Private-label produce is gaining in popularity among U.S. retailers, and there are good reasons for the trend to continue.

Private-label fuels produce consumption

Private-label prepared fruit has the leading share of category sales for the year ending Sept. 25, according the United Fresh Foundation Fresh Facts.

Private-label produce accounted for 10.4% of sales in the 52-week period ending Sept. 25, up from 10% a year ago and substantially higher than the 6.8% share in 2005, according to the United Fresh Foundation’s Fresh Facts third quarter 2010 report. The report found the category totaled $2.8 billion, up 13% compared with a year ago. The average number of SKUs of private-label vegetables was 37, up 23% compared with last year.

Private-label produce definitely has room from growth at retail, said Jon Holder, senior manager of produce and floral for Raley’s Supermarkets, Sacramento, Calif.

“It is a focus of ours right now,” Holder said.

Holder said less than 4% of the produce sold at Raley’s stores is private label. Holder would not disclose the goal for the company’s private-label program.

“We just keep looking for opportunities,” he said.

Holder said bagged produce represents the best opportunity for private-label growth. “It is hard to brand anything private-label that is sold in random weight,”

The benefit of private label is that it gets customers familiar with purchasing something with the chain’s name on it, a package that can only be purchased in at the chain’s stores.

Holder said Raley’s puts out bids for its private-label program annually and those negotiations typically include a promotional calendar to fund ad opportunities for the private-label produce.

Chains like Albertsons, Safeway and Kroger are active in boosting the presence of private-label food and produce at their retail stores, said Dick Spezzano, president of Monrovia, Calif.-based Spezzano Consulting Services.

One reason that chains like to offer private-label produce is because stock market analysts like to evaluate that element of a retailer’s operation in judging its financial position, he said.

“Anything you can include in the private-label total of store sales looks good to Wall Street,” Spezzano said. “They equate higher percentage of private-label sales with higher profitability and that means good things for their stock price,” he said.

Retail executives appear to be pushing private-label growth in the produce department, said Ed Odron, owner of Odron Produce Marketing & Consulting in Stockton, Calif. Consumers seem to be open to buying private-label produce if they are happy with the store brand in the grocery department, he said.

“I think private-label is going to continue to grow in the produce department.”

For retail produce managers, private-label produce allows business to be put out for bid as often desired, since the change in suppliers is invisible to consumers. That increases leverage with suppliers, Spezzano said.

(Note on correction: This story originally used a rounded down percentage  for U.S. private label retail produce sales in 2010, in a reference found in the second paragraph. Instead of 10%, the correct number is 10.4%.)