GOING PRIVATE ; Stop & Shop Expands Its Store Brands to Compete With Discounters and High-End Retailers

By STEVE ADAMS

QUINCY

Ten months after Jose Alvarez was named the new CEO of Stop & Shop Supermarket Co., changes are becoming evident in the aisles of New England’s largest grocery chain. Produce sections in many stores have a shiny new look. In lieu of weekly sales, Quincy-based Stop & Shop now promotes “everyday low prices” for produce and paper goods.

And new private-label brands – from diapers to desserts – have appeared on the shelves.

The strategy is part of Stop & Shop’s efforts to compete with high-end retailers like Whole Foods Market on quality while simultaneously battling Wal-Mart and discount clubs on price.

“Customers either have to choose really low prices but not great quality or not-so-great stores, or great quality at a higher price,” said Stephen Vowles, Stop & Shop’s senior vice president of advertising. “We think we can offer them both of those things.”

The success that specialty grocer Trader Joe’s has had with private-label brands has caught the attention of mainstream grocers, which have been beefing up their store brands. For example, Stop & Shop began expanding its private-label merchandise in 2004 when it launched the “Nature’s Promise” brand of organic milk, juices and snacks.

It now sells seven store brands, including Companion pet food, JaVaNa coffee and Cottontails diapers.

Simply Enjoy, which the grocer promotes as “everyday luxuries at affordable prices,” includes 160 products including desserts, pasta, marinara sauce, candy, snacks and frozen entrees.

“They’re all categories where we can get hold of products that are seen as everyday luxuries and can offer to customers at affordable prices,” Vowles said.

Unlike traditional store brands, the new private-label products’ labels don’t call attention to their affiliation with the supermarket chains.

Part of the reason is the lingering stigma from the industry’s experiment with generic bargain brands in the 1980s, said Kevin Coupe, publisher of industry trade publication Morning News Beat.

“It was considered to be the low-cost, not-quite-great quality replacement for people who were on a budget,” he said.

The packaging and marketing of the new-era store brands approaches the sophistication of name brands, said Meg Major, editor of Progressive Grocer magazine.

“The quality of products and the packaging and graphics are on par with (name brands), and it gives consumers a really good choice,” she said.

Scarborough, Maine-based Hannaford Bros. last year added “Inspirations,” a line of 400 gourmet-inspired private-label products such as flavored dipping sauces. It extended its private- label strategy into the food-to-go segment as well, introducing “Fast & Fresh,” a line of eight microwavable entrees.

West Bridgewater-based Shaw’s Supemarkets sells an Essensia line of groceries including frozen pizzas, barbecue sauces and gourmet coffee.

Private-label products have higher profit margins than name- brand merchandise, and the private-label trend has gained momentum in the last few years.

“Retailers who do it well have an ability to really have the exclusivity in consumers’ minds that you need to establish brand loyalty,” Major said.

Consumers’ perception of private-label products appears to be changing for the better.

Sales of private-label groceries in the U.S. have risen 10 percent since 2002, totaling $40.9 billion in 2005, according to the New York-based Private Label Manufacturers Association.

About 41 percent of shoppers frequently buy store brands, up from 36 percent in 2001, according to a survey conducted last year for the association.

Nearly seven in 10 shoppers described private-label products as being as good or better than name-brand products. And consumers in high- and middle-income levels were much more likely to buy more private-label products in 2007 than previous years.

Frozen pizza, cleaning products and frozen prepared vegetables were the fastest growing categories in sales during 2005, according to association data.

“The big growth over the last few years has been mainstream categories that the name brands have owned forever,” said Tim Davis, spokesman for the association.

As Austin, Texas-based Whole Foods Market makes deeper inroads into the Northeast, Stop & Shop also has made it a priority to improve its produce offerings. The company has worked with farmers to speed shipments to its 1.3-million-square-foot warehouse in Freetown, which opened in 2004. The facility processes produce faster than its predecessor in the Readville section of Boston, Vowles said.

At stores, employees now polish and hand-stack apples for a more artistic presentation, and taller wooden shelves display produce closer to customers’ eye level.

Stop & Shop operates 385 stores in the Northeast. Under its previous CEO, Marc Smith, Stop & Shop branched out into housewares, toys and office supplies in partnerships with other retailers such as Toys “R” Us and Staples.

But overall sales at Stop & Shop and its Maryland sibling Giant Food have remained stagnant since their management structure was combined in 2004, even as the two chains have added 65 new stores.

Through the end of the third quarter of 2006, the chains reported net sales of $12.6 billion, compared with $12.5 billion and $12 billion during the same periods in 2005 and 2004, respectively, according to figures reported by the chains’ parent, Dutch conglomerate Royal Ahold.

In a departure from its traditional strategy, Stop & Shop has dropped weekly discounts in the produce and paper sections in favor of everyday prices that undercut the competition. New radio and TV ads feature talking toilet paper and a red delicious apple named Steve touting the new lower price structure.

Coupe, the Morning News Beat publisher, is skeptical about whether the focus on low prices is enough to lure shoppers back from competitors like discount clubs and Wal-Mart.

“In this marketplace, you’re distinguished by the things you do better than other people and differently than other people,” Coupe said.

Vowles is more optimistic about the strategy and its chances to recapture customers who are doing more of their shopping elsewhere.

“If people like it, you get more customers, and helps drive prices down further because of scale and volume,” Vowles said. “It is possible to do both and we think we’re going to find a way to do it.”

Steve Adams may be reached at sadams@ledger.com.

(c) 2007 Patriot Ledger, The; Quincy, Mass.. Provided by ProQuest Information and Learning. All rights Reserved.