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On the Shelf: Kroger and Safeway, K-Cup Kopycats

Posted by Barry Silverstein on June 14, 2012 03:57 PM

K-Cups are everywhere in the news now that Starbucks is rolling them out from coast to coast. Yet in the grocery aisle, those little "K-Cups" designed for single serving Keurig brewing machines are highlighting the battle between store brands (private labels) with name brand consumer packaged goods for shelf space.

Both Kroger and Safeway, two major U.S. grocery chains, are launching private label "coffee pods" for the Keurig machine. Safeway announced it will bring to market five types of Keurig-compatible filtered coffee pods. The chain already makes three store brand instant products for the machine.

The move by Safeway and Kroger caused shares of Green Mountain, the company that sells K-Cups along with Keurig brewing machines, to plummet. Since September, in fact, its stock has dropped 82 percent, according to Reuters. Two of the patents that cover the K-Cup design will expire in September 2012, which means other companies, not just Green Mountain, could manufacture Keurig-compatible cups.

Copying K-cups is just one example of the broad acceptance of private label or store brands. Stores have ramped up production of private labeled goods; in some grocery chains, it seems as if the store's own brands now dominate its grocery shelves. Typically, a store can price its own branded products significantly lower than national brands — making it all the more attractive to purchase the store brand by comparing its price to the national brand that's sitting right next to it on the shelf.

Increasingly, consumers have demonstrated a willingness to shift their loyalty from brand names to store brands if (no surprise) it results in a reduced grocery bill. Consumer Reports analyzed store brands in 2010 and found they were saving consumers a significant amount of money — more than a thousand dollars a year on their groceries.

New research conducted with U.S. shoppers in April 2012 by Perception Research Services (PRS) indicates 38 percent of shoppers have bought more private label products than they did in 2010, and shoppers report purchasing 54 percent more product categories. A large majority of shoppers (86 percent) say they purchase some private label products on a regular basis.

Store brands are most popular in certain categories, namely, canned vegetables, cereals, cleaning products, frozen vegetables, and paper products. However, the largest gains for private labels products were in new categories: cookies, frozen meals, salty snacks, soft drinks, and vitamins/medicines.

There is very little stigma associated with choosing store brands; over half of shoppers (51 percent) say they feel "smart/savvy" when buying private labels products, and almost none (3 percent) say they feel embarrassed when doing so, according to the PRS study.

"It used to be that buying private label products was a way to save a little money during the grocery trip — with many of these products bought by those in severe economic straits, or just a handful of them bought by many," says Jonathan Asher, Executive VP of PRS. "Now, these products offer both cost savings and product quality across many categories, increasing their penetration and frequency as shoppers feel good about buying them — even if they don't feel the need to do so for economic reasons."

It has even gotten to the point where shoppers may be willing to make a special trip just to purchase some private label products. Specialty retailers such as Trader Joe's and Whole Foods, both with strong store brands that feature good value, high quality, and items not commonly available elsewhere, have made a success out of featuring their own private label products.

Now the burning question is: How can the big consumer brand name products remain competitive when store brands seem to be eating their lunch — and sipping from their coffee K-Cups?

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