Grocers Going Gourmet : Supermarket Chains Are Increasingly Offering Their Own Upscale Products
Having won over frugal shoppers with basic private-label lines, the nation’s supermarkets are now trying to lure other customers with their brands of gourmet-style coffees, ice creams and fresh pasta sauces.
Vons is tempting customers with its Royal Request espresso-flavored ice cream. Ralphs is serving up Private Selection soft drinks, introduced over Memorial Day weekend. In Northern California, Safeway is enticing shoppers with its own chunky chocolate chip cookies. On the East Coast, the A&P; supermarket chain is dishing up a private-label home-style pizza.
The upscale labels are the latest weapons in the heated battle among the nation’s grocers for America’s shopping dollars. Supermarket executives say an exclusive gourmet label can give a store an all-important edge over competitors.
Consumers who want Safeway Select soft drinks or cookies, for example, must shop at that supermarket chain to get them. Explains Safeway merchandising chief Gary Smith: “We’re branding the store.”
The strategy is risky because it pits upstart store labels directly against such familiar national brands as Haagen-Dazs, Contadina and Nabisco. The premium private-label lines don’t have the huge price advantage that has made basic lines a resounding success. And in some cases they even cost more than the national brands.
The trick for food retailers is to come up with distinctive gourmet-style foods and beverages that consumers are willing to pay extra for.
“It’s an arduous process,” Safeway’s Smith said. Plans for a promising “Heath Bar”-type all-natural ice cream were put on ice after Safeway managers discovered that the candy contains artificial flavorings.
At American Stores, corporate executives have licensed a successful private-label line developed by a Canadian grocery store chain, easing the search for original gourmet-style foods. In the last year, hundreds of President’s Choice products have been introduced in American’s three chains in the East--Jewel Stores, Star Markets and Acme Food Stores. The line is “under active consideration” for Lucky Stores in the West, according to a spokeswoman.
The focus on premium labels marks a major strategy shift for the supermarket industry. Until recently, grocery store companies poured dollars and energy into churning out basic labels, often priced 25% to 50% below national brands.
Thanks to a weak economy, sales of basic private-label products have soared, in some cases overtaking national brands. At Vons, for example, the store’s own plastic wrap, orange juice and plastic garbage bags outsell all national brands.
Now there are signs that the popularity of basic private labels may be peaking. Nielsen Marketing Research reports that the pace of growth in private-label sales skidded to less than 1% in 1992. Two years earlier, when economic times were tougher, private-label sales swelled by nearly 3.5%.
The nation’s improving economic climate is leading supermarkets into the gourmet-food business. Sales of basic labels skidded after a recession in the early 1980s, and retailers expect that pattern to repeat itself. Grocers are looking to premium labels to maintain overall private-label sales.
Ralphs President Al Marasca believes that premium labels--such as Ralphs’ Private Selection--will appeal to basic-label buyers who would otherwise trade up to a national brand. The premium labels are also aimed at shoppers who prefer national brands, since they apparently are willing to pay higher prices for what they consider quality items.
It is too early to know whether gourmet store labels will bring in the shoppers, converting them into loyal customers. At least one grocery store executive is skeptical.
Stater Bros. Chairman Jack H. Brown believes that consumers will choose national brands rather than risk their money on an unknown label, especially if the prices are about the same.
“Our shoppers want brands,” said Brown, whose stores are mostly located in the Inland Empire. “I don’t think (gourmet labels) would work for us.”
There are signs that some premium store labels haven’t yet caught on. Vons is revamping its 2-year-old Royal Request line, an indication that it has not clicked with consumers. A spokeswoman said Vons plans to expand the redesigned label, adding flavored vinegars or gourmet mustards to a line that is made up of ice cream and gourmet coffee.
But there are also success stories. At New Jersey-based A&P;, the store’s own Master Choice pizza and pasta sauces outsell competing national brands, even though Master Choice costs more.
Booz Allen & Hamilton consultant Bert Flickenger said the premium price is actually a secret to the success of those A&P; products. When the two brands were priced equally, A&P;’s pasta sauce ranked second next to best-selling Ragu. When A&P; raised the Master Choice price, it outsold Ragu.
Flickenger explains: “If the ingredients are the same, and quality is comparable, raising the price can increase (sales).” A&P; plans to double its Master Choice line to 300 items, eventually accounting for 15% of private-label sales.
Persuading consumers to try a new store brand is sometimes the hardest part. To get customers to sample its new Select soft drinks, Safeway put soda vending machines in every store. The machines dispensed 12-ounce cans of Safeway soda for 25 cents each.
After four months, the new cola has doubled the market share of the private-label cola it replaced, exceeding management’s loftiest expectations. It isn’t close to threatening Coca-Cola and Pepsi, though.
Ralphs President Marasca said the chain distributes coupons and gives away samples to get customers to taste its Private Selection foods and desserts--and now cola. Signs posted inside Ralphs supermarkets last weekend declared: “We think you’ll like it better than the national brands.”
A six-pack of the new soda cost $1.29, 13% less than market leader Coca-Cola but a whopping 63% higher than the Ralphs brand. Marasca is confident about its chances: “We think that if we can convince consumers to try it, we will see repeat sales.”
