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Tea Fair - China
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When Coffee Speaks


Tea Fair - China

Private Label:
The Best Kept Secret In Coffee and Tea

STAFF REPORT

What has been around for about a century that the average consumer doesn’t really even know exists? You guessed it, “private label” or “store brand” coffee and tea. Put simply, under the private label concept, the consumers sees one company’s label, while another company has actually done the manufacturing and packaging of the coffee or tea. The name and/or logo a consumer sees may be that of a supermarket chain, an airline company, an office coffee service operator, or a coffee or tea shop - but a “secret” company who may or may not sell their own coffee under their own name is actually behind the scenes. The alternative to this would be for a supermarket or airline to offer a product, which is already a known brand, such as Starbucks or Maxwell House. Offering a national brand has its benefits, but private labeling is a growing phenomenon for a few reasons.

Why Private Label?
For a large supermarket chain, private label (PL) positively reinforces a desired image and boosts profits, while for the smaller retailer, such as a specialty shop or coffee service operator, one can enter the entire market, supplying not only homes but restaurants and hotels.

“A quality program helps a store retain its valued customers, as well as cross promote and sell in their other private label categories,” says Kevin Kihnke from Magnum Coffee Roastery in Nunica, Michigan

The benefits to the retailer are enormous. There are no individual costs incurred in promoting and marketing just one single item, thus, there are none of those hidden costs or “marketing taxes” that must be passed on to the shelf price. Private label products need not be sold for less, however, and according to Stuart Daw, c.e.o. of the Heritage Coffee Companies in Florida and Canada, this extra money not used for promotion can be used for whatever the retailer wants, including purchasing higher quality blends. It is true that some retailers still sell their own label for less than a well-known brand, and in many cases, customers still expect that. But it need not and should not be the case. Private label is an excellent way to market high quality products and are often one of the only means for the consumer to make the acquaintance of a superior product, so an even higher than average selling price is possible.

The PL business in general is a Goliath with no sign of slowing down. In the U.S., store brands make up one in every five purchases from supermarkets, and other retailers. That is a mind-boggling US$50 billion segment of retailing. Private label is also a dominant force in Europe. It accounted for 22% of total European grocery sales, and was worth US$172 billion by the late 1990s.

For the smaller or more exclusive operation, there are many advantages to using quality private labels. To begin with, they help establish an image of they you are in the customer’s mind. It enforces the idea that their product is of value, even if it costs more than the alternatives. And, of course, it is an excellent way to set you apart from competing outlets. If your product is good, then you encourage repeat business, because yours is the only outlet where that product can be bought. In effect, there is no competition for the brand you carry, because the brand belongs to you alone. Having a PL also means that your customers can take your product home with them, further building loyalty.

One aspect of PL products is that they carry a certain degree of expectation, regardless of what’s inside the packet. When you purchase a pound of coffee, or a bag of tea from a famous upscale department store or hotel, and it is bearing that store’s classy logo, you already have a pre-conceived image of what you are buying. Daw speaks of a “mystique” that he says PL can take on, since it is not as well known as a national brand, and customers may only be able to go to a select few places to find it. Private labeling positively reinforces the image of the retailer and helps to cement its relationship with its customers. You can buy coffee anywhere, but you can only buy your favorite PL coffee at one place.

In the larger-scale market, it is becoming evident that supermarket private labels no longer have the same stigma attached to it as it may have had in the past. For example, Tesco Lotus in Thailand, a grocery chain, has had considerable success with their own tea and coffee labels: they are outselling other well-known national brands. And this is in a country where the name on the label is of paramount importance.

In the U.S., one study has shown that for Americans, these brands may even be viewed in the same way as national brands. In a nationwide study, 75% of consumers defined store brands as “brands”, and expected the same quality standards as with national brands: guarantee of satisfaction, packaging, value, taste, and performance. Over 90% of those polled were familiar with store brands, while 83% purchased theme brands on a regular basis.

Private label companies also provide useful services to lower-profile niches of the coffee market. The Heritage Coffee Companies private label for specialty micro roasters looking for a partner to handle certain packaging configurations they may not presently manufacture, people who have been roasting their own as a micro roaster but realize they would be better served focusing on sales, as well as to foodservice distributors looking to have better control of their coffee programs.

“If an individual is roasting their own coffee, a private label is perfect in filling voids in the product line up,” says Kevin Daw, president of Heritage’s U.S. sales. “Some micro roasters decide to forgo the manufacturing process altogether deciding instead to ‘outsource’ this function. In some industries, almost all product manufacturing is outsourced. Entrepreneurs realize that as long as coffee specs are met, their true value lies in the promotion and continual nurturing of their product to boost sales leaving the actual day-to-day ‘grind’ of manufacturing to a trusted partner.”

However, PL is not the answer for a fledgling specialty tea or coffee shop. Your customer has to know and trust you before she is going to buy your own label. Your business is going to come from customers who believe in your name, or can count on your product. Also, unlike a branded company, which has spent many dollars on advertising their product so that when people come into your store they are aware of the product, the selling of your own product is most likely to be entirely in your own hands.



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