Private label food innovations may resonate with millennials

The Private Label Manufacturer Association’s exposition took place Nov. 13 to 15 in Chicago. At this annual event, private label producers showcased their capabilities and expertise and how they can assist retailers with stocking what today’s fast-paced, adventurous consumers crave. This year’s innovations focused on convenience and minimal processing, along with health, wellness, and of course, price.

The private label business continues to grow. In 2015, U.S. store brands sales surpassed $118 billion, an all-time record and an increase of $2.2 billion over the previous year. In the past two years alone, annual sales were up 5%, or $5.4 billion, in the major retail channels, according to P.L.M.A.’s 2016 Private Label Yearbook, which is based on sales data provided by Nielsen, New York.

Store brands dollar share came to 17.7%, also the highest mark ever. Across all outlets combined, store brands sales grew 2%, a performance that equaled that of national brands, which also rose 2%.

Looking at supermarkets, total sales of store brands were $62.5 billion, roughly even with the prior year. Over a two-year period, sales are up in the supermarket channel by 2%, or $1.1 billion. With unit share at 22.9%, nearly one of every four items sold in the country’s supermarkets last year was a store brand. As for drug chains, store brand dollar sales rose nearly a percentage point to $8.4 billion last year, while national brands fell about a point.

Looking beyond these traditional outlets and data available from Nielsen, a more comprehensive figure for annual store brand sales in food and non-food consumables would include an estimated $20 billion or more in revenues from chains that range from no-frills discounters, such as Aldi and Save-A-Lot, to specialty chains, such as Whole Foods and Trader Joe’s, as well as convenience stores. If counted, these outlets would produce a grand total approaching $140 billion in sales, according to P.L.M.A.

Store brands continue to represent outstanding value for consumers. Shoppers could save an estimated $44 billion a year by buying store brand products over national brands, according to a recent study by the National Bureau of Economic Research, while market basket research by P.L.M.A. consistently reveals that shoppers may save about one-third on basic food and household items in a typical supermarket by opting for the store brand over national brands.

Manufacturers of major brands recognize the opportunity in private label and are investing in the business. In doing so, they actually create competition to their national brands. This approach keeps them active in the category with products that appeal to both brand and private label shoppers.

For example, the specialty foods group of Hormel Foods, Austin, Minn., is launching a new commercial retail team, formerly known as the corporate brands team.

“The new commercial retail name really describes what this group is all about,” said Mark Nellermoe, general manager of specialty products at Hormel. “This team is a fantastic resource to help our partners grow their private label brand strategies. We have many iconic brands at Hormel Foods and our retail partners can profit from our knowledge and experience to help grow their sales.”

Co-packing and private label manufacturing are important businesses for SmithFoods Inc., Orrville, Ohio, a Midwestern processor of milk and dairy products, as well as dairy alternatives. The company entered the plant-based sector less than two years ago with the introduction of Ajoyo Almondmilk. This cows milk substitute comes in five varieties — chocolate, original, original unsweetened, vanilla and vanilla unsweetened — and is also available for private label.

Companies such as SugarCreek, Cincinnati, have built an entire business around developing, producing and packaging other company’s branded products, with the name SugarCreek not found on any shelf in a retail store or warehouse. The company is not only committed to co-packing and private label manufacturing, it also has a team of culinary and research and development experts to assist with new product development.

Perrysburg, Ohio-based Frozen Specialties Inc., a manufacturer of private label frozen pizza and pizza snacks, prides itself on driving category growth with new product development. The company now offers a better-for-you line of products, including all-natural, organic and gluten-free options. These products are designed to meet the needs of retailers’ growing private-label programs.

“Research indicates that the majority of U.S. food retailers plan to add or update their private label offerings within the next 12 months, with more than half focusing on natural and organic products,” said Neil Stern, senior partner, McMillanDoolittle L.L.P., Chicago, during a presentation on retail trends at the expo. “U.S. chains such as Aldi and Dollar General are leading the way, with soon-to-open Lidl stores promising to be much bigger than those in Europe.

“Lidl has hundreds of stores planned with the intent of taking on Aldi. The no-frills approach is all about a low s.k.u. count and strong private label offering.”

Stocking more private label natural and organic products makes sense, said Tom Vierhile, innovation insights director, Canadean, London.

“Food and drink choices are skewing toward more healthful products, partly because younger consumers are driving the market in this direction,” Mr. Vierhile said. “These shoppers are very warm to upstart brands, with smaller brands — including private label — shaking things up in retail.”

Mr. Vierhile was referring to the much-publicized millennials, the consumer segment retailers are aggressively trying to attract through new products and fresh food programs. Many of these products are found in a store’s perimeter, namely the bakery, dairy, deli and produce departments.

A recent nationwide survey of more than 1,800 shoppers by P.L.M.A. revealed that millennials love food but want food done their way. Fresh and healthy foods are at the top of their shopping lists, while prepared and portable foods are also popular.

These food choices reflect a distinctive way of eating. For millennials, eating is largely unscheduled. They incorporate food consumption — whether meals, snacks or bites — into a range of everyday activities, ranging from work and play to exercise and commuting.

The study found that three-quarters of millennial shoppers buy deli items in the supermarket where they do their regular grocery shopping, 77% buy dairy items and 59% buy bakery items. Reflecting their on-the-go eating habits, one third “always or frequently” purchase heat-and-eat food from the supermarket, 29% pick up prepared or ready-to-eat food and 27% buy grab-and-go prepared food items from a source such as a supermarket or convenience store.

Home or away, meals or snacks, this age group is drawn to all things fresh, or perceived as fresh. On occasions when they eat at home, including meals and snacks, 57% of them “always or frequently” opt for fresh fruits, 35% for fresh baked bread products, 30% for fresh prepared meals and 30% for chilled deli salads.

The P.L.M.A. study indicates there is likely to be a big payoff for supermarkets who successfully adapt to the new eating habits of the millennials. Contrary to expectations, these shoppers are more loyal to their favorite stores than their parents. Nine of 10 do their regular grocery shopping in only one or two stores. This represents a dramatic departure from recent P.L.M.A. studies that saw consumers spreading their shopping among a multiplicity of stores.

This loyalty has important implications for store brands. As they select products, millennials are well informed about brands, including store brands, and where foods come from. Nine of 10 say they are aware of the ingredients in the food products they eat and three of four read the nutritional labels on products. Their awareness of store brands and national brands is virtually the same at 84% vs. 86%.

“Store brands remain the retailer’s most potent weapon in developing strategies for this age group,” said Brian Sharoff, president of the P.L.M.A. “It offers flexibility and opportunities to be creative with product assortment and concept without waiting for national brands.”

Source

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