Supermarket GROCERY Business: Reflected Glory

Here's a dinner to make most gourmets jump for joy: fresh mozzarella and tomato salad drizzled with the finest imported virgin olive oil, followed by apricot ginger teriyaki glazed salmon, chocolate cake with a molten fudge center, and mouth-watering chocolate truffles. And when the key components are all affordably priced private label from the supermarket, they'll be doing cartwheels down the aisles.

While supermarkets have been upgrading the quality of their private label offerings for years, an increasing number are adding gourmet items to increase sales, boost margins, and—most important—set themselves apart from the Wal-Marts and mega-chains of the world. According to New York-based MarketResearch.com, sales in the gourmet specialty foods sector passed $20 billion for the first time in 2000 and are projected to top $27 billion by 2005. Coffee and tea is the largest segment of the gourmet industry, accounting for $4.3 billion in sales, but other areas, including perishables and frozen desserts, are growing rapidly.

Specialty foods manufacturers, many of whom once looked down their noses at supermarkets, are now more willing to do private label runs for them. "Under the right terms, it is a good use of the manufacturer's production assets. And if they had been making product purely for the specialty foods channel before, this gives them access to supermarket volume without upsetting the specialty food retailer," says John Roberts, president of the National Association for the Specialty Food Trade in New York.

For the first time, November's Private Label Manufacturers Association convention in Chicago featured a pavilion devoted to gourmet foods, where almost three dozen purveyors of everything from beer to virgin olive oil displayed and sampled their wares.

"We have state-of-the-art equipment and excess capacity. Our equipment allows us to do high-end truffles fairly quickly, and we can do simple molded pieces in large volumes," says Rudi Hauser Jr., vice president, operations, at Hauser Chocolatier in Westerly, R.I.

Hauser exhibited at PLMA for the first time. "We've done some private label and we want to do more. We picked up a few contacts, and we think we have good potential," he says.

Two Chefs On A Roll, a Torrance, Calif.-based manufacturer of gourmet desserts, dips, and sauces for top specialty retailers, also exhibited at PLMA for the first time. Its products include a pudding made with pure vanilla, ganache torts, and a unique Molten Cake, sold frozen, that when microwaved creates a hot fudge center.

"We are seeing more interest from supermarkets," says Katalin Coburn, director of sales and marketing. "We see great potential in the supermarket segment simply because the focus seems to be shifting to the private label branding of successful products."

San Francisco-based Mad Will's Food Company manufactures a stable of 70 gourmet "wet" products—sauces, marinades, salsas, and mustards—all of which are available as private label to small independent grocery stores. It is now looking to expand its business to the larger chains. "The great brand names are available to every retailer now," says Tim Sullivan, director of product division. "In order to differentiate themselves from the competition, stores have to distinguish themselves. Customers know and trust the store and its brand name. Why promote somebody else's brand when you can promote yourself?"

To make it easier for retailers to enter the gourmet private label field, Mad Will's has designed stock private labels with a choice of four backgrounds and four logos. After a retailer selects a design, Mad Will's simply inserts the store's name on the label. "We also like to work with the retailer and their designer and create a background label consistent with their marketing image, logo, and colors," Sullivan says.

He suggests retailers merchandise their gourmet private label items near the deli counter to capitalize on cross-traffic. "The demographics of the heavy deli user of the supermarket are almost identical to the demographics of the specialty food consumer," he says.