Private label — it’s a Cinderella story that some thought would quietly fade into the annals of retail history. But the subsequent foothold of private label within the value sector continues to garner attention from both consumers and the press, keeping more than a few bakers and snack producers on their collective toes to meet this evolving value demographic.

Manufacturers of private label brands no longer attempt a one-size-fits-all approach, and many consumers would be hard-pressed to compare the black-and-white labeled generics found on grocery stores years ago to the private label products produced by stores such as Trader Joe’s, Whole Foods’ and Kroger’s today. Whether it’s formulated for club stores, grocery or the expanding dollar store channel, the trajectory for value-related products continues to climb as a result of the creation of innovative snacks and baked foods that compete with branded counterparts on taste and price, often exceeding expectations on both accounts.

Deloitte’s recent study “The Battle for Brands in a World of Private Labels” found 77% of consumer packaged goods (CPG) executives and 90% of retail executives surveyed indicated market share of store brands will increase or increase significantly in the US by 2012. Interest in the manufacture of private label products among baking and snack companies mirrors industry sentiment that demand for these products won’t slow down anytime soon.

As a result, savvy food producers are redefining what the value proposition means to their companies and customers. Shearer’s Foods, Brewster, OH, views the value concept in broad terms that can change depending on the customer. The manufacturer of private label and Shearer’s branded snack products bases its production on both retailers’ needs and the intended audience such as those looking for value or better-for-you products.

“Retailers had private label before, but the requirements are changing, and there’s a desire for higher quality,” said Jeff Binczyk, vice-president of marketing, Shearer’s. “The economy has opened people’s eyes to trying private label products, and if they are delighted by the product, they are more likely to buy again.”

With a growing number of retailers taking private label into their own hands, the “rules” of private label production and marketing may possibly vary with each interpretation, making this an interesting game for everyone involved. Kmart, a subsidiary of Sears Holding Co., Hoffman Estates, IL, is one of the latest to throw its hat into private label with its own store brand. In late September, Kmart announced its Smart Sense line would contain a range of products including snacks that would retail for 20% less than national brands, according to the company.

Retailers of value-priced products are also expanding their reach through co-branded stores such as the Save-A-Lot/Rite Aid Pharmacy in Easley, SC. Save-A-Lot, a subsidiary of SUPERVALU discount concept, will be featured in 10 existing Rite Aid stores in the Greenville, SC, market.

By moving beyond the traditional ways of doing things, manufacturers and retailers are open to creating formulations with high-quality ingredients wrapped in eye-catching packaging. Another bonus is that these products don’t necessarily require the same marketing support as national brands.

Shearer’s allows its customers to use the company’s brand as a learning lab for creating new products that might later be launched under their own brand, Mr. Binczyk said. This is advantageous in the case of better-for-you products where a customer might be less willing to place its name on an experimental product, especially one marketed with a health-and-wellness slant. Once products have passed muster of both the customer and consumers, some retailers will benchmark its branded product against a private label offering.
“If positioned correctly, consumers have shown a willingness to pay for perceived better-for-you product benefits such as reduced fat or salt content or portion control,” said Mitch Newell, business strategy manager, Wyandot, Marion, OH.

Positive private label experiences have increased consumer willingness for trial, even in the area of better-for-you products. Wyandot, a contract snack manufacturer, recently created a fabricated vegetable chip made of carrot, sweet potato, rice and beans that contains a half-serving of vegetables. Because of price considerations, better-for-you products do not typically fit into the usual cost parameters of the value sector, but they are strong store brand players.

Over the past year, Wyandot has received considerable interest in value products, according to Dan McGrady, vice-president, technical services, Wyandot. “Private label will continue to evolve as consolidation in the industry means that more companies have the resources, talent and quality to encourage consumers to view it as an alternative,” he said.

This reasoning has also resulted in the inclusion of more whole-grain foods in private label brands. This is good news to groups such as the Whole Grains Council (WGC) and Grain Foods Foundation (GFF) that work with industry partners and consumers to eliminate the perceived cost barrier from whole-grain foods. While a conventional notion still exists that highly educated consumers eat more whole grains, messaging is actually stronger among recipients of Women Infant Children (WIC) and the Supplemental Nutrition Assistance Program (SNAP, formerly known as food stamps), according to Cynthia Harriman, director of food and nutrition strategies, WGC.

Increased consumption of whole grains could also serve as an unofficial barometer of US economic conditions. On Oct. 5 the US Department of Agriculture reported recipients of SNAP subsidies for food purchases increased 18% from last year and 1.4% from June. The White House estimates that beginning Oct. 1 an average of 43.4 million people will receive food stamps SNAP subsidies each month.
“A recent study showed that half of all children will receive assistance from these programs [SNAP and WIC],” Ms. Harriman said. “Education in WIC is about making half your grains whole grains, so these individuals actually receive more information from these programs than mainstream consumers who are not receiving assistance.”

Three years ago, the council saw an increase in the use of its WGC stamp on private label brands. Bread, another highly value-oriented product, is the focal point of GFF’s fall promotion. The foundation partnered with the Food Network’s The Deen Brothers Bobby and Jamie, sons of celebrity chef Paula Deen, to promote Sandwich Night each week to families.

Creating a link between value-oriented private label products and health may also help retailers make a connection with lower-income consumers, a demographic thought to posses little interest in better-for-you products. Those with an income of less than $25,000 express concerns about health and use foods to treat and control existing health problems, according to a 2009 study from Health Focus International, a consumer research organization for health, wellness and nutrition trends in St. Petersburg, FL. The study found lower-income consumers were as likely as higher-income consumers to pay more for fortified foods.
“These days everyone is comparing prices, but the under $25,000 demographic prefers to buy private label or more generic products compared with the other demographic groups,” said Barbara Davis, vice-president, Health Focus International.

Despite the higher cost of portion-controlled packaging, 33% of the under $25,000 demographic said “portion control is very important to buying” vs 27% of the greater than $75,000 demographic. Ms. Davis attributed the desire for portion control to be more related to price concerns as opposed to calorie or portion control. Within all demographics though, price, taste and nutrition remain the biggest influencers, with price being the most important, she concluded.

An October webinar from SymphonyIRI, a Chicago, IL-research group, further shattered myths concerning lower-income consumers. SymphonyIRI cited motivation within the lower-income group for healthier solutions and desire for better-for-you products. These consumers are also expected to generate $115 billion in the next decade and have outpaced higher income households in CPG spending since 1997.
“The deeper the recession, the more likely there will be a change in consumer mindset,” Mr. McGrady said. “In a down period, there is more opportunity for private label trial, and with an increase in the quality of private label products people are more likely to continue buying products that were a positive experience.”

If this recent economic situation has taught the industry anything, it’s the importance of continued innovation and a willingness to work outside the way things have always been done. So far, these forward-thinking qualities have secured a solid foundation for private label’s continued transformation from cost-saving utilitarian to trend-setting innovation.