when H-E-B launches a new item, it provides demonstrations, special merchandising and advertising above and beyond what other retailers typically would do.

As consumers weigh indulgent versus healthy breakfast choices, they already are showing a greater trust in their retailers than in branded manufacturers when it comes to health and wellness information and products, Sterling says.

"Smart retailers will recognize the opportunity to truly partner with their customers by delivering health and wellness information and nutritional products and meal solutions at an affordable price through their private label," he says. "This will allow them to control the conversation with their consumers instead of turning it over to the national brands."

Do evaluate the price gap between store brand and national brand cereals to make sure they are neither too narrow nor too wide.

Don't limit the placement of shelf-stable store brand breakfast items to the center store — consider perimeter placement, too, during critical selling times.

Do invest in providing the types of nutritional meal solutions and health and wellness information your specific shoppers are demanding.

Don't commit to the use of some ingredients (e.g. cage-free eggs) if their cost outweighs their benefits.