In-house brands are Kroger's edge

SPRINGDALE, Ohio -- Ice cream swooshes out of metal nozzles and swirls into 38,000 "party pails" per day here, one of many ways Kroger is using its substantial manufacturing capability to feed growing demand for low-price store brands.

Kroger is selling 15 percent more in-house products by volume this year, including these four-quart tubs of ice cream, which cost as little as $2.99 at Kroger grocery chains such as Ralphs and Fry's. National-brand ice creams go for at least four times as much, a contrast that bargain-hunters like Briana Carter, 30, of Tipton, Ind., appreciate.

"Unless it is a name brand that they just really like, a lot of people are going to stay with the store brands," Carter said.

Kroger makes almost half of its 14,400 in-house products, while most grocers contract with other companies to make such items. The company -- the nation's largest grocery seller aside from Wal-Mart Stores -- has the biggest self-owned manufacturing operation, with 40 factories, followed bySafeway, which has 32.

Making their own store-brand products gives companies better control over costs and production decisions, a key advantage as consumers' recession-driven frugality eats into sales and grocers cut prices. Less than four weeks after Kroger executives approved producing ice cream in four-quart pails at its Springdale, Ohio, plant, hundreds of thousands had reached stores.

"To the extent that you can control your production and manufacturing and getting it on your shelf faster, that helps," said KristaFaron of market research firm Mintel International.

Industrywide, sales of store-brand grocery items jumped nearly 10 percent last year. At Kroger, 35 percent of the products sold in its nearly 2,500 stores were house brands, up from 31 percent five years ago.

The grocer has 10 Triangle stores, well behind bigger rivals such as Food Lion.

The initial appeal usually lies in a price: A 2-liter bottle of Kroger "Big K" cola was selling recently for 69 cents at a suburban store, compared with $1.79 for Coke.

Kroger officials won't say how much better their profit margins are on house brands than national brands.

"We're growing significantly in what we make," said Calvin Kaufman, president of Kroger manufacturing. "We are adding shifts as well as adding people, and we keep getting more efficient to add to capacity."

Kroger makes products for smaller chains, but Kaufman said that business is shrinking as Kroger uses plant capacity for its own products. It has added store-label soft drinks, cheeses, spaghetti sauce and more in the past year and created about 400 manufacturing jobs, for a total of 7,400.

Kaufman said it's crucial that Kroger brands conjure associations with good quality, not just low price. Otherwise, sales might fall away as the recession ends.

Because of the economy, we're getting a lot more trial [customers]," he said. "We want to keep them coming back."

Latest Comment View all comments

Images