Indulge Them

Still-shaky economic conditions have many consumers seeking out small, affordable indulgences — creating growth opportunities for premium-tier store brand products.

According to an Aug. 23 Associated Press (AP) article covering an AP survey of leading economists, the United States is unlikely to experience another recession over the next 12 months. But those same economists do not expect much improvement, either, saying that "high unemployment and weak consumer spending will hold back the U.S. economy into 2012."

Such economic unease might seem to be bad news for the premium products sector — and for store brands playing within that space. But Packaged Facts, a Rockville, Md.-based division of MarketRearch.com, contends that "success remains to be had" here. Moreover, retailers that find ways to incorporate the economic slowdown's impact on consumer behavior stand to boost their chance for success, the market research firm says in a September 2010 report titled "Gourmet, Specialty and Premium Foods, Beverages and Consumer Trends in the U.S."

To succeed, a retailer must truly understand its consumer base and create offerings to satisfy that base.

"While the [recent] recession has caused many consumers to reduce spending, they have not lost their taste for small indulgences," notes Nima Fotovat, general manager of Shandiz Natural Foods, Markham, Ontario. "Premium private label products offer a way to satisfy these desires at a price that is perceived as a good value."

Many mainstream retailers, including Target, Loblaws and even Walmart, have added upscale/ gourmet tiers to the store brand mix, adds Lela Adelman, national sales manager for Tulocay & Co., Napa, Calif.

"With the downturn of the economy, consumers are paying more attention to their entertainment budget and eating out less," she says. "This does not mean they want to forfeit the experience, ultimately resulting in a higher interest in products that bring the gourmet/upscale experience into their homes."

Pinpoint opportunities

When it comes to premium product development on the store brand side, a number of categories are ripe with opportunity. Susan Fritz, sales executive, national accounts for Lansing, Mich.-based Paramount Coffee Co., counts pasta, chocolate, coffee, cookies, olives, sauces and olive oil among the categories with store brand potential.

"These are categories with high velocity and a broad range of price points," she says.

Premium chocolate is the fastest-growing subcategory within the U.S. confectionary area, notes Michael Schmid, managing partner — marketing for Wolfgang Candy Inc., York, Pa. He says the growth is primarily the result of Americans' relatively new exposure to such chocolate and a collective palate that's becoming more sophisticated.

"Retailers should invest in the chocolate space as it relates to premium," he adds.

Richard Butler, director of sales for The Madelaine Chocolate Co. of New York, agrees.

"Premium bars and chocolate-filled items have been the big growth areas, and I see that continuing," he says.

Fotovat also sees store brand potential in natural, organic and better-for-you premium offerings — consistent with consumers' overall interest in health and wellness.

"Since branded products of this nature tend to be more expensive, they are logical opportunities for premium private label," he says.

Another private label opportunity can be found in premium frozen appetizers — special items fit for a party or special meal, notes Teri Valentine, president and CEO of The Perfect Bite, Glendale, Calif. She also adds ice cream and meal solutions to the list.

And don't discount premium shelf-stable items such as spices, seasonings and sauces, which also make sense because of their extended shelf life, says Brett Cramer, proprietor of The Spice Lab, Fort Lauderdale, Fla.

"Gourmet salts are one of the hottest new trends among foodies," he says, "and are featured on many cooking television shows. The category awareness is increasing, so the time is right for store brand products."

Within shelf-stable sauces and condiments, Chris Barhyte, CEO of Tualatin, Ore.-based Barhyte Specialty Foods, notes a trend toward the inclusion of berries.

"I think the antioxidants are part of that," he says. "But berries work nice with a lot of savory items."

In recent years, wine and beer also have become a premium products focus within many retailers' store brand programs. But distilled spirits, too, present a prime store brand opportunity, considering that so much of the national brands' monies are committed to marketing, says Earl Hewlette, CEO of Ladson, S.C.-based Terressentia Corp.

"The challenge in realizing this cost savings is finding a quality level you would be proud to brand as your own," he says.

But Kelly Cox Semple, private label manager for York, Maine-based Stonewall Kitchen, believes that all categories are fair game when it comes to premium private label products.

"Anything the consumer might need while making breakfast, putting together a brown bag lunch or creating dinner," she says. "And don't forget snacks and dessert!"

Michael Pritchett, vice president of sales and marketing for Hicksville, N.Y.-based Nassau Candy, agrees.

"From produce, floral, bakery and deli [to] the main candy aisle, we are seeing increased interest in expanded programs that create excitement and additional sales."

To succeed, however, the retailer must truly understand its consumer base and create offerings to satisfy that base, Cox Semple says.

"For example, if the gourmet brand pickled asparagus is a slow-mover with your consumers chances are the store brand version will collect dust, too — no matter how attractive the savings," she says.

The premium tier is the best route to store brand differentiation.

Catch the eye

A premium store brand product wrapped up in bargain-basement packaging certainly won't inspire confidence on the part of shoppers.

"The packaging needs to reflect the premium value of the product," The Spice Lab's Cramer stresses.

To be premium product-worthy, the packaging must, first of all, catch the consumer's eye, Fritz of Paramount Coffee relays.

The Premium tier is the best route to store brand differentiation.

"It needs to stand out among all the other brands," she says. "Packaging needs to communicate that it is upscale, not 'me too.'"

Madelaine Chocolate's Butler points to bold and bright colors as an attention-getting strategy.

"The packaging has to want to be seen!" he emphasizes.

The look should be sophisticated, too, notes Wolfgang Chocolate's Schmid. And both the packaging and the colors selected need to be oriented toward adults — and primarily toward women, in the case of premium chocolate.

The more innovative the packaging is, the better, Stonewall Kitchen's Cox Semple adds. Retailers should consider new shapes, materials and closures, as well as the use of sustainable or recyclable materials.

If a retailer opts for product photography on the packaging, the photography should be high in quality, Shandiz' Fotovat says. A retailer also could communicate the product's features and benefits on the package as a differentiation tactic.

"In some cases, a see-through feature that allows the consumer to view the product can reinforce quality," he adds.

On the premium chocolate side, tubs represent an expanding format, Nassau Candy's Pritchett explains. They easily display the product for the consumer.

"We also have seen an increase in the use of standup reclosable bags in either clear or printed formats," he says. "This delivers merchandising flexibility at shelf level and reclosable use like tubs."

And for premium pasta sauce, salsa and such, glass jars really shine, says Nila Mechali, director of marketing for Randallstown, Md.-based Mama Vida. Besides conveying an upscale feel, glass helps extend the shelf life of high-acid products.

"Glass does not allow in light or oxygen," she notes. "Plastic allows in minimal, minimal amounts of oxygen and light, so it does affect the products."

But aseptic packaging from Tetra Pak — which has been popular for some time in Europe — also is gaining momentum for high-acid sauces and more, according to Tulocay's Adelman.

"It's slowly making its way onto the U.S. grocery shelf in categories like sauces," she says. "Resealable printed pouches in all shapes and sizes for all categories are also on the rise."

And sometimes plastic is the better choice for certain premium condiments and sauces. Barhyte notes that some of Barhyte Specialty Food's retailer customers have specified plastic for gourmet mustards, for example, because their customers are taking the items on boats or on picnics and don't appreciate the extra weight glass brings with it.

Tread carefully

Although opportunities are everywhere, retailers still will want to approach the premium tier with a bit of caution. One of the most common mistakes to avoid here is imitating a national brand, Wolfgang Candy's Schmid points out. After all, the premium tier is the best route to store brand differentiation.

"Store brands have matured in such a way that consumers seek them out as a primary purchase, not an alternative," he says. "Retailers have an opportunity, especially with premium chocolate, to invite the consumer to buy into — or even up to — their brand."

Another common mistake is selling store brand premium products only on price, contends The Perfect Bite's Valentine.

"This is not a price-item sell, but a solution you are bringing to the consumer," she stresses.

And don't come up short in the marketing and merchandising arena, Stonewall Kitchen's Cox Semple advises. It's critical that retailers showcase and demo their products, as well as educate shoppers about them.

"Most importantly, give the consumers a reason to spend more for the premium item than they would for the NBE item," she says.