The Organic Premium Label Opportunity
By John Troy

The most lucrative potential for players in the private label game today is “Premium Label Store Brands”. In the natural products segment of the food industry, it is “Organic Premium Label Store Brands”. The true value of private label programs now goes well beyond gross margins and shelf presence. With the industrialization of organic, the marketing pundits are recommending that we differentiate or die. According to Danny Wells quoting Harry S. Dent JR., The Roaring 2000’s, from the year 2000 on, the premium segment will dominate our industry. Customer loyalty and patronage are predicated on a proactive program addressing this need.

Consumer research in the natural food industry has targeted the “Truly Natural” customers as its core target. This represents 10-15% of the population. They seek total wellness, are well educated and are less price sensitive. They are more likely to be foodies. Approximately 65% of today’s “Truly Natural” customers are cross-over mainstream customers looking for pure products that their families will find tasty. Only 10-15% are the old guard philosophical lovers of “organic”. The “Truly Natural” customer is the target for today’s Organic Premium Label Store Brand.

Organic Premium Label Store Brand opportunities are strategic alliances between retailers and primary producers. For the retailer, the opportunity is in store branded products. Branded organic is weak. Retailers have the built-in strength (they own the real estate) to promote whatever they want and Organic Premium Private Label will a) enhance the store's image, b) build a franchise and following and c) deliver higher margins.

The organic store brand supplier absorbs nearly all of the product's pre launch expense with respect to formulation, product development and testing, sourcing raw ingredients, organic and HACCP certifications, among other necessary steps, thereby providing the retailer with what is in effect a startup “bonus”. For the primary supplier, there are opportunities of increased use of capacity, lower risk and economies of scale. The idea is to put together a win/win scenario where each team maximizes their skills. The retailer delegates to the supplier and the supplier delegates to the retailer.

The most successful premium label program in the world is President's Choice. Their current sales exceed 20 billion dollars per year. Their strategy has been extraordinary strong product development focusing on noticeably enhancing the consumer experience with the product (recipe, taste, mouth feel, ingredients, etc. – all this has been achieved using key suppliers), amazing branding (using top packaging graphics companies) and test marketing in their own stores before ramping up for external distribution. The most successful organic premium label program in the country is the Whole Foods Market program under the watch of a highly refined taste steward. In both cases, superior taste is the defining factor of keeping a customer.

Innovative product development of tasty fresh new ideas is the key to success in launching Organic Premium Label Store Brands and keeping customers. To help understand how we must differentiate, consider a table. The actual tabletop must consist of the consumer benefit of promising a superior taste with trendy flavor profiles communicated with savvy packaging. Supporting attributes or legs of the table are a) organic and genetic integrity b) artisan made c) traditional production methods, and d) health and well-being.

These supporting legs are very important and are the elements for the story of a premium label product, but the actual taste is the primary benefit and that taste profile is what will bring the consumer back and increase consumption. The flavor profile is about the ability of the product to deliver taste through high quality flavor design and formulation. The purity of ingredients must be translated into purity that the consumer can taste. The consumer franchise will be built around this taste and a bona fide taste steward is necessary to insure the organic foodie will get what they are looking for. The consumers will not switch from a national brand if the store brand does not excel in taste with their own premium label brand.

Currently, there is low brand recognition for organic brands. The most successful national organic brands are running at less than 5% recognition in natural food stores. This creates an opportunity for well formulated and packaged store brands to seize the consumer franchise. Other opportunities for retailers employing an organic store brand include the elimination of the “brand tax”, a higher profit contribution, and building store brand equity in a consumer franchise. Eliminating the “brand tax” creates real value for the consumer, initiating a climate for a trial purchase.

Retailers should also explore utilizing a multi tier program. One tier for a low price leader and at least one premium sell-up brand for winning flavor profiles and higher profit contributions. For Loblaw Brands the low price leader is the No Name brand. For Whole Foods, it is the 365 brand. The sell-ups to premium label represent exceptional flavor profiles with attendant packaging. This, in turn, creates a consumer franchise generated by the consumer's eating experience of food purchased from the store. This is called the flavor wedge. A savvy marketing strategy for the store is to cross merchandises this flavor wedge throughout the store's offerings, strengthening the store's consumer franchise.

To initially attract new customers, the actual packaging and labeling is very important. With limited budgets and the high costs of media advertising, most premium and private labeled products will make their first and only impression at the point of purchase, sitting on the grocery shelves. The offering will not get a second chance for a first impression and it’s image will be indelibly defined in the consumer's mind. How the ink is arranged is important. A good brand name should be chosen. The name of the store brand should not necessarily be the store name, but a name should be chosen that means a premium offering of products found exclusively in that store. The product should be positioned with sound branding and marketing laws adhered to. The packaging must be professional, positioned and targeted succinctly and suggest a delicious taste experience supported with health and well-being benefits. A yardstick of success will be when it becomes “fashionable” to shop the particular store and purchase these store branded products.

With the advent of the new National Organic Program and the FDA Organic Seal, the year 2002 will be the “big bang” in organic. The categories of organic as well as store brands expect continued growth in excess of 20%. The premium segment is forecasted to dominate the natural products industry. According to a recent study by the PLMA, Wall Street is demonstrating that it has learned the lesson that successful private label programs are winning the game at retail. The time is right for Organic Premium Label Store Brands.

In the end, it’s important to understand that a store brand will not flourish without a comprehensive strategy sustained with a program and organization to support it. This includes in-store training. Finally, an Organic Premium Label Store Brand is a covenant with the consumer. Honor it and the ROI for Organic Premium Label Store Brands becomes a reality.