Lapping It Up

Dipping dairy sales open door for private-label options.

By
Traci Carneal, Freelance writer

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Let’s face it: Most c-store shop­pers are not coming to your store to buy your particular brand of milk, eggs or cheese. You are the emergency stop or most convenient option. And, most likely, your consumers aren’t expecting to find a dairy deal in the cold vault. Spending more is the price they pay for convenience, right?

This perception puts c-store retailers more at risk than the competition as eco­nomic woes continue to challenge con­sumers. Also, moderately declining dairy sales in the convenience channel have the attention of retailers who need cre­ative, profitable ways to reclaim the dairy consumer. Sales of national-brand dairy may be flowing downward, but data from Chicago-based SymphonyIRI Group for the 52 weeks ending July 8 shows private-label sales on the rise, which opens doors of opportunity for c-stores.

Some of the more promising private-label categories in dairy include:

  • Ricotta, up 127.13%;
  • Natural crumbled cheese, up 97.63%;
  • Grated cheese, up 59.36%;
  • Soft cream cheese, up 23.76% in dollar sales;
  • Butter, up 6.35%;
  • Sour cream, up 9.09%; and
  • Eggs, up 5.91%.

The leader in private-label dairy sales was all forms of natural cheese, up 279.26% in dollar sales.

Clearly, creative solutions abound through value-priced, private-label brands—from the basics such as milk, eggs, and ice cream to cream cheese, coffee creamer, whipped cream, string cheese, cheese cubes, soy milk, ricotta, aerosol spreads and cheese loafs.

But innovation is clouded by ques­tions of profitability. You may be able to butter up more consumers with private-label, value-priced options, but will mar­gins and/or profits match the efforts?

Grocery trends indicate that consumers are generally pleased with private-label alternatives to the national brands. In fact, 57% of shoppers say they purchase store-brand products on a frequent basis, and only 2% never buy a store brand, accord­ing to the Private Label Manufacturers Association 2010 Consumer Research Report. Economic conditions are impor­tant to 75% of consumers in their deci­sion to purchase a store brand or national brand, and 94% of those trying store brands for the first time liked the product.

But how this parlays into the conve­nience segment is questionable. Mark Docherty, director of retail sales for Phoenix, Ariz.-based Shamrock Farms, is cautious about margin growth through private-label dairy sales for c-store retailers.

“There won’t be a whole lot of differ­ence in margin dollars whether the prod­uct is private-label or branded,” he says. “When looking at private label, you have to consider the sales volume. For most retailers, it’s an either/or decision in dairy. … If private label goes in, branded comes out. Will you sell enough incrementally of the lower-priced option to make a differ­ence in sales and margin dollars?”

Chris Hobson, vice president of mar­keting for South San Francisco, Calif.- based Core-Mark International, agrees.

“Unless you have sufficient sales volume in private-label milk sales, for example,” he says, “you will probably make less money than on the national brands.” He suggests retailers offer both a private-label value option as well as a national-brand choice.

Dairy Pastures

Of course, there are the dairies: the con­venience chains born out of the dairy world, companies such as Quick Chek, Wawa, Rutter’s and Cumberland Farms, among others.

These companies, more prevalent in the Northeast, are in a unique position to defy the sluggish dairy sales trend with their own line of dairy products bearing private-label, company-branded logos. For them, dairy is a destination, a loy­alty magnet that entices customers to make a special trip to purchase the fresh, locally farmed dairy products. They have a history rich in dairy manufacturing, either owning farms going back at least a century or partnering with dairy farms to offer fresh items on a regular basis.

Quick Chek was founded in 1967 by Carlton Durling, who wanted to ensure a convenient place for consumers to pur­chase the Durling Farms brand of milk and dairy products. In fact, the dairy farm is located directly behind the company’s headquarters in Whitehouse Station, N.J., where milk, half & half, whipped cream, flavored cream and eggs are manufactured.

According to John Schaninger, Quick Chek’s vice president of sales and market­ing, the chain’s consumers “do come to the store seeking this brand, especially the milk.” The store prices its Quick Chek/Durling Farms items to compete with grocery stores, so it’s offering value and a coveted brand name known in the community. Schaninger is hesitant to comment on whether it makes the chain more profitable.

“That’s hard to say, because I don’t know the profit position of other compa­nies selling national branded products,” he says. “Even if I were selling someone else’s eggs, I would still price competi­tively with the supermarket so it’s a value to consumers.”

Another chain that has built a name in the dairy category is United Dairy Farm­ers, based in Cincinnati. But the company doesn’t consider its brand a private label, but rather a “well-established brand in our area,” says Frank Cogliano, senior vice president. As for being value-priced, he believes people will pay more, up to a point, for a product based on taste. “They can definitely taste the difference between a good and an OK ice cream.”

Despite the obvious benefits of a chain’s own name brand, the concept won’t work for everyone.

“I don’t know anybody in the conve­nience-store space [besides those with the dairy heritage] that has a private-label-brand dairy, including 7-Eleven, which is the largest,” Hobson says. “If you are Rutter’s, well, yeah, of course, because you own a dairy yourself. Most c-stores are perfectly satisfied with the regional or national brand they’ve selected.”

In fact, Hobson says putting a store’s name on a dairy brand could backfire: “It’s hard to say how a consumer would respond to Chevron-branded milk or eggs, but why would they want that?” Dairy farms aside, he says, many stores started as service stations or, in 7-Eleven’s case, an ice company.

“7-Eleven milk sounds a lot differ­ent than Cumberland Farms or Durl­ing Farms,” he says. “The advantage of private label is based on the fact that the brand is going to be more of a value to the consumer than the national or regional brand.”

The Singles Scene

While the dairy case may be the highest traffic area in a grocery store, the c-store dairy door is a different picture. For many retailers, this lower-velocity dilemma often results in inventory shrink, losses due to out-of-date product, lower sales and potential out-of-stocks.

This is particularly true with the milk category, which continues to show dollar and volume decreases in c-stores, accord­ing to preliminary numbers from the NACS State of the Industry Report of 2011 Data. While it’s not a huge decrease—milk finished eighth in overall sales, represent­ing 1.4% of in-store gross-profit dollar contribution—the category’s performance continues to indicate a downward flow. Other dairy finished 16th overall, with a margin of $371 per store per month.

Shamrock’s Docherty has some advice to revive milk sales and reduce inventory losses.

“Many retailers have problems with product going out of code because traditional dairy processing methods only provide 14 to 17 days of shelf life,” he says. “Some stores lose up to 50% of their inventory on a regular basis. And when consumers encounter short-coded product on the shelf, or out-of-stocks due to outcoded product, that’s not good for anyone.”

But new technology in recent years allows for 90 to 100 days of code life right off the production line. This techno­logical development opens up a retailer’s options in private-label dairy that previ­ously did not exist.

“This is a game changer for c-stores in terms of what you are able to do with dairy,” Docherty says. “It allows more flexibility at the shelf in terms of the number of SKUs you can carry and the amount of space dedicated to the category.”

This can even benefit smaller local dairies that don’t have the extended shelf-life (ESL) capabilities.

“Retailers now have options where they can have ESL SKUs produced by a national dairy but distributed by the local dairy alongside their gallon offer­ing,” Docherty says. Shamrock was one of the first distributors in the United States to deliver fresh dairy with other grocery supplies. Its dairy division has its own 10,000-cow herd.

The potential for higher margins, increased sales and improved stock is espe­cially strong in the single-serve category.

“A robust single-serve dairy lineup generates increased velocity, strong profit margins and incremental trips to the store. There are several operators already executing this strategy,” Docherty says.

“There’s never going to be a lot of margin in selling just gallon milk in a c-store, especially when you compare the margin dollars generated out of other doors in the vault,” he continues. “While retailers do need a bulk offering, it will always be single-serve dairy that gener­ates margin dollars and sales.”

Single-serve dairy options also can drive more day-parts, going beyond the afternoon gallon-of-milk run. Single-serve offerings could include multiple fla­vors and multiple functionalities such as value-added protein recovery drinks and relaxation drinks that are dairy-based.

“There are many options out there that will drive multiple day-parts and at a much higher profit than the take-home offering. A total dairy solution is the best path forward for increased sales and profit,” Docherty says.

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