Chameleon Category
In the ever-changing dips and spreads segment, retailers will find ample opportunities to enhance own-brand sales.
The dips and spreads segment is ever-evolving and full of surprises. The traditional sour cream-based onion chip dip, for example, now has real competition in hummus, which vies with salsa as one of today's most popular dips.
But thanks to the lingering recession, retailers generally have been taking a more cautious approach to product innovation here, putting on hold plans for more healthful, premium store brand products in this segment.
According to The Nielsen Co., New York, the refrigerated dips category had a rough year, with the total category down 1.1 percent in dollar sales and 6.6 percent in unit sales during the 52 weeks ending Oct. 10 (food, drug and mass merchandiser stores, including Walmart). Store brands fared even worse, posting 18.9 percent and 30.6 percent dollar and unit sales declines, respectively.
However, store brand refrigerated spreads saw an impressive 42.8 percent increase in dollar sales and a 46.3 percent rise in unit sales during that same timeframe. And store brand shelf-stable dips greatly outperformed the total shelf-stable dips category, chalking up dollar and unit sales gains of 30.8 percent and 18.8 percent, respectively. (See the table, p. 30.)
Within the shelf-stable snack condiment dip segment, "the key [store brand] SKUs are showing about 15 percent penetration in the category," says Steven Fay, executive vice president and sales team leader for Berner Food and Beverage, based in Roscoe, Ill. "Because this is a largely DSD [direct store delivery] dominated area of the store, 15 percent penetration is very good."
Fay adds that Berner's destination supplier program, which offers a whole array of additional SKUs to make the offering complete, has been widely embraced as well, and is growing.
Distinction at a discount
Consumers continue to want good-quality, national-brand-equivalent products at value pricing.
"[Low-end quality products] do not work, nor do they support the retailer's agenda of building a store image and providing consumers value at the same time," Fay says. "In regard to premium and super-premium offerings, at least in the snack condiment arena, this is a very difficult time to build such programs."
As many national brands are being gobbled up by larger companies, the dips and spreads category overall is getting more exposure, says Dominick Frocione, vice president of sales for Cedar's Mediterranean Foods Inc. of Ward Hill, Mass.
"Retail prices on the national brands aren't coming down, although there is a lot of promotional activity in the weekly ads," he says. "But we definitely see an increase [in] request[s] for quotes on private label."
Frocione says some of his company's store brand customers are demanding better quality than the national brands', while others want a distinctive difference such as all-natural or higher-end premium flavor profiles.
And hummus continues to show double-digit growth for retailers, Frocione says.
"That is because many dip companies — Cedar's is a perfect example — have trended toward maintaining a 'healthy for you' nutritional base," he says. "The one area I still don't see taking off is organics, at least as far as dips are concerned. Customers still aren't willing to pay the premium price required."
Jeff Derr, senior manager, retail sales and marketing for Elk Grove Village, Ill.-based Grecian Delight Foods, agrees, noting that while consumers are watching their nutrition and seeking some form of health benefit from their products, his company has received no requests for organic dips and spreads.
"Consumers are just getting smarter, and if an ingredient has a negative perception — such as sodium, trans fats and high-fructose corn syrup — they just won't put them in their bodies," he says.
And the level of innovation in this category, of course, varies according to the retailer and market area.
Source: The Nielsen Co. Food, drug and mass merchandiser stores, including Walmart, for the 52 weeks ending Oct. 2, 2010 (prepackaged, UPC-coded products only).
"Though exotic flavors and ingredients such as roasted pepper, asiago or Buffalo may be hot for many, that's not going to be a priority for every retailer," says Kate Rendall, marketing manager for the Federated Group, based in Arlington Heights, Ill. "Nacho cheese, ranch, salsa — these will continue to be staples many people rely on as consistent performers. For our needs, focusing on using real cheese and familiar, consumer-tested flavors is the priority."
Packaging makes the product
The shelf-stable dips segment continues to be dominated by traditional glass jars, Fay notes.
"I had high hopes for plastic tubs as a packaging system, but their lack of recyclability has caused them to disappear from the marketplace," he says.
And across the segment, packaging sizes seem to be increasing in the dips and spreads segment. But Frocione recommends to his clients that they start out with a smaller size such as 8 or 10 ounces, "then add additional SKUs of the most popular flavors in 16-ounce to 20-ounce sizes."
But larger sizes do not appeal to every consumer.
"We've seen a good response from consumers on our individual servings of cheese and salsa dips," Rendall says. "Salsa is a pretty healthy snack that serves the on-the-go but conscious demographic," she adds.
More retailers also are using packaging that shows off their product, so consumers can see what they are buying, Derr says. He also notes more requests for more sustainable materials.
But Frocione cautions against straying too far from the national brand when it comes to packaging enhancements in this category. He says his company has observed a number of retailers with a great store brand concept that are successful with making their own products in their commissaries, but confuse shoppers when they put their dips into the same style container — such as a deli container — ostensibly to give their store brand a stronger presence.
"In reality, certain products equate better to typical national brand packaging," he says. "Consumers are used to buying national brand products in one style of container, and there may be a lack of interest in a dip that is merchandised in a container that they don't recognize as [being for] a dip."
Jumpstart product launches
Retailers also could benefit from employing the more rigorous research and development, focus groups and regional tests the national brand manufacturers rely on, says Doug Oaks, national sales manager, retail for Food Service Specialties, based in Red Wing, Minn.
"Like many companies, they don't have the infrastructure and budgets to run costly focus groups and regional tests, so they rely on manufacturers to do the R&D or a major piece of it for them," Oaks says. "Or they will do the bare minimum of preparation and will just put a new product out on the shelf. If it's successful, they will put their label on it, or if it's not, they will just pull it off the shelf."
Obviously, such a strategy is high risk: Retailers have fewer costs if the product launch is successful, but more costs if it is not, he says.
"Once a product is launched, promotions, temporary price reductions and advertising are always good to jumpstart new product introductions and benefit the whole category," he says.
In the snack condiment category, the national brand — not the retailer — usually sets the ground rules for the merchandising space, Fay says. As a result, store brands still are under-represented on the shelf.
"The money lost due to space allocated to the national brand because of fixtures and other elements is tremendous," Fay says. "Many retailers can see the justifications in terms of margin productivity to expanding the number of facings for store brands, but they cannot allot it because the national brand has tied them up."
Meijer is a great merchandiser, he says, because the retailer uses its muscle to do end cap displays and other merchandising features with store brands, such as an occasional tie-in promotion with a national brand — even if that national brand sells a competitive item.
"For example, the national brand tortilla chips are promoted with the store brand salsa con queso, even though the chip manufacturer also sells a competitive salsa con queso," Fay says.
With nonmainstream products or flavors, in-store demonstrations are helpful for growing product and category sales, Derr says.
"Customers want to try new flavors, and sampling encourages trying and buying," he says.
A resilient category
In the years to come, the dips and spreads category is expected to shift from premium upscale novelties back to comfort staples, Oaks says. However, the store brand segment will continue to grow, albeit with more caution from retailers for the next one to two years.
"Most retailers are running more streamlined operations so they don't have as many resources to launch as many products as they want," he says. "They are more cautious as to what they put on the shelf than they were two to three years ago."
However, new product launches are expected to focus on health, fresh ingredients and bold flavors, Derr says.
"The category is broad enough to reinvent itself to grow for years to come," he adds.
Do consider incorporating some sort of health benefit into new dips and spreads.
Don't make the move to large packs on new dips and spreads until sales volume verifies their popularity with shoppers.
Do invest in in-store sampling when introducing nonmainstream products or flavors.
Don't let the national brands completely take over the snack aisle; consider store brand end-cap displays, and even occasional promotions with the national brand.
Top 5 Markets for Dips and Spreads
- Louisville/Jefferson County, Ky./lnd., Metro
- Indianapolis/Carmel, Ind., Metro
- Pittsburgh, Pa., Metro
- Rochester, N.Y., Metro
- Kansas City, Mo./Kan., Metro
Regions with the largest percentage of people with a tendency to buy store brand dips and spreads, reported by Core Based Statistical Areas (CBSA) defined by the U.S. Office of Management and Budget.
Source: Buxton Co., Fort Worth, Texas.
