Supermarket FRESH FOOD Business: Deli store brands: premium, proprietary, profitable

As a department where call brands have traditionally defined quality, the deli has become an increasingly important place to differentiate and build loyalty with proprietary house brand gourmet programs. For the past decade supermarket retailers have been hunting for new tactics to make their fresh departments more appealing, and, with growing consumer demand for high-quality culinary experiences, delis have become the center of those efforts. A number of leading chains—among them Safeway, Bruno's, Pathmark, Penn Traffic, ShopRite, Shaw's, H-E-B, and Wal-Mart—have turned to premium signature lines as a way to respond to shoppers' desire for first-class deli options.

Overall, private label deli products continue to gain market share in both dollars and units, and they are now the second-leading source of refrigerated sliced lunchmeats, according to Information Resources, Inc. The category has shown strong growth, gaining 10.8 percent in dollar sales in the 52 weeks ended July 14.

The extraordinary growth of private label and house brand programs—a highly popular and profitable center store strategy in recent years —presents retailers with a golden opportunity to advance the power of proprietary brands in the perishable departments, according to Brian Sharoff, president of the New York-based Private Label Manufacturers Association.

"We've definitely seen an increase over the last three to five years at our trade show in terms of companies who aspire to do private label at the deli counter on both the manufacturer and retail side," says Sharoff.

There are two main reasons why retailers are seeking opportunities to put their own brands in the perimeter departments, he says. "By and large, the perimeter of the store has never had tremendous brand orientation," he says, noting the exceptions of fresh poultry products and select produce lines. "The second reason has to do with the important role perishables play in choosing a supermarket and the greater sophistication of consumer preferences in terms of what they want to buy in those departments."

Retailers' accelerated interest in house brand deli programs is a natural progression of the flourishing appeal of higher quality private label grocery products, he says, which are often as well-regarded as national brands. "To some extent," Sharoff says, "one can say the deli counter is far ahead of the rest of the store perimeter in meeting consumers' needs with established, well-known brands."

Pathmark's signature ChefMark line—which consists of cold cuts, bulk cheeses, slicing cheeses, and salads that total over 60 items—has stood the test of time for the Carteret, N.J.-based chain, which launched the house brand more than 25 years ago, says Rich Savner, director of public affairs.

"ChefMark has been a very successful program for us," Savner says, noting that its "staying power speaks directly to that success. Our ChefMark line has also continued to expand into other categories, which also speaks to our satisfaction with the line's progression. It's a premium quality brand that features MSG-free cold cuts, and once customers try it, the products gain a high amount of acceptance."

Savner says the ChefMark line has become an important component of the 141-store chain's comprehensive mission to attract loyal customers by providing them with a compelling quality/value proposition in a brand that can only be found at Pathmark. "Our ChefMark line serves to reinforce this mission by being equal to, or better than, the comparable brands."

The primary challenges of marketing the ChefMark brand, says Savner, boils down to two issues: "conveying to our customers that they are receiving the same quality as they are with a name brand, and getting the customer to try and to keep purchasing the products."

To that end, Pathmark supports the line in its weekly circulars along with national brands. It also allocates a considerable promotional effort toward the ChefMark line each quarter "to make sure that our customers know about the extensive variety that the line offers," says Savner.

'Good for the deli'

A veteran deli industry executive, who requested anonymity, gives high marks to the majority of existing premium-positioned store brand private label deli programs, including ChefMark. "I think they're good for the deli, good for the consumer, and good for store's image," he says.

Companies like Hormel, with its DiLusso brand; Boar's Head; Sara Lee; and ConAgra, with Butterball and Healthy Choice, "have paved the way for the retailer to move into this higher end private label era," notes the deli executive. "The whole private label and store brand deli business has become very important for many manufacturers today, and others that are currently not involved in that segment are now in the process of moving down the same road."

Prior to creating or launching a new or existing licensed brand for a house deli line, he cautions, retailers need to carefully assess the strengths and weaknesses of the brand with regard to perception versus reality.

"They need to be very cognizant of what kind of heritage that brand has, what that brand stands for, or what they want that brand to stand for. When you create a new brand of deli products," he continues, "you assume the responsibility to match consumer expectations for product quality, freshness, safety, and full satisfaction, because if any of those are not met, your potentially best customers may be turned away from the deli shopping experience."

One such scenario followed in the wake of Safeway's acquisition of Genuardi's Family Markets in early 2001. The Pleasanton, Calif. chain—which offers a variety of corporate brand products across many categories—moved quickly to introduce its proprietary Primo Taglio deli line. Yet despite the program's premium brand position, Philadelphia consumers—highly loyal to their preferred deli brands—were reluctant to embrace Primo Taglio as a replacement for the popular Boar's Head products.

A source from Safeway says that while the initial perception of Primo Taglio was less than stellar, things have begun moving in the right direction as more consumers gain trust and confidence in the line. The source further notes that the majority of the initial criticism was out of the chain's hands, because Boar's Head turned down Safeway's invitation to be side-by-side with Primo Taglio in the deli case.

Both Safeway and Boar's Head declined to comment for this article. An executive of a deli food brokerage who requested anonymity says Boar's Head is one of the few companies that will not compromise its demand to be the only premium line in the display case.

When seeking to create or reposition a store brand deli line, says PLMA's Sharoff, it is imperative that retailers have maximum confidence in the quality of the program and product before any benefits of a proprietary brand can be recognized. "You really need to be aggressive, and you must be confident about what you're selling, since branded cold cuts must be as good as their brand name counterparts," he says.

Quality trumps price

Moreover, adds Sharoff, "If you're going to sell retail branded deli, you better not do it on price because if you're selling it cheaper, chances are you're carrying a lesser quality product, and that's not going to make anybody happy in the long run."

Adds the deli executive, "This tier of product does not sell itself, and deli staff members must be coached and educated about the product line if it's going to be a success. Ideally, incentives should be given to those deli teams who demonstrate outstanding progress." Experience shows it works, he says, but incentive programs in the deli are done very infrequently.

"Retailers tend to be very willing to put state-of-the-art equipment into the department that looks great, and they're also willing to go out and source the finest products they can find. But there's a real unwillingness to invest when it comes to people," he says.

Yet another challenge surrounding house brand deli programs is the lack of manufacturer-supported advertising programs, slotting, and other promotional allowances that retailers depend upon to advance a brand or line.

The key to operating a profitable house brand deli program relates directly to retailers' abilities to develop creative partnerships with branded manufacturers to simultaneously promote both lines in the ad or in-store, much like Pathmark does, says the deli executive. "Rather than taking an exclusive approach to promote one line or the other, retailers would be wise to position the products so customers are given a clear choice."
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