Natural food chains may charge a premium for many of the unique brands in their supermarkets, but they also carry private-label products at sharply lower prices.
Through price checks at these stores, SN's undercover shopper found that private-label products cost much less than name brands on a percentage basis than in mainstream stores (see related story on Page 31).
At Whole Foods Market at 50 W. Huron, Chicago, store brands on average were priced 36% lower than other comparable products. Meanwhile, at Wild Oats Community Market at 13130 Shaker Blvd., Shaker Heights, Ohio, the private-label products were 32% lower. Three categories were compared: peanut butter, spaghetti and cereals. In some cases, a premium store brand was priced at almost the same level as the other products, which brought the average price differential up.
"What they are trying to do is capture incremental revenues by providing the customer with an alternative on some of the products they typically wouldn't buy in such a specialty store," said Carole Buyers, Denver-based senior research analyst with RBC Capital Markets, Toronto. "Their strategy has been to try to induce the customer to spend more per basket, thus also reducing the need for the customers to have to shop at more than one store."
In the peanut butter category, for example, Whole Foods and Wild Oats' lowest 18-ounce store brands -- "365" and "Down to Earth Value," respectively -- were 9% higher than the overall average charged for a private-label item in the conventional stores. They both charged $1.99, which was 54% higher than the lowest private-label price found in the other stores, and 23% lower than the highest. Both also carried an organic private-label product under a separate brand -- called "Whole Foods Organic" and "Wild Oats Organic" -- that were priced 8% and 5%, respectively, lower than the average of competing brands in the same stores.
For 1-pound spaghetti, both had their lowest-priced store brands at 89 cents, which was 22% higher than the average for store brands elsewhere. This was 25% lower than the highest store brand found in conventional stores, and 270% higher than the 33 cents charged by one conventional chain.
In cereal, where brands and sizes varied widely, both priced their store brands at $1.99, which was 26% lower than the average private-label price found in the conventional supermarkets. This was 42% lower than the highest price in conventional stores and 12% higher than the lowest price.
"Whole Foods and Wild Oats are using private label to bring their market basket into the affordability range for people who like the stores, but think the prices of the branded products are too high," said Jonathan Ziegler, San Francisco-based managing director, Deutsche Banc Alex. Brown, New York.
The higher differential between the pricing of private label and other brands in the natural specialty stores is also because those other brands are priced much higher than the national-brand products that conventional supermarkets' store brands compete with, said Scott Van Winkle, analyst, Adams, Harkness & Hill, Boston. "They use private label to be competitive with conventional stores and not just to be a value alternative to a branded product," he said.
The other brands in the natural stores are from smaller companies that have only recently begun to take on an identity among consumers, Buyers said. Many of the lower-priced, private-label lines they carry are more like commodities, while both chains have a second-tier line that competes more directly with those other, more expensive products, she added.
"Private label is a slightly different component in these stores because most of the brands there are not what we would regard as national brands," said Frank Dell, president, Dellmart & Co., Stamford, Conn. "They are not necessarily competing with a Procter & Gamble or a Coca-Cola."