Target benefits from popularity of store brands

Target is one of the retailers most aggressively pushing its own brands, as more consumers try to stretch their dollars buying lower-cost store brands. Store brands are products that bear the name of the retailer, not the manufacturer.

They now account for about 17.4 percent of grocery, cosmetic and other general merchandise purchases -- from potato chips and milk to toilet paper and aspirin. That compares to 16.3 percent of sales two years ago.

According to Nielsen, a consumer research firm, store brand sales total about $90 billion a year.

At the Target store in downtown Minneapolis, it's not hard to find shopping carts or baskets filled with Target-brand groceries.

"I will buy the Target brand and not have any qualms about the product," said Emma Shankland, a penny-pinching University of Minnesota junior, who usually buys Target brands. "It is a bit cheaper, and it's still really good quality."

Target said it aims to have its store-brand products at least match name brands in quality, and beat them on price. Target's Archer Farms products are priced 10 percent to 30 percent lower than name brands.

Those products sell well, according to Annette Miller, who oversees Target's grocery business. She says 20 percent of Target's sales volume comes from their own branded products.

Miller said both the number and sales of Target's store-brand food products are on the rise.

"We've grown our own brand foods faster than our total food growth over the past five years, as we've continued to expand our product offerings into new product categories that we hadn't developed before," Miller said.

Target comes up with its store-brand foods in test kitchens at its Minneapolis corporate headquarters. Target employees prepare, cook and taste test what goes on Target's grocery shelves.

Target focuses on products consumers are more inclined to try, such as snacks, coffee, dairy and staples like sugar. With certain foods, Miller said Target tries to come up with flavors consumers won't find anywhere else.

"One of the best-selling Archer Farms' chips is a blue corn chip with flax seed," Miller said. "One of our best-selling Archer Farms pizzas is a goat cheese, potato and spinach pizza."

If consumers try store brands, chances are they'll probably like them."

The overall quality and value of store brands got a ringing endorsement recently from Consumer Reports and its sensory experts. Senior editor Tod Marks said testers compared a range of store-brand foods against their name-brand counterparts.

"In many instances, store brands are at least as good as their national brand counterparts," said Marks.

Plus, Marks said store brands also can save shoppers 30 percent or more on their grocery bills.

"If consumers try store brands, chances are they'll probably like them," he said.

But if consumers like them, how do store brands affect big band-name food makers like General Mills? It's hard to know, according to Morningstar food analyst Erin Swanson, who says there's too much competition in the food business to tell.

In Minnesota, Hormel sells under its own brand, but also seeks additional sales by selling meat products to stores that put their own names on the packages.

General Mills doesn't do that. The company doesn't want a lower-cost, no-name version of Cheerios eating into sales of the product with the big "G" on the box.

General Mills said it holds its own against store brands. The store brands it competes with command an average of just 15 percent of sales, which is less than the industry average.

For grocers, store-brand products are much more profitable than name brands. Todd Hale with the Nielsen research firm said that difference in profit is likely to keep store-brand products growing, both in number and sales.

Hale said retailers' increasing emphasis on store brands dovetails with consumers' needs.

"It's gaining momentum among a lot of consumer groups, driven by the fact that consumers are seeking out more value," Hale said.

But it's not just the poor and middle class who are turning to store brands. Hale said the greatest surge in store-brand purchases has been among more affluent households.

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