Ten years ago when Baltimore, Md.-based Deli Brands of America began processing private label on a large scale, company President Jeff Saval didn’t think much about the ability of his company to help other food companies through tough economic times. But this year, Saval and his brother, Paul, who r uns the company’s distribution arm, Saval Food Service in nearby Elkridge, Md., are making private labeling and co-packing an important part of their business – endeavors not only helping the company grow, but adding to its business expansion during a period when the economy is not helping businesses expand.
Deli Brands of America began 77 years ago as a small, family owned business manufacturing and selling corned beef to delicatessens on Baltimore’s famous Corned Beef Row on historic Lombard St., now next to the city’s glitzy Inner Harbor. Saval’s grandfather founded the company, and it’s now operating in its third generation of family ownership, relocated on Pulaski Highway, Route 40, near Johns Hopkins Univ. The company is not only an accomplished processor of deli products, it also purveys fresh-cut, high-quality beef, lamb, pork and veal products to restaurants and steakhouses. But private labeling and co-packing is a major part of its business, for both the retail and the foodservice trade. Most private labeling is done for supermarkets in the Maryland and Pennsylvania region, as well as sales of its Saval brand for roast beef, corned beef and pastrami. Most of the co-packing is for customers outside the region.
Private-label meat and poultry products are made by one company to be offered under another firm’s brand, and they are often positioned as lower-cost alternatives to regional, nationwide or international brands, although now some private-label brands have been positioned as premium brands to compete with existing marketplace names. In private-label products made as store brands, the retailer’s name and the store brand is plainly visible on the packaging. In a similar, co-packing arrangement, Deli Brands manufactures products under its label and another company takes ownership of the product, and markets it to its own customers.
A category for the times
Agreeing about the value of private labeling and co-packing of meat and poultry products, especially during a recession, is Brian Sharoff, executive director of the Private Label Manufacturing Association, the New York-based trade association representing manufacturers and processors in many industries involved in private label and copacking.
Sharoff notes in 1991, 12 percent of consumers were considered frequent private-label shoppers. Three years ago, the percentage of private-label consumers had risen to 41 percent. "This is a new consumer attitude caused, in part, by the change in the economy due to the credit crisis, the stock market collapse, the plunge in corporate profits and the global chain reaction to what’s happened here," he said.
Reinforcing this trend is growing U.S. unemployment, swelling retail inventories in supermarkets and other places and unsold housing – in other words, all the signs of a classic recession. In fact, there are three key trends influencing retailing – changes in lifestyle, the rise of the affluent consumer and the severe recession, which seems to have surpassed the first two.
Sharoff says according to the Nielsen report titled Private Label in the U.S., "Private-label dollar sales are on fire, totaling $80 billion during the past year, compared to $72 billion a year ago, a 10 percent increase. The report says that private labeling is growing in all channels," Sharoff points out, with groceries showing a 10 percent increase over a year ago and drug/pharmacy sales up 13 percent over early 2008. Most importantly, the PLMA chief notes private-label sales are being helped by 86 percent of consumers believing there is a recession underway, only 18 percent believing the recession will be over in a year and women feeling more pessimistic about the economy, personal finances and job prospects than men.
"Lessons from past recessions, like what we had in the early 1980s, the late 1980s and early 1990s, show the unit market share of private-label products rising steadily," Sharoff points out. "The state of the economy can create an historic expansion of retailers’ store brands, if the industry remains committed to offering consumers the best store brands possible."
Sharoff says more than one in five items sold in U.S. supermarkets and other stores today is a private-label or store brand. Food, including meat and poultry, is one of the biggest categories being private labeled.
Deli Brands’ Saval believes private labeling is an important niche to be part of in the marketplace anytime, but especially when times are economically challenging.
So does Steven Burger, president of Burgers’ Smokehouse, a mid-sized meat-processing firm located in California, Mo., a small town near the state capital of Jefferson City, in the center of the state. Burger, who runs a third-generation meat-processing plant known for its country hams, points out private label and co-packing are a big part of its business and have been for more than five decades.
"Our plant dates back to 1952, with 1,000 hams cured during that first year. But the roots of Burgers’ Ozark Country Cured Hams Inc. actually can be traced back to the 1920s," Burger says. His grandfather and father began their private-label programs in the early 1950s. "We got into private labeling and co-packing to grow the business beyond serving Central Missouri," Burger says.
Today, Burgers’ Smokehouse is a $40 million company with 240 employees and two plants, the main one in California, and another in Desloge, Mo., about an hour south of St. Louis.
"We wanted to sell our products in Tennessee and Kentucky," Burger says. "And let me tell you, it was tough selling Missouri hams there. The only way we could crack these regional geographical barriers and get in was through private labeling." He describes private labeling as an alternative means of labeling. "Most companies have a label of their own. In this case, we’re supplying products for someone else’s label and brand," he says. "We’re really making products for our customers to sell."
Burger says there can be many different reasons for doing this, but a major one is helping a customer prepare a product for sale it can’t accomplish alone. "They may not have the experience or the expertise to make or process those products on their own, so we do that part for them. Then they take over and market the products under their brand." Burger notes while he private labels for companies across the United States, most products are created for firms east of the Mississippi River. "And many of [our products] go to retail companies. Many also go to foodservice operations under the name of the foodservice establishment. So by the time the products get to consumers, they’re usually non-branded."
How important private labeling is to Burgers’ Smokehouse and other medium-sized meat processing businesses is demonstrated by how much of his business is devoted to the practice. "If I include foodservice, private labeling is half of our business," Burger says. "But we also do a lot for major retailers, food mail-order companies and direct mail. These are very big niches, with a lot of demand for private label because they don’t manufacture or process themselves."
He says that private labeling lends some stability to the meat business, especially in a "down economy" like now. But the practice doesn’t shield industry from the sales-softening effects of the severe recession underway.
"No, our business isn’t immune from the economy. There’s no doubt that mail order and foodservice have been softening a bit," he says. But he also says there’s no doubt the practice of private labeling is expanding in the food industry, especially in the meat and poultry processing business. In Burger’s opinion, the rise in private labeling is different from a concurrent increase in store branding, where the retailer gets actively involved in branding. He believes the major advantage of private labeling is the ability to build manufacturing volume more quickly.
Seth Shuket, at Old World Provisions Inc. in Albany, New York, thinks private labeling is a particular strength and niche helping mid-size meat processors. "Big companies don’t find it very viable because of their scale and the sale involved in this endeavor. Small and very small processors can’t do what we do, because of limited capacity," he says. And others in the industry say that limitations in what processors can produce for others makes it a more successful practice for medium-sized companies to carry out. But many small meat processors do very well at private labeling. Old World Provisions, for example, has only 50 employees.
Shuket, who runs Old World’s private-label operations (his father, Mark, is CEO and brother, Ross, also works in the business) says the current company is based in upstate New York City and the state capital. It began as a small meat processor in 1942 handling business in New York City delicatessens. The company makes authentic New York-style corned beef and pastrami, as well as other authentic New York deli products, for markets throughout the United States.
The company got started as State National Provisions in Albany. It was later purchased by the older Shuket in 1991 and merged with his JoMar Provisions, a Bronx, New York meat processing company he founded with his father in 1981. The new company became known as Old World Provisions, and represents the fourth generation of the family in the meat business, since Mark Shuket’s grandfather was general manager of the Hebrew National brand.
"Yes, we’re very much involved in private labeling. But private labeling is always at the demand of the customer. A customer could be selling his products online. Then private label becomes a proprietary brand no one else can sell," Seth Shuket explains.
He points out private labeling or co-packing is driven by the customer, not necessarily by the company doing the private-label production. But the private-label processor can be looking for opportunities to make more products than it would sell on its own, and the two companies’ interests and needs come together.
"We were looking for opportunities to grow and sell our products and our business and we saw private labeling as a way to do that," he says.
Shuket says Old World Provisions does more private labeling for distribution companies than other kinds of businesses. "So we end up making many different kinds of products for the distributors we deal with," he says. "In doing this, by private labeling for our customers, we’re helping our customers to build brand loyalty – to help their customers be loyal to their brand."
Shuket says Old World Provisions products are sold all over the United States, with sales people and food brokers helping to find new private-label markets for them. "Anything you can do to grow your business is good, but you have to be flexible. Because you’re putting your own brand aside, and selling your products to them, so they can use it in their own brand," he adds. "A great opportunity for us to private label is when people want to develop their own brand and concentrate on the marketing. But we have to make the product exactly the way they want it."
He says his products can be sold in that way either wholesale or in retail markets as store brands in a supermarket chain, for example.
"We expect our private labeling to grow 20 to 25 percent this year, and another 25 percent in 2010," Shuket predicts. "We want to build our own brand, but we’re willing to help other companies succeed, as well. Private labeling can be a long-term success, as long as the companies involved treat each other fairly."
Bernard Shire is M&P’s Washington correspondent based and feature writer based in Lancaster, Pa. With a background in editing and writing for daily news publications, he also works as a food safety consultant and writer for Shire & Associates.
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