PALMETTO BLUFF, SC — While vertical integration provides companies with control over production and product quality, it also comes with its own limitations. At BEMA Convention 2023, held June 20-25 in Palmetto Bluff, vertically integrated companies shared how BEMA members have supported them and filled in some of the gaps they have as they meet the growing demand for private label.
Audrey St Onge, general manager and president of Lallemand Baking and BEMA board member, moderated a discussion about vertical integration between Brad Clarkin, vice president of production operations for Kwik Trip; Ron Scott, managing director of bakery and snacks manufacturing for HEB; and Richard Ybarra, senior engineering manager, manufacturing operations for Publix.
As supermarket chains, HEB and Publix also run several of their own manufacturing facilities to produce dairy, bakery and deli products. Kwik Trip owns 850 convenience stores, which the company supplies with its own dairy, bakery and ready-to-eat foods.
Being vertically integrated during the past three years, between the pandemic and the ensuing supply chain challenges, has been a strength for these companies.
“We struggled with replenishment with national brands during [COVID],” Mr. Clarkin said. “Vertical integration in that model really supported in-stocks within our stores and helped us grow our respective volume. And with respect to those national brands, we believe we put out a product at the same quality but at sometimes half the price, and our guests are looking for strong value.”
Inflation has consumers reevaluating their grocery spend, and private label is providing an opportunity for these companies.
“Bread is hot right now. Bread can be a commodity, but we saw with inflation demand for our own brands — our private label — are growing,” Mr. Scott said.
All three panelists pointed out that they strove to make private label products for their retail stores that match the quality of branded products.
“We have what we call our Own brands, and we have distinctive products you can only find in our stores, and consumers will come to our stores looking specifically for those items,” Mr. Scott said. “We also have our value items in terms of everyday bread, and we want to make sure we’re putting our label and pouring our heart and soul into a product that is at a price point that anyone can purchase.”
While being vertically integrated has allowed these companies to keep shelves stocked and provide a quality product at a value price point for shoppers, they admitted that vertical integration comes with some limitations. But they were quick to point out that they look to collaborate with suppliers to fill their gaps.
“We are a c-store operator that is trying to do an immense amount of things,” Mr. Clarkin said. “We can’t be subject matter experts in everything, and we pull in our vendors and say, ‘This is what we want. This is the capital we have to get where we need to be, but we also need that additional support.’ ”
With the recent staffing shortages, Mr. Ybarra pointed out that his leadership team is spread thin across seven different manufacturing complexes that cross categories: dairy, bakery, deli and beverage. Still, Publix strives to compete against the national brands with its label. To grow, the company needs supplier support.
“We have to rely heavily on suppliers to get to our end goal, which is to produce a product that is competitive in quality. We don’t produce to be second-best. We want to compete with the national brands. With limited resources, we reach out for help from our suppliers.”