Cashing in on Cachet

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Cashing in on Cachet

By Jan Fialkow - 10/01/2013

Private-label foodstuffs and kitchenware offer independent gourmet retailers unique points of differentiation that can build both brand awareness and customer loyalty. Because house brands at the specialty level enjoy a cachet that has eluded mass-market house brands, why hasn't the segment embraced private label with open arms?

The answers always come back to economies of scale. Initial investments, inventory necessities and other vendor requirements have a major impact on a small operation with limited space and financial resources. Several specialty retailers have persevered in their house-brand endeavors, some finding ways to bring local products to their customers, others finding private-label manufacturers who have been able – and willing – to tailor their business models to encompass the realities of the small operator. And the trailblazers have made it easier for any who care to follow.

Cook of Crocus Hill sources its private label honey from local apiaries – and sells out whatever it stocks each year.

"We have our own branded product – Goods & Goodies – that is produced or packed in our schools," notes Karl Benson, owner of Cooks of Crocus Hill. The St. Paul, Minn., retailer, profiled in the February issue of The Gourmet Retailer, was TGR's Kitchenware Retailer of the Year for 2012. Cooks of Crocus Hill also received the U.S global innovator award (gia) for independent kitchenware retailer and was one of five global gia winners for 2012.

Back in 2007, the private-label line was born out of the frustration Benson and Marie Dwyer, his wife and partner, experienced trying to find quality ingredients for their home kitchen – and for Cooks of Crocus Hill's four retail stores and cooking schools.

"Our private-label line is grounded in things we couldn't get," explains Benson. "It's an extension of us as cooks."

Cooks started with pickles and preserved lemons and then added Callebaut and Valrhona chocolate. "Callebaut is awesome for chocolate chip cookies," explains Dwyer. "We can't get it at the grocery store. We like to bake with it."

For its private-label teas, Cooks works with Tea Source, the St. Paul-based supplier and retailer owned by tea authority Bill Waddington.

Whether it's tea or black tellicherry peppercorns, all the items are packed in house. And the items have become popular in their own right. The honey, sourced from local apiaries, "sells out every year," says Benson.

Starting the line required little up-front investment. "Because we're small, we used a label printer for the prototypes," explains Benson.

To assure customer loyalty, maintaining product appearance at store level can be as important as maintaining quality.

Cooks of Crocus Hill's private-label program complements its crop-share program. Cooks unites area farmers with its customers for such items as fresh sides of Berkshire pork and cheese. Like the private-label products, "our crop shares are things we like to eat," says Bensen.

Facing the Challenges
"Private label can be difficult," observes Molly Broder, owner of Broders' Cucina Italiana in Minneapolis. "It's fraught with frustration." But that hasn't stopped the company from building and establishing the Broders' brand in the marketplace. Broders' offers hoodies, t-shirts, shopping bags and several items emblazoned with the company's 30th-anniversary logo as well as an extensive in-house prepared-foods program.

"We have no problem with what we make in our own kitchen. We have outsourced some of our in-house items in the past," Broder says, "but we had to bring them back in-house to maintain the quality. We had some issues when we outsourced."

She adds, "We do private-label olive oil and have worked with a company to bring in tomato sauces from Italy. Olive oil is our major private-label item. We've had no problems with our tomato-sauce manufacturer in Italy."

She goes on to explain that private label "requires a lot of upfront expense. We can't bring in large quantities of many items. We can bring in 55-gallon drums of olive oil and bottle it ourselves. But even that can present problems. We ran out of bottles and couldn't find an exact replacement."

This can be an issue, she says, because the product on the shelf doesn't look the way it used to, and the customer deserves an explanation. "We always tell customers when there's a variation. You have to tell your customers the truth. It helps maintain customer loyalty.

Quality has been an issue for Broders' Cucina Italiana's private label items, which include olive oils, sauces, shopping bags and hoodies.

"One problem is finding someone you rely on for four or five years, and then they don't bring in the product [you were buying] anymore, so you're scrambling," Broder continues. "So you need new labeling – you're always finding a source and maintaining it. When we lose a source, it's difficult. Our customers get used to the quality of our product. It can take months to find someone who can provide the same quality." Despite the challenges, Broder believes in private-label programs – as witnessed by the commitment at store level – but she says any retailer embarking on such a program should go into it with eyes wide open.

New to the Game
Ditalia, an online gourmet retailer based in St. Louis, Mo., recently stepped into the private-label universe. "We've been doing private label for about a year," says owner Vince Di Piazza. "We're trying to be selective, and so far, so good. All our private-label items go out under the Bottega Ditalia name."

Di Piazza did his homework before embarking on a private-label program, looking around the country to find vendors who could provide quality product in the appropriate quantities to meet his needs.

"We offer private-label, fresh sausage that's made from a family recipe in a USDA plant in Oklahoma. Our private-label sauces are made by a company in Boston. Our vinegars are from Ritrovo [based in Seattle]. We're now having balsamic truffles, balsamic strawberry truffles and chocolate-covered amarena cherries made for us as well."

One of the most significant challenges facing retailers is minimums, according to Di Piazza. "Many small companies have to work with small quantities, and the minimums [for the products we're buying] aren't that great. If we were talking dry pasta, it might be a different issue. But the minimums for our products aren't as crazy as for a more industrial product."

When asked what criteria he uses to choose a private-label vendor, Di Piazza responds, "Sometimes it's by word of mouth or by conversations in a restaurant that's serving something we like. It's always by being honest, loyal and upfront – by looking for people who are the same as we are. Good business is built on good relationships."

Before embarking on a private-label program, Vince Di Piazza, owner of Ditalia, did his homework, searching for vendors that could provide quality product in the appropriate quantities.

At Fromagination, a cut-to-order cheese shop in Madison, Wis., some of the best private-label products are from local vendors. The store works with Potters Crackers, Quince and Apple, Gail Ambrosius Chocolatier and La La Nuts to create unique private-label products. (Editor's Note: Fromagination is featured in this month's Retailer Profile.) The retailer's line includes unexpected items such as white ceramic serving ware, market bags and iPhone covers.

A display of branded and private-label items at Fromagination.

"What I try to do is partner with people – with experts or industry leaders – and collaborate on creating something unique," explains owner Ken Monteleone. "To try to slap our name on a jar of something you could get anywhere doesn't bring any value.

"The challenge for us is how to get an accessory to cheese and have it be exclusive to Fromagination."

While products are marketed under the Fromagination brand, the producer's name is also promoted. "We're not trying to hide who produces it," notes Monteleone.

Working with suppliers to create exclusives "has been a slow process," he adds. "Every year we introduce two or three new products. It makes us unique and makes us stand out from [the competition].

One of its private-label products – the Quince and Apple cranberry relish – has become a best-seller for both Fromagination and Quince and Apple. The retailer uses the condiment on its popular turkey sandwich.

Vendor Partners
The traditional vendor partner is a manufacturer, such as Tualatin, Ore.-based Barhyte Specialty Foods Inc., which produces sauces, mustards, salad dressings, marinades and salts, all of which can be purchased through its private-label program.

"We work with people to meet minimums in many ways," says CEO Chris Barhyte, who explains that an initial minimum order is 160 units of a product. Lead time required from ordering to delivery is four to six weeks, depending on the complexity of the order.

One if the most significant challenges facing retailers is minimums.

It's easier to fulfill a private-label order using off-the-shelf product, but, he says, "We can also create recipes. Full production runs are beyond the scope of small retailers – lavender mustard, for example, would be 50 cases. But if a customer wanted lavender mustard, we could hold back some of a batch of plain mustard and add lavender at the end. We could do 10 cases with end-of-batch ingredients. Custom beer mustard would require tapping a keg. Of course, we'd have to use all the beer or toss it," and that would figure into the cost.

Barhyte Specialty Foods also offers help designing the labels themselves. It prints standard and digital labels for retailers that already have their own label designs. Its Name Drop Program allows retailers to drop their name or logo into an already designed template. For retailers just getting into a private-label program, this is another money-saving area.

Ritrovo Italian Regional Foods in Seattle represents a different approach to the private-label vendor partnership. Co-owner Ilyse Rathet says, "We're importers whose business is built on close relationships with our suppliers.

"We believe private label is not difficult, because we put the leverage in our hands. The usual problem with private label is quantity," she continues. "We have two olive oils and balsamic vinegars that we inventory, so they're always available. They're popular, reasonably priced and profitable.

"We have sofi-award-winning imported pasta sauces that can be private labeled with a minimum of only 600 to 800 jars," Rathet explains. "That's an investment of only $2,500. We help design the label. Once the label is designed and approved, the retailer pays 50 percent upfront on a credit card. The balance is paid COD.

"Ritrovo acts as the liaison – the sauce is made in Italy. We bring it in. We take care of everything that needs to be done to import it.

"We found a balsamic and flavored balsamic vinegar producer who wants to do private-label business," she adds. "The minimum order is 360 units. This manufacturer wants to send product with FDA-approved labels, and Ritrovo will add the retailer's private labels. The vinegar is available in several sizes, including a 1.7-ounce mini bottle that's perfect for gift baskets."

Turnaround times are short, Rathet explains, because "Ritrovo has built the relationships and identified the products. Times in Europe are tough, and we make it easy to bring in European product."

She notes that many of the products Ritrovo imports come from companies small retailers would probably be unable to find on their own. And Ritrovo handles all of the governmental rules and regulations that apply to food importation. Not having to navigate that maze is in itself a huge time and money savings.

Whether buying American or importing, providing proprietary recipes or taking advantage of off-the-shelf merchandise, specialty retailers now have many options to cash in on their upscale image without downscaling their bottom line.