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Flexibility and quality improve prospects for private label on West Coast and in Canada.

Private label goods, those manufactured and packaged to the specifications of another company whose name goes on the label, do especially well in a recessionary period, believes Celeste Georgakis, senior research analyst for Cargill Investor Services. "That's the case for all industries," she says, "in an effort to make prices more competitive and to gain market share."

Private label does have a significant role in the coffee market, especially in Canada. But tracking the evolution of that role is not easy. For one thing, in the words of David Wilkes, president of the new Coffee Association of Canada, "Private label is not exactly something people chat about." And many specialty roasters would rather not acknowledge that end of the business at all.

They would rather sell their own coffees at higher margins but are more or less forced to do private label at the behest of existing clients.

"Overall, roasters are certainly the best off of everyone at this time," according to Georgakis, despite the economic slump. "Consumer income doesn't matter that much with coffee--demand for coffee isn't really elastic. And with a depressed world market, costs to roasters are low, so they're making pretty good margins overall." To take advantage of these very favorable margins, Georgakis claims, roasters who offer private label coffee are expanding, but that doesn't change the fact that the overall market for commercial grade coffee is not. She is watching closely to see what kind of effect the industry's consolidation will have on all areas, including private label.

Specialty coffee roasters, on the other hand, have created new demand in this category, almost to their chagrin, because they are generally reluctant to tax their resources without being able to put their name on the label.

As a result, one recent incarnation of the usual private label arrangement takes aim at our assumption that the client owns the brand name; the roaster provides a customer with roasted coffee, helps create the product's identity, and may in fact retain ownership of the label. One specialty roaster negotiating such a deal requested anonymity.

Is this still "private label"? Probably not, at least not in its familiar form. But then, there are an increasing number of variations to private labeling. And while at one time most private label coffee typically ended up on retailers' shelves, more and more of it is headed for foodservice and office coffee services. Where the line is drawn around the category has certainly become less interesting than taking note of the growing flexibility between the roaster/supplier and client/distributor.

This flexibility stems from several factors. For example, as specialty coffee expands, so too is the role being played by private label. A roaster's reputation for quality may also enable them to negotiate more favorable terms, if not ownership of the label itself--a good way of assuring that the client/distributor will not go looking for another source. It is also a measure of the strong position of roasters in the current market, as well as the overall trend toward diversification in the industry.

Portland-based Western Family

It is not only roasters who stand to benefit from private label. Take, for example, the case of Western Family Coffee, a privately held corporation based in Portland and owned by four wholesale cooperatives: Associated Grocers of Seattle, United Grocers of Portland, URM in Spokane, and Associated Food Stores in Salt Lake City. Its private label brand, supplied exclusively by Hills Bros., sells primarily to the cooperatives that own it, along with the Foodland chain in Hawaii. Western Family went from selling 111,815 lbs. in 1988 to 1,124,454 lbs. in 1990, more than a 10-fold increase. This year, sales are up 25%. The roaster, Hills Bros., is thrilled, and so is Western Family.

"Four years ago, we were on the verge of giving up on private label," says Brad Tolliver, Western's coffee product manager. He gives three reasons for the dramatic turnaround: a decision on the part of Hills Bros. to price its coffee more competitively and become a major supplier of private label coffees; the performance of the independent brokers who sell the product to independent supermarkets; and a new, more upscale look.

Western Family positions its coffee to compete with the major national brands, such as MJB, Folgers, and is typically 20% to 25% lower in price. To keep up with the changes that the national brands have made, it will add a 100% Colombian coffee to its line.

San Francisco-based S&W Fine Foods

Steve Leach of S & W Fine Foods based in San Francisco sees a definite and growing niche for private label coffees, in large part due to the heightened competition throughout the coffee industry. For one thing, some supermarkets that roasted their own coffee for years no longer find it cost effective. Now they procure a roasted and packaged product from operations like S & W. Most of the private label work done by S & W is ground, vacuum packed, and canned, though they do sell a small amount of private label whole bean coffee as well.

Seattle-based Caravali Coffees

At the other end of the spectrum there are companies like Caravali Coffees based in Seattle, which does a "significant" private label business. Says vice president., Tim McCormack, who runs the kind of high-quality specialty coffee company you would expect from someone who coined the word arabicaphile: "We've seen more and more demand in the past few years. We often get requests for custom blends, and I certainly appreciate it when people have the interest and the understanding to know what they want. It is truly a pleasure and a challenge to work with such people. Other customers approach us simply looking for something different, something distinctive and high quality that will set them apart. In that sense, even the market for private blends is quite broad and quite diverse. But the private label category is, in itself, an expression of the diversification taking place in all foods."

Of the specialty trade, McCormack has made several observations: "The retailer's decision either to sell an existing name brand or buy coffee from us and have it packaged under their own name depends largely on the strength of their image. It also takes considerable volume and effort on the part of a retailer to use his or her own name and create merchandising materials which we would otherwise provide."

Portland's Coffee Bean International

Like other high-end specialty roasters we spoke with, Coffee Bean International (CBI) does "some" private label business, but they don't go out and promote it. Says Matthew Goldfain, media & project coordinator for CBI, "Basically, we will provide private label roasted coffee for someone if they ask for it, with a minimum of about 100 lbs. Our sales to several office coffee services probably make up 75% of the private label business we do."

Foodservice & OCS

Sales to office coffee services (OCS) and foodservice make up a good part of the private label boom in specialty coffee, as these markets begin moving toward a higher quality product. Vernon, CA-based F. Gavina & Sons, for example, supplies specialty roasted coffee to both. One of their biggest private label customers, in fact, is in foodservice: McDonald's Restaurants throughout the Southland. They also sell to Food Kraft Coffee Service and to Secretary OCS.

Only two years ago, Secretary Coffee was a relatively small. Today, it is the largest operation of its kind in California, having swallowed several of its competitors in that time.

Nabob Foods - British Columbia, Canada

According to Don Macdonald, vice president of manufacturing & distribution for Nabob Foods Limited: "Private label is primarily for retail customers who want their own label. We offer a private label product on higher volumes, where we can work it into our production. However, for Nabob, it is a very small part of our business, less than 5%." Macdonald adds that it is "not something we actively pursue, by choice. It's a service, frankly. Some companies will use private label to fill up capacity and leverage their plant's costs, but we don't."

Nonetheless, Macdonald finds it makes sense that private label coffees should be a growing business in Canada, as the Canadian retail trade strongly emphasizes private label. The Loblaws grocery chain is one of the primary examples. Nabob also provides roasted coffees to foodservice customers, such as to Wendy's restaurants.

Mother Parker's - Toronto, Canada

"The private label market is further developed in Canada than in the U.S.," confirms Paul Higgins Jr., v.p. and general manager of Mother Parker's Foods Limited. As the largest "private labeler" of coffee and tea in Canada, and the only privately owned company that is able, in Higgins' words, to "stand toe to toe" with Nestle, Kraft General Foods, Nabob, Lipton and Tetley, Mother Parker's speaks with some authority on the subject.

Higgins has a theory regarding this disparity: "Early on in the development of private label, the focus in the American market was one of quality versus price. Private label became associated with value only, whereas consumers in Canada came to trust private label quality--something that hasn't really developed in the U.S. marketplace." Companies like Mother Parker's in Canada, says Higgins, have done well because they offer both quality and value. "It doesn't have to be a trade-off."

As a result, private label products make up anywhere from 10%-30% of the Canadian tea and coffee market, with tea falling closer to 10% and coffee as high as 30%. According to Higgins, "In the United States, you won't find any private label winning more than 10% of the market, tops."

The Mother Parker philosophy (more like a formula for success) is to stay with a narrow product range: coffee and tea. "By staying very focused, we can also invest continually in our plant and facilities. We want the best and the latest from a packaging and processing standpoint, and frankly, I think our plant is one of our strongest selling points. We look at ourselves as tailors and we can and will custom-cut a product to fit the client."

Higgins also attributes the company's success to its flexibility--a hands-on operating style and a "never-say-no" willingness to listen to and customize a program for just about any need. The fact that they have been getting more and more calls from the U.S. as well as Hong Kong, China and several African countries suggests to Higgins that Mother Parker's does indeed have a talent that is not readily available elsewhere.

Higgins estimates that the company has been expanding at 10%-25% annually and sees tremendous opportunities in private label, based on a strong, efficient cost base. Currently Mother Parker's business can be broken down into the following sectors: 40% foodservice, 35% private label, and 15%-20% branded products sold in grocery stores. The company, founded in 1912 by Stafford Higgins, remains family owned and operated.

No doubt there is a growing demand for private label coffees. It is also clear that private label can be profitable for companies like Western Family who position their product effectively. Both commercial and specialty roasters, too, can profit from private label in the current market, but only if they decide to make a legitimate place for it in their business and a long-term commitment.

Other West Coast Highlights...

On the horizon--In early June, Coffee Bean International was sold to an investment firm by the name of Horizon Holdings, managed by Phillip Estes and James Stolin.

Mail order, mail order, mail order--More than one West Coast roaster now lists it as its fastest growing category.

Down on the farm--Specialty coffee shops are finding happy homes in some of the farm towns surrounding Seattle.
COPYRIGHT 1991 Lockwood Trade Journal Co., Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1991 Gale, Cengage Learning. All rights reserved.

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Author:Hackeling, Joan
Publication:Tea & Coffee Trade Journal
Date:Aug 1, 1991
Words:1950
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