Health-focused store brands have helped grocers differentiate themselves from members of channels who've traditionally hung their hats on low prices and limited SKU assortments. Mindful of these lines' ability to facilitate the mainstream's foray into premium fare as well as growth in Center Store share, club stores and mass merchants are beginning to hone their nutritional efforts, industry observers note.
“In general, club stores and discounters have been behind grocers in offering health and wellness, but some are definitely stepping up their efforts now,” said Sheila McCusker, editor of Information Resources Inc.'s Times & Trends report.
Many of their endeavors are surfacing on shelves occupied by their burgeoning private-label lines.
Although grocers continue to post the greatest private-label share, club stores hold a substantial lead over all others when it comes to share growth. The channel's store-brand unit share increased 4.6 percentage points between 2004 and 2007, followed by mass merchandisers, which experienced a 0.4-point increase, and supermarkets, whose share growth dropped 0.2 points, according to IRI.
“One of the reasons for this growth is because club stores have really added extensively to their private-label programs; they've taken a steady approach to increasing their presence in order to build consumer confidence, and then they've expanded these lines,” noted McCusker.
Costco Wholesale Corp. is among the club stores who've adopted the strategy.
“Its Kirkland Signature brand cuts across the entire store, so consumers become really comfortable with it and then those positive experiences extend into other categories,” said McCusker.
The line includes health-focused groceries like Kirkland Signature Organic Raisin Bran and co-branded specialties like Kirkland Signature Martha Stewart Classic Tomato Soup, made with organic tomatoes, and Kirkland Signature Newman's Own 100% Grape Juice.
Costco's store brand has been growing at a rate of 1% per year and now accounts for about 17% of store sales. High-quality, wholesome ingredients are part of its recipe for success.
“I know one of their buyers in the food area, and for anything they do for their Kirkland Signature brand, they are always trying to make sure they have the best: the best almonds, the best chicken, the best chocolate or whatever,” said Patty Edwards, an analyst with Wentworth, Hauser & Violich, San Francisco. “They're obsessive about good product at a great value.”
MARTHA'S TOUCH
The wholesale club strengthened the reputation of its line by co-branding Kirkland Signature items with trusted brands like Newman's Own and Jelly Belly, said McCusker. Its newest partnership has resulted in items bearing the Kirkland Signature Martha Stewart label.
“Where possible, we always try to limit sugar, fats and other additives,” noted Susan Testa, senior vice president of licensing, food and beverage for Martha Stewart Living Omnimedia, New York.
In December, the retailer began merchandising — for a limited time — Kirkland Signature Martha Stewart Favorite Holiday Hams, produced from antibiotic-free hogs. Costco stores currently offer Kirkland Signature Martha Stewart ready-to-heat soups made with fresh ingredients. Kirkland Signature Martha Stewart frozen appetizers and baking mixes are also expected to hit store shelves soon.
“It's still very early in the cycle of the new items, but we are pleased” with sales results, said Testa.
The novelty of Costco's Kirkland Signature items contributes to the wholesale club's ever-changing treasure hunt atmosphere. Of about 4,000 grocery items merchandised in its stores, 3,000 are basic and 1,000 are constantly changing, Costco President and Chief Executive Officer Jim Sinegal told SN in December.
Costco is wise to court shoppers with foods focusing on health and wellness, noted Bill Bishop, president of Willard Bishop, Barrington, Ill.
“Its demographic is really a very high-interest group in terms of health and wellness, so there are a lot of good reasons to push that health connection,” he said.
Still, Costco and its competitors could be doing more, noted McCusker.
“Today you walk through club warehouses and you don't see store signage pointing out healthier products,” she said. “Grocers are doing a good job with signage, but we're not seeing this with club stores. There is an opportunity to shift the focus more on health within this environment.”
Mass merchants are also in a unique position to grow their health-focused private-label share. That's because consumers are expected to react to mounting retail prices in three basic ways, said McCusker.
“Either consumers will purchase more at discounters like Wal-Mart, or they'll buy less, or they'll purchase more private label,” she said. “Health is a great tie-in with value, and there is a big opportunity to develop that tie-in more directly. We see some who are doing a good job of it, but we could be seeing a lot more.”
The health attributes touted by items in Wal-Mart's private-label line are gaining momentum. “Wal-Mart has also increased its focus over the last year on private-label products that are low-fat, low-salt, low-sugar and no trans fat,” McCusker noted.
Packages of Wal-Mart's Great Value Fruit Selection Diced Peaches cups bear claims including 33 calories per serving, 0 grams of trans fat and sweetened with Splenda. Its Great Value Sugar Free Maple & Brown Sugar Instant Oatmeal boxes tout 100 calories per serving and 0 grams of trans fat per serving.
TIGHTENING FOOD SAFETY
Wal-Mart is also working to ensure the health of its private-label consumers in an unprecedented way. Last month it announced the adoption of Global Food Safety Initiative standards at thousands of factories that produce store-brand products merchandised at Wal-Mart and Sam's Club stores. The retailer claims to be the first national grocery chain in the U.S. to adopt the standards for its private-label lines.
“It puts them in a position to create greater value for shoppers and earn higher profits,” said Bishop.
Still, the effect of the stricter standards on store-brand sales at Wal-Mart and Sam's Club remains to be seen.
“It depends on how aggressively [this information] is promoted,” Bishop said.
One line that does exceptionally well is Target's Archer Farms brand, which McCusker identifies as a best-in-class model.
Premium delicacies like handmade and frozen spinach & artichoke purses, high-protein cinnamon cereal and organic spinach and feta pizza on a wheat crust are all part of the line. The store brand's wholesome image is conveyed by its high-end packaging and the tag line “Everyday Incredible. Tasty Food, Tasty Price.”
Salty snacks are packaged in paper bags instead of plastic; many containers are also “uniquely resealable,” said Bishop.
“Target is certainly doing a good job with the separate brand identity of Archer Farms,” he said. “This is reinforced by excellent packaging and very strategic pricing that positions the product appropriately between branded competition and their second line [Market Pantry] private label.”
Citing its desire to empower shoppers to lead healthier lives, Target reformulated several items in the 2,000-plus-item line to rid them of trans fat earlier this year. Archer Farms triple berry pies, lemon cookies and blueberry muffins were among the sweets whose recipes got a makeover.
“Regardless of age or gender, consuming food products with added trans fats presents a host of long-term health concerns,” said Dr. Susan Mitchell, Target's health and nutrition expert, in a statement. “The Archer Farms line offers premium, affordable snacking and meal options made from the finest ingredients for those looking to steer clear of added trans fat.”
In 2006, Target added organic items to the premium line. Its selection includes organic Burgundy Marinara Pasta Sauce, Frozen Organic Whole Blueberries and Organic Fruit Sangria Loose Leaf Tea. Target also appeals to the health-conscious with its value-priced Market Pantry store brand. Items include bottled water and 100-calorie packs of chocolate crisp cookies.
