In an increasingly segmented market, today's Starbucks-savvy consumers expect more from their coffee and tea. Supermarket retailers are responding with private-label beverage programs designed to meet the needs of the more discerning palate.
"The reason behind the coffee renaissance of the '90s was the expansion of the coffee menu," said Gary Goldstein, spokesman for the National Coffee Association, New York. "It's no longer regular, instant or decaf, but something much more specific."
The tea category is on the cusp of a similar movement, said Joe Simrany, president of the Tea Association of the USA, New York. According to Simrany, specialty teas still account for a small percentage of tea sold across the country -- no more than 10% of total sales -- but there is a growing trend toward higher-end, gourmet products.
Indeed, the proliferation of coffee shops and book store cafes has redefined a cup o' joe, and consumers bring these heightened expectations to the grocery store. By tailoring private-label offerings, retailers can satisfy that demand while making the most of store branding opportunities.
According to a recent study from the Natural Marketing Institute, Harleysville, Pa., coffee and tea exhibit relatively high degrees of store brand penetration, surpassing those of juice and milk. Of the 74% of general-population consumers purchasing coffee over a three-month period, 41% purchased the store brand.
Hot tea shows similar numbers. With 58% having purchased hot tea during that same three-month period, 37% bought the store brand.
The store brand-penetration figures for juice and milk were 32% and 25%, respectively.
Sylvia Wulf, vice president of marketing at Sara Lee Coffee and Tea, Bensonville, Ill. -- a division producing private-label coffees for several large retail operations, including Stop & Shop and Giant Foods -- told SN that grocery stores are leveraging exposure to specialty outlets by focusing on the whole bean side of the coffee business.
"Retailers are upgrading their whole bean programs because they realize that this is where the opportunity is," she said. "There has been a renaissance in taste profiles, and retailers want to take advantage of that."
In addition, coffee is experiencing the lowest commodity pricing in over 20 years, making it a very profitable proposition, she said.
"Specialty" is a highly subjective designation in the coffee category, depending largely upon consumer perception. While often defined by an espresso base, some might include a hazelnut or an origin blend such as Guatemalan Antigua in the gourmet class.
The low-end stigma commonly attached to store brand products could be a problem when targeting consumers who have been known to spend $5 on their morning lattes, but becomes less of an obstacle when the presentation is right.
"It depends on how well the retailer does at creating the perception of a brand," said Wulf.
The presence of whole beans in a bin goes a long way toward specialty positioning, she explained, while still showing customers a notable difference in price points.
Cans do not hold the same promise.
"Coffee in a can is such a good value anyway, and the opportunity for private label isn't great," she said. "Unfortunately, the big three coffee companies have allowed coffee to become a commodity."
Indeed, all of Sara Lee's supermarket accounts are strictly whole bean. However, the company does do a very brisk business in canned coffee with Costco and their Kirkland label.
Rice Epicurean Market, the Houston-based gourmet retailer, has been offering private-label whole bean coffee under the Epicurean Coffee Co. banner for several years, according to Scott Silverman, vice president of specialty foods for the chain. The program is strong in sales and gross profit, while also serving as an effective image-building tool. A quality bean from a quality roaster is the key, he said.
"There is no such thing as average coffee," Silverman explained. "People either like it or they don't. Any time anything goes out the door of our stores with our name on it, it's advertising.
"Our coffee beans are not the cheapest, but from a quality standpoint, they will stand toe-to-toe with any other."
Silverman's stores do not carry a line of private-label tea. Not only is brand loyalty stronger in the realm of specialty teas, it is also harder to obtain.
"Most of the great tea companies -- Fortnum and Mason, Twinings, Bigelow and Celestial, to name a few -- are more interested in building their own brand name. There are roasters in every town with the ability to private label. Sourcing tea is another story altogether. Making tea bags requires equipment coffee roasters don't need."
Despite these challenges, tea can offer a unique opportunity for retailers to stand out, given the appropriate customer base.
Wild Oats, the natural foods chain out of Boulder, Colo., recently rolled out a line of specialty teas in the Wild Oats label, according to Kevin Weaver, a grocery category manager for the chain, previously the private-label manager.
"We felt we needed to get into teas," he said. "Tea is a major category in our stores. And a lot of our customers are looking for efficacy in what they drink. It's not just a beverage."
The line includes 14 stockkeeping units: four organic options, eight medicinal teas using ingredients such as echinacea and kava root, and two sampler packs.
When it comes to private label, Wild Oats takes its commitment to natural ingredients and full disclosure very seriously, Weaver said. All products bearing the Wild Oats label are subject to stringent standards.
"One thing we've been able to show our customer base, when they buy the Wild Oats label, they don't have to worry about what's in it."
For example, the phrase "natural flavors" does not appear on the store brand label without further explanation. Not only must specific flavors be identified, but also the carriers of those flavors.
The tea is sourced from a manufacturer with organic plantations in Sri Lanka. Wild Oats tea uses no flavor extracts, unlike their branded counterparts, Weaver said. The orange in the Earl Gray is not orange flavor, but actual orange.
"I don't think there is a big brand out there with the same strict standards," Weaver maintained.
The line has only been on the shelves for a few months, but customer reaction has been very positive so far, he said.
The retailer also has a line of coffee that has done well for several years. At this point, the line is evolving, taking into account the social and political imperatives of the Wild Oats consumer.
Fair trade and shade-grown coffees are fast becoming a store brand priority, although the chain does not currently offer these options in the Wild Oats line, Weaver said.
Shaw's Supermarkets, West Bridgewater, Mass., banks on longstanding tradition. According to Bernie Rogan, a spokesman for Shaw's, the chain uses original graphics to sell the George C. Shaw tea and coffee line. The retailer began as a tea and coffee company in 1860, he said.
"Using those original graphics and the self-dispensing unit, we make it a destination in the store and it works very well," he said.
The line is offered in a can as well. The can is a "big mover" Rogan said, a testament to the renowned strength of the chain's store brand label.
Rogan's stores play on gourmet tastes by cross merchandising with high-end cookies and crackers. However, Rogan would not necessarily call the current offering a true gourmet coffee.
"I wouldn't classify this as a $4 cup of coffee," he said.
Rogan acknowledged the importance of packaging and environment when it comes to specialty positioning. Over the next several months, Shaw's will be rolling out a line of gourmet, private-label products called Signature. This will allow the chain to further satisfy more refined demand as a George C. Shaw line of Signature coffee is in the works.
In keeping with the company's roots, Shaw's also offers a line of George C. Shaw brand conventional teas. With an expansion of the Signature line, a more nuanced selection of herbal, organic and flavored teas is a distinct possibility.
