An interesting article appeared in Supermarket News recently. “Can Safeway Become a Lab for Other Retailers?” discusses the food retailer’s decision to expand distribution of its O Organics private label line and Safeway Select, Eating Right health and wellness line to other food retailers.
Apparently Safeway’s subsidiary, Lucerne Foods, will make these brands available to food stores around the country. These initiatives have met with great success, so why not share the wealth? Why not add more category offerings from dairy to frozen to grocery selections? And why not roll out “a wide-ranging advertising campaign” to support it?
This is an interesting, noteworthy concept in my view. Here we have private label lines with successful track records being offered to other food retailers–even competitors of Safeway. There is no doubt that organic and natural foods, as well as health-related food issues continue to be top of mind with consumers and that these categories represent significant and real growth opportunities where mainstream food categories have really flat-lined in the past few years.
I’d add to these thoughts the fact that the sheer purchasing power of a Safeway as it expands its organic and natural offerings to other retailers, will enable the chain to hopefully offer attractive pricing on these products, which can be passed all the way down the line to consumers. That would lead to a perception of great value among consumers, no doubt.
Research shows that in this economic downturn, consumers are not necessarily merely seeking lower prices on basic goods, but more value for their dollar, as well. Value in terms of being able to purchase healthier foods at competitive prices ought to resonate with the consumer, in my opinion.
As far as other food retailers go, as well as Safeway competitors, I’m wondering whether there will be reluctance on their part to market Safeway private label brands. . .or whether their track records and consumer acceptance will tip the scales in favor of adding proven winners to their assortments? Safeway itself claims that its private label brands are “lab tested” among consumers and it has a core following, making it an ideal investment for other food retailers.
Questions:
* What do you think of Safeway’s strategy to market its own private label organics and natural foods to other retailers?
* Do you think it has upside potential? Or do you think this venture will meet with limited success, or even cause problems for Safeway?
* What do you think of the idea of retailers or other businesses offering their products to competitors?
* Or selling their expertise to competitors?
I’d love to hear from you.
Ted, this is an interesting case study. When I first read this post, I thought of Full Circle, http://www.fullcirclefoods.com/
a brand that serves as the organic house brand for many retailers.
However the idea of the organic products branded as Lucerne – which is an identifiable brand with SFWY on my store shelf probably isn’t going to work. Since there are alternatives, as an independent grocer, I’d be inclined to go with Full Circle over Lucerne.
Thanks for sending this link and information, Paul. This is an interesting new premise, isn’t it? I am aware of the Lucerne brand. However, Safeway has put a CPG like focus on packaging, national advertising programs and strong distribution systems behind Eating Right and O Organics for the purpose of positioning it as another “national” brand in consumers’ minds, if you will. The association customers have with these brands is that they are stand alone brands much like the national brands. All of these factors give Safeway good reason to think it can get national distribution for these brands among major food retailers. It will be interesting to see whether this works as planned.
Thanks for weighing in, Paul.
Could be a smart move, with 2 caveats:
1) Private label growth occurs when a retailer makes it a top priority, with display, demo, and training to match. Has Safeway provided the financial incentive to other retailers to sell their brand?
2) Minimize costs. Private label has come along way, but still rooted in providing a similar product for less, or a differentiated product at a great value. National advertising and the like erodes that model.
Regardless of outcome, nice to see innovation/risk taking from this channel.
Thanks for adding some substantive points and insights to this conversation, Matt. I agree: it’s nice to see some innovative thinking about private label.
From what I’ve read, it seems that Safeway supports these PL brands with print and broadcast advertising as well as dedicated websites. I’m sure they will work out additional incentive programs with food retailers who commit to distributing them, as well. That’s the norm in the CPG business.
Cost controls and sheer volume make PL attractive to retailers of every stripe. I suspect that many nationally branded CPG manufacturers are getting a run for their money and fighting to maintain marketshare against some of the better-managed PL brands.
Thanks for weighing in, Matt. I appreciate it.
Yes, this increased distribution will meet with success for Lucerne Foods with limited to zero impact on the Safeway brand in the short-term.
This move by Lucerne Foods creates multiple opportuntys for increased revenue, limits inventorys, and provides faster turns of product for all customers including Safeway.
My guess is Lucerne Foods ’sold’ Safeway Management on the financial benefits of allowing them to sell and distribute their Safeway control brands to the general market.
“My guess is Lucerne Foods ’sold’ Safeway Management on the financial benefits of allowing them to sell and distribute their Safeway control brands to the general market.”
You may be right, Tim. James White, SVP Consumer Brands for the Lucerne division, which includes the Eating Right and O Organics brands seems to have a lot of clout with Safeway’s management group. I think that’s largely because he has demonstrated success in the repositioning of products within those brands. For example, some Eating Right frozen meals did not meet with consumer acceptance until research uncovered the flavor profiles weren’t that good. By rectifying problems like that, and by adding products consumers demanded, Eating Right has become a high growth, profitable brand. That kind of performance usually gets management’s attention, doesn’t it?
Whether White himself, or other members of Safeway’s management group brought forth the idea of offering distribution of these consumer-endorsed brands or not. . .it’s an interesting proposition. I’m curious to see how this will unfold. . .and whether or not it will meet with success.
Thanks for weighing in, Tim. I appreciate it.
Really interesting experiment. Obviously, one of the key benefits of Private Label for the retailer is that it’s “private”. Safeway had total exclusivity, and therefore customers had to come to their stores to buy the product. I know several people who go out of their way to shop specific stores, including Safeway, for this reason.
There’s almost no doubt that the consumer will benefit from the additional distribution because it will be easier to find and prices should go down over time through supply chain efficiencies related to higher volume.
It will certainly be a boon to Lucerne for the reasons already mentioned by others.
But I question that this will be perceived by Safeway as a good move for the Safeway “brand” at some point in the future. They have invested in developing the market for their PL brands and they created a distict competitive advantage as the exclusive retailer of those brands. This program hands over one of their precious few points of difference, and a measureable traffic builder, to their competitors. Maybe they have a nice enough cut of the profits with Lucerne to offset the downside of what will surely be a lost competitive advantage.
The outcome of this experiment will certainly have a lot of businesses rethinking their PL strategies! Hope you will keep us posted.
Brent,
You’ve made some very cogent observations to my post, and I thank you. It seems that Safeway has steadily built demand for its PL brands with dedicated advertising, improvements in assortments and quality, and of course, strong pricing. My intuition says they want to build an even stronger consumer base for these brands and become, in essence, the same as national brands. Whether this works or not, and you’ve stated it well, remains to be seen: “This program hands over one of their precious few points of difference, and a measureable traffic builder, to their competitors.”
My guess is that what Safeway may try to do, BTW, is to roll out hot new PL branded items in its own stores first to have “exclusivity” for a time, and then choose whether or not they’ll make those products available to competitors. But, who knows? I’m just wondering if that’s their game plan. . .
Thanks for weighing in, Brent, and I will be following this story and updating it when there’s some follow-ups to share.
HOW DARE YOU PACKAGE “ORGANIC” FOOD IN PLASTIC CONTAINERS BEARING THE NO. 7, THE WORST PLASTIC THERE IS TO PACKAGE FOOD IN! I CAN’T EAT YOUR FULL CIRCLE ORGANIC APPLESAUCE BECAUSE IT IS PACKAGED IN TOXIC PLASTIC. SHAME ON YOU! I WANT MY MONEY BACK AND I WANT YOUR EXPLANATION WHY YOU USE NO. 7 PLASTIC CONTAINERS.
Thanks for sharing your thoughts with us, Joan. Food packaging presents many challenges. Even among organic producers. Sometimes plastics are used to ensure freshness and food safety, even though it isn’t always the most ideal solution. There are always trade-offs. For example, yogurt producer Stonyfield Farm used to use recyclable plastic containers but have gone to a form of lighter-walled plastic that isn’t easily recycled. Why? It uses less materials in the manufacture of the new plastic cups and it is lighter and takes less fuel in the distribution chain. The problem of recycling is being worked on. Terra Cycle is buying up the used cups from schools and other institutions to package its organic plant foods and other products, for example. There is no easy, all-encompassing solution in packaging, Joan. In the end, well-informed consumers purchase as they see fit, and as their consciences dictate. We all vote with our wallets and that lets manufacturers and retailers know where we stand. Thanks for weighing in, Joan.
I question if this move will have much success. I’ve worked on the manufacturing side of the food industry and, as discussed above, private label’s largest advantage to date is pricing. However, the source of that price advantage is eliminating the “middle man” manufacturer. The real question at hand is whether or not O and Eating Right have sufficient consumer demand to compete on a more price parity playing field (depending on what licensing and distribution fee Safeway is going to charge). It may work in Organics where the majority of the branding power lies with retailers such as Whole Foods, but may not be as transferrable to other categories as a broader strategy within the store.
Not so long ago, private label products moved solely on price. That has changed, Greg. Since retailers have worked to upgrade products, packaging and marketing of their store brands, consumers have responded ever more favorably. Where organic and natural food products are concerned, this has been a boon to food retailers, and consumers since pricing has been more attractive and competitive. Having said that, the greatest growth seems to have resulted from higher quality and timely additions to assortments.
The Private Label Manufacturers Association reported sales of retailer branded products rose to $80 billion in the year that ended in September, up from $73 billion in the preceding year. For some supermarket chains like Kroger, 26% of the total volume is coming from store branded merchandise. That’s pretty hefty. I expect private label will continue to grow in significance as a result of its potential to add significantly to gross profit margin dollars as retailers focus more and more on it.
Thanks for weighing in, Greg. I appreciate your insights.