PREMIUM STORE BRANDS CALLED BEST PASSPORT

CHICAGO -- Foreign suppliers hoping to crack the U.S. supermarket business may find that premium store brands represent their best passport.That's the recommendation of John F. Coyne, executive director of Private Label U., Scottsdale, Ariz., who is urging suppliers to play to their strengths by focusing on added-value and exceptional quality. Private Label U. is a training institute for retailers

CHICAGO -- Foreign suppliers hoping to crack the U.S. supermarket business may find that premium store brands represent their best passport.

That's the recommendation of John F. Coyne, executive director of Private Label U., Scottsdale, Ariz., who is urging suppliers to play to their strengths by focusing on added-value and exceptional quality. Private Label U. is a training institute for retailers and suppliers that focuses on store brands.

"U.S. retailers who are committed to expanding their private-label programs will do so with premium lines," Coyne said in a presentation at the Food Marketing Institute's annual convention here this month. "Not only will it be the growth area of the industry over the next 10 years, but it is the area where foreign consumer products companies can leverage their strengths.

"The heart of the premium store-brand strategy is differentiation. Foreign consumer products manufacturers can differentiate their offerings in many ways -- through product uniqueness, international cachet or 'imported' imagery -- that their U.S. counterparts cannot. If leveraged effectively, this can make you a more attractive supplier to the U.S. retail trade for premium store brands."

However, foreign suppliers need to recognize that premium labels require a different marketing strategy than their conventional store label counterparts, Coyne said. Accordingly, private-label suppliers were urged to use marketing principles more typical of national brands. They include:

Working with retailers to pinpoint the target consumers for the product.

Positioning items with the goal of differentiation and clarity.

Targeting the brand buyer, rather than the economy buyer. The economy buyer's needs are likely being met by traditional products, whereas the opportunity for premium store labels is to draw national brand-oriented consumers.

Employing unique packaging that relays a foreign cachet and stresses words like "imported."

Working with retailers to develop pricing that meets store needs but also falls in line with the brand's premium positioning.

Showing a willingness to help the retailer promote the product to fuel brand recognition.

Coyne assured foreign producers that U.S. premium store-brand growth is inevitable because the category provides stores with higher margins, exclusivity and consumer loyalty.

"By extending their private-label margin requirements to a premium store brand and using premium private labels to displace secondary and tertiary brands, the retailer can improve the profitability of the mix," he said.

The increasingly competitive U.S. retailing environment has thrust premium brands into the supermarket spotlight, Coyne contended.

"Discount mass merchandisers have become powerhouses," Coyne began. "Discount drug retailers have grown rapidly. And so-called category killers . . . have established themselves as experts in various grocery segments. "These new retailing formats have eroded traditional grocery and drug store volumes because they compete primarily on the basis of lower price on the same national brands offered by traditional retailers. An exclusive premium store brand that delivers higher value differentiates the progressive retailer from its grocery competitors and these alternative retailing formats."

Coyne said research is all-important for the foreign supplier setting sights on the U.S. market. He suggested that producers contact U.S. trade associations and examine demographic and commercial data from U.S. government agencies. He also recommended that firms consider using private-label brokers for help in linking with retailers. Further, Coyne suggested foreign vendors consider building relationships with U.S. private-label suppliers.

"There may be opportunities to tap into the customer base and distribution system of a U.S.-based private-label supplier of products that are complimentary to use for a fee or for a reciprocal arrangement in your home country," he said. "Don't rule this out because it sounds far-fetched. U.S. private-label suppliers are very entrepreneurial by nature, and you might find a willing partner who would like to explore the business potential for his products in your country."

While many suppliers and retailers will be attracted by the strong growth potential of U.S. store brands, they would also be wise to analyze industry growth predictions closely, Coyne said. He cited industry forecasts that private label will rise to 40% or 50% shares of grocery business over time.

"There is a large gap between where the U.S. private-label industry is today and where some experts claim it will be by the turn of the century, less than six years from now," he said.

Accordingly, he suggested that sharp growth is not assured, but will be contingent on retailers' private-label game plans.

The best road map for retailers to follow is the so-called "20/20 Vision," he said. That strategy calls for retailers to aim for a private-label unit share target of 40% within the next 10 years. Twenty points would come from conventional private label-dominated categories, including milk and fresh breads, while the remainder would be generated by premium lines, like the President's Choice brand from Loblaw International Merchants, Toronto.

"Since the vast majority of current private-label products already falls into the first 20%, the significant growth predicted by the industry experts must come from added-value products in categories currently dominated by branded products," he said.