Private label: the best kept secret in coffee and tea.
Why Private Label?
For a large supermarket chain, private label (PL) positively reinforces a desired image and boosts profits, while for the smaller retailer, such as a specialty shop or coffee service operator, one can enter the entire market, supplying not only homes but restaurants and hotels.
"A quality program helps a store retain its valued customers, as well as cross promote and sell in their other private label categories," says Kevin Kihnke from Magnum Coffee Roastery in Nunica, Michigan
The benefits to the retailer are enormous. There are no individual costs incurred in promoting and marketing just one single item, thus, there are none of those hidden costs or "marketing taxes" that must be passed on to the shelf price. Private label products need not be sold for less, however, and according to Stuart Daw, c.e.o. of the Heritage Coffee Companies in Florida and Canada, this extra money not used for promotion can be used for whatever the retailer wants, including purchasing higher quality blends. It is true that some retailers still sell their own label for less than a well-known brand, and in many cases, customers still expect that. But it need not and should not be the case. Private label is an excellent way to market high quality products and are often one of the only means for the consumer to make the acquaintance of a superior product, so an even higher than average selling price is possible.
The PL business in general is a Goliath with no sign of slowing down. In the U.S., store brands make up one in every five purchases from supermarkets, and other retailers. That is a mind-boggling US$50 billion segment of retailing. Private label is also a dominant force in Europe. It accounted for 22% of total European grocery sales, and was worth US$172 billion by the late 1990s.
For the smaller or more exclusive operation, there are many advantages to using quality private labels. To begin with, they help establish an image of they you are in the customer's mind. It enforces the idea that their product is of value, even if it costs more than the alternatives. And, of course, it is an excellent way to set you apart from competing outlets. If your product is good, then you encourage repeat business, because yours is the only outlet where that product can be bought. In effect, there is no competition for the brand you carry, because the brand belongs to you alone. Having a PL also means that your customers can take your product home with them, further building loyalty.
One aspect of FL products is that they carry a certain degree of expectation, regardless of what's inside the packet. When you purchase a pound of coffee, or a bag of tea from a famous upscale department store or hotel, and it is bearing that store's classy logo, you already have a pre-conceived image of what you are buying. Daw speaks of a "mystique" that he says FL can take on, since it is not as well known as a national brand, and customers may only be able to go to a select few places to find it. Private labeling positively reinforces the image of the retailer and helps to cement its relationship with its customers. You can buy coffee anywhere, but you can only buy your favorite PL coffee at one place.
In the larger-scale market, it is becoming evident that supermarket private labels no longer have the same stigma attached to it as it may have had in the past. For example, Tesco Lotus in Thailand, a grocery chain, has had considerable success with their own tea and coffee labels: they are outselling other well-known national brands. And this is in a country where the name on the label is of paramount importance.
In the U.S., one study has shown that for Americans, these brands may even be viewed in the same way as national brands. In a nationwide study, 75% of consumers defined store brands as "brands", and expected the same quality standards as with national brands: guarantee of satisfaction, packaging, value, taste, and performance. Over 90% of those polled were familiar with store brands, while 83% purchased theme brands on a regular basis.
Private label companies also provide useful services to lower-profile niches of the coffee market. The Heritage Coffee Companies private label for specialty micro roasters looking for a partner to handle certain packaging configurations they may not presently manufacture, people who have been roasting their own as a micro roaster but realize they would be better served focusing on sales, as well as to foodservice distributors looking to have better control of their coffee programs.
"If an individual is roasting their own coffee, a private label is perfect in filling voids in the product line up," says Kevin Daw, president of Heritage's U.S. sales. "Some micro roasters decide to forgo the manufacturing process altogether deciding instead to 'outsource' this function. In some industries, almost all product manufacturing is outsourced. Entrepreneurs realize that as long as coffee specs are met, their true value lies in the promotion and continual nurturing of their product to boost sales leaving the actual day-to-day 'grind' of manufacturing to a trusted partner."
However, PL is not the answer for a fledgling specialty tea or coffee shop. Your customer has to know and trust you before she is going to buy your own label. Your business is going to come from customers who believe in your name, or can count on your product. Also, unlike a branded company, which has spent many dollars on advertising their product so that when people come into your store they are aware of the product, the selling of your own product is most likely to be entirely in your own hands.
Choosing a Private Label Company
If a company has decided to go the PL route, there are a few things to consider. Kevin Daw advises: "The first step is to focus on your target market, then conceptualize the type and look of the coffee and packaging you desire to market. From there, artwork must be created to fit the parameters and the actual packaging can then be created. The process can take anywhere from three to 12 weeks depending on the type of program being created."
Stuart Daw warns: "It takes time to work up your private label with the right quality coffee. While that is not terribly difficult, you can simply opt to have the supplier pack one of his standard blends in your graphics in the mean time."
Choosing a PL company that has a good reputation for caring about coffee or tea quality as well as packaging is important -- that way the company can leave the most technical packaging decisions up to the PL if they so desire. Danny O'Neill of The Roasterie, a roaster that does PL in Kansas City, Missouri, says, "[Retailers] put their trust in us as their supplier," he says. "We work jointly on colors, artwork, labels, etc. but our customers have trusted our judgment in terms of packaging content." David Dallis of Dallis Brothers Coffee Co. in New York City has fostered a similar trusting relationship with his clients: "Only the larger private label customers care all that much [about our packaging decisions]," he says. "Most restaurant and wholesale customers are happy with how we package and ship and do not have issues. The biggest issue is really labeling more than choice of materials."
Customization and/or specialization are also an important aspect to look for in PL company. One reason for this is that there is no one-size-fits-all packaging solution, so the PL must possess the proper machinery. "Private label production for large chains can only be effectively handled by companies that are prepared to invest in high-speed packing lines," says Ian Lay from Accord Services Ltd., a PL tea firm in the U.K. "This immediately precludes them from producing short runs suitable for smaller retailers. It is the smaller retailer that we look to for our business. We have invested in a wide range of equipment that gives us flexibility and at the same time we concentrate on the quality end of the market."
Secondly, the PL provider who is a tea or coffee specialist can provide you with up-market teas and coffees in limited runs, which is something that larger companies cannot do. "We aim to give our customers exactly the right teas for their particular market. It is only after considerable discussion and the tasting of many teas that a decision on what teas should be used is finally made," Lay says.
Also, if the PL offers a wide selection of coffees or teas, their clients can offer their customers exactly what they choose: be it one spectacular blend or a variety of choices. If they are willing to do a variety of roasts, the client has even more control over the product.
"Each of our clients suggests, specifies or selects the coffees they wish to have packaged and we roast to order accordingly," says Kevin Daw. "On any given day our two plants may roast over 80 separate coffee blends to be packaged in configurations ranging from a l4g filter pack to 2,000lb bulk totes and all sizes in between."
All the reasons above have made PL coffee a real presence in the U.S. coffee and tea industry. Says Karen Gordon of Coffee Holding Company in New York City: "Store brand has gained market shares over the brands the last several years. Considering how low coffee prices have been during this period that is no easy feat. But with a commitment to quality at a cost savings to the consumer, private label coffee's future seems bright; today, tomorrow, and for many years to come."
A Future for Private Label in Asia
While store brands have been thriving here, in Asia, the PL market is still in the development stage. In a market where image is vital, it is hard to convince the consumer of something they are not familiar with.
"Every product has a life cycle, and gourmet PL coffee is in its growth phase at this time in the world market," says Kihnke. "Starbucks has raised the proverbial coffee tide, which provides for all quality programs to rise up."
One large retailer in Singapore tried to develop its own PL, but eventually had to abandon the idea due to lack of interest. For a smaller retailer, the required production lines are simply too great to justify the changeover. In the case of Thailand's Tesco Lotus, the success is probably due in a large part to the name. Tesco might be just another supermarket in the U.K., but in Thailand it is a British supermarket. In a strange twist, there may be some prestige with having "British" Tesco brands on the kitchen shelf far away in Asia.
A major obstacle to PL in Asia, and especially in Singapore says Claude Verly from Boncafe in Singapore is that, "Consumption is not huge at home. In Singapore, there is no history for it. People wake up in the morning and rush to work, often without breakfast. They eat out at lunch, and even for dinner. Few people go home and then have a coffee. The home coffee machine business is just starting over here."
Boncafe would "love" to do PL, but the interest is still in its infancy. "There is definitely interest," says Verly. "Some of the big hotels would like to try it, and none have it at the moment, but the problem is the commitment to quantity."
One solution is to go for a "generic" PL, such as the one that comes from Boncafe, with their simple foil bag, and to add your own sticker to it. But that is missing the whole point of having a PL.
"The main benefits of private labeling are margin and retailer esteem," says Kihnke. "Customers are the most valued commodity for a retailer. A quality private label program creates loyal customers.
"It is a relatively simple relationship of risk and return. Gourmet private label programs make money, and create an invaluable bond between customer and retailer."
The players are in place, and as the market develops, private label will become a force in Asia.
|Printer friendly Cite/link Email Feedback|
|Publication:||Tea & Coffee Trade Journal|
|Date:||Aug 20, 2002|
|Previous Article:||Brazil to store excess coffee. (World News).|
|Next Article:||Mexico: actively promoting its coffee.|