Friday, September 22, 2006

Safeway polishes its in-house brands

Pleasanton-based grocery finds customers, bottom line both support addition of high-end items to its discount 'generics,'
By Blanca Torres

When it comes to cheddar cheese, Heather Frazier will only take a package marked Tillamook from the shelf. When it comes to parmesan, however, Safeway Select, an in-store brand, is just fine.

Like many shoppers, Frazier is picky about brands for certain items, but for other products, in-store brands, often referred to as generic, make it into her shopping cart.

"For a store brand, it's pretty good," Frazier said. "At some stores, you feel like you're getting a lesser product, but with Safeway, it's a good brand."

Such opinions are driving Pleasanton-based Safeway Inc.'s efforts to lure shoppers to products branded with its own label. But unlike years past, when store brands were considered to be no-thrills, low-quality cheap alternatives to national brands, Safeway is promoting its store brands as top of the line and premium.

As one shopper put it, "cornflakes are basically cornflakes," but for countless other items such as fresh green salads, frozen pizza and toilet paper, consumers expect more quality and nuance from in store brands.

With the launch of its "Ingredients of Life" campaign last year, Safeway has been working to create an image of providing shoppers quality products at reasonable prices. The chain has also remodeled more than a quarter of its stores with a "lifestyle" format that features hardwood floors in the produce sections, softer lighting, wainscoted walls and bigger service sections such as floral and deli.

Now, the company's private label brands are becoming a vital part of the strategy. In the past few years, Safeway has launched several higher-end private labels, the industry term for store brands, including Rancher's Reserve beef, Primo Taglio cold cuts and O Organics.

The move is helping Safeway carve a spot in between discount stores like Wal-Mart and Costco that offer the lowest prices and specialty stores like Whole Foods and Andronico's that sell gourmet goods with a focus on service.

"Wal-Mart has made it really difficult for retailers that are not as large as Wal-Mart to compete on price," said Barry Seifer, a supermarket design expert with Cubellis Marco Retail. "You can't out-cheap Wal-Mart, so where are you going to go? You have to go into the other direction - to the organics, the premiums, products that have an emotional appeal."

Establishing a strong brand image is crucial for any retailer, especially since more shoppers have shifted to making buying decisions when they are inside a store staring at a shelf full of items.

"Mass advertising is less and less effective," Seifer said. "A store is a brand experience. Retailers that have taken advantage of that idea and are using those environments more thoroughly to touch consumers."

Behind Safeway's "Ingredients for Life" campaign is the idea that shopping at the store will make customers' lives simpler, easier and better.

The same applies to its approach to private labels. Safeway has been working to pare down its selection of in-store labels to 10 "power brands."

"We want to make it easy for our customers to recognize high quality products at a good value," said Melissa Plaisance, Safeway's senior vice president for finance. "The 10 power brands are easier to relate to. Having 70 brands got confusing."

Some of the retailer's brands, such as Lucerne milk and dairy products, have been around for 100 years, while others such as Signature soups and deli items and Priority pet food, are recent additions.

Creating brands with distinct names and logos gives shoppers the sense they are getting a product that is comparable to a national brand, Plaisance said.

Safeway, for example, launched Rancher's Reserve three years ago in a category where there were no major brand players because most fresh meat was sold with generic labels on it.

Adding a brand was a way to show customers that the products were of a specific quality, officials said.

"We are unique with our offerings," Plaisance said. "We understand where consumer trends are moving and we develop products to meet those needs."

Some shoppers may not even know that brands like Primo Taglio are made by Safeway. Those brands are stocked next to other, less-expensive Safeway varieties and are not marked with the retailer's name except in small print stating distribution information.

That is a major leap from the days when store brands came in plain packaging and did not have fancy names.

"Back in time, private label products had an image in the consumers, accurate or not, of lower cost and lower quality," said Daniel Abramowicz, an executive with Crown Holdings Inc., a consumer goods packaging company. "One way to change that image is by premium packaging."

LeAnne Rozner of Walnut Creek is a fan of the O Organics brand because the line, which has more than 200 items, is branded with a large blue O making it easy to identify on the shelves.

Rozner said she prefers to buy organic products over conventional, and when she can buy a store brand, that's even better.

"I go a lot for the O Organics," Rozner said. "It's affordable and cheaper than Whole Foods."

High-end products also have bigger profit margins than those on the low-end. Also, retailers spend less money producing and promoting their own brands than national manufacturers like Kraft, Kellogg's or Nestle.

"Consumer packaging product companies make a quality product and retailers offer a similar quality product at a lower price and they can make more money," said Dennis Krause, a food industry consultant for start-up companies financed by General Electric. "A grocery retailer only has so much shelf space and has to ask, where am I going to get the most return for my dollar?"

In-store brands on average cost 25 percent less than national brands, according to Information Resources Inc., a Chicago-based research firm.

But, at Safeway, price alone is not enough to convince shoppers to spend because most of them know they can find better deals at discount retailers.

"The more reasons you give people to buy your brand, the less important price becomes as a purchasing decision factor," said Rob Frankel, a branding consultant based in Encino. "Well-branded products make people say: I know it's expensive, but I feel better buying this."

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