Private Label International - Summer 2010

PL Coffee & Tea: A Two-Tier Market

By Charles Ferro

Fair Trade and organic remains the strong trend in hot drinks.

Danish retailers tend to play one end of the price scale or the other when it comes to private label hot drinks. The Danes are big coffee drinkers, so some chains use PL at the low end using price as the hook. Others offer up-market PL products to fulfill consumer demand for gourmet foods. At both ends, the concepts of “Organic” and “Fair Trade” have become important selling points. The organic trend has been growing steadily for more than a decade, while Fair Trade entered the marketing mix just a few years ago and has grown dramatically.

Private label as a whole has seen growth of around 16% over the past five years, and now accounts for just over one-quarter of total sales. PL is especially strong among products that are frequently purchased, such as paper towels, pet food, juices and coffee. While the increase is encouraging, the proportion is lower than it is in comparable countries such as Germany or the UK.

And it must be noted that around 25 years ago, the Danish coops society, FDB, (now Coop Danmark), and the Irma chain they acquired around that time had a firm hold on Danish retailing. Both had very heavy PL representation in their assortments, with Irma’s as high as 90%. Shoppers loyal to a local supermarket simply chose the “house brand.” The legalization of TV advertising of brands and the single EU market changed all that, along with an influx of new or expanding vendors. In one sense, PL marketing had to start from scratch as a concept.

In the past 25 years, Coop has met keen competition from international and domestic players, most notably Dansk Supermarked with their Bilka, Føtex and Netto outlets. Dansk Supermarked is now the nation’s largest retailer, although statistics from deep-discount Nettos placed abroad are included in the statistics.

Aggressive Coffee Brands

The few coffee brands sold in Denmark are very frequently on sale and advertised in various chains’ weekly flyers or online, and sometimes on TV ads for specific outlets. The price levels match relatively stable pricing on low-end PL coffees in general, but the price of brands fluctuates dramatically. Consumers need to keep their eyes open, though, for coffee tends to be sold in 400- or 500-gram packages, and they need to read the weight as the two sizes are very similar. Sometimes a bargain isn’t what it appears when a package contains 20% less than they think it does.

Dansk Supermarked does most of its PL coffee marketing through its Netto outlets, which have changed in the past 20 years from bring limited-selection deep-discount stores to outlets that carry virtually everything a household needs at bargain prices. Netto sells the PL coffee Amora, available in instant and pre-ground packages of 400 grams. There is also a cacao drink that mixes with water.

“Our basic idea is to offer a quality that is equal to the brands, but at prices that are one-third cheaper. That’s the whole concept,” says Dansk Supermarked coffee-tea purchasing manager Søren Thomsen.

Amora products are generally 30-40% lower than the average price of a brand. Amora also includes an Organic-Fair Trade Colombian coffee, sold at just under 10% more than other Amora coffees. Thomsen says Amora is offered on sale 3-4 times per year in weekly flyers. PL accounts for around 40% of coffee sales at Netto.

While Bilka and Føtex stores have few PLs in the hot drinks section, they do have a PL called Princip! for discerning consumers. The line has half a dozen types of coffee from specific countries. Whole beans are sold in 250-gram packages, while pre-ground comes in 400-gram vacuum packs.

The popularity of instant coffee has been on the rise in the past 10 years. Thomsen estimates that sales of traditional vacuum-packed coffee have dipped by around 2% and instant has filled this gap. De-caf was also once a rarity, but has faced consumer demand in recent years. Thomsen says there are no concrete plans to launch an Amora de-caf, but notes it may happen.

The 220-outlet chain SuperBest has carved broad inroads in the Danish retail market. They sell a PL marked Best Discount, though some packaging is more like a generic. The instant coffee costs half the price of the leading brand. SuperBest also markets a Best Discount pre-ground coffee at around 40% less than brands on the same shelf, and they carry a creamer and coffee filters under the same label. Nearby is a cacao drink on the First Price label, sold at around half the cost of a brand.

Premium Brands

At Irma, PL is the hands-down dominant player in the hot drinks section. The upmarket outlet chain of Coop, Irma outlets are–as a rule–strategically placed in better neighborhoods or close to areas where offices are located. At the same time, Irma still retains a reputation for being the country’s first supermarket and most of all, the outlet for quality goods. Irma coffee makes a good example.

The traditional Irma PL coffee selection includes Java, Blå (Blue) while an organic blend joined the line later along with a blend called After Dinner. All of them come pre-ground or as whole beans for grinding in-store or at home. The prices of Irma coffees are at the same level as (inter)national brands.

As it is with many segments of consumer goods, the public has generated demand for luxury items. Virtually all outlets in Denmark carry special coffees, either single estate products or deluxe blends from a specific source country. Irma offers around 15 varieties of deluxe blends sold as whole beans in 250-gram bags, as opposed to the standard 500-gram (or some 400-g) package for regular coffee products.

One example of a premium Irma coffee is Mocca, sold under the chain’s “Irma ecological balance” label. The product is whole organically-grown Ethiopian beans, and carries the Fairtrade/Max Havelaar logo as well as the European Union seal of approval as an organic product. The bag has a prominent silhouette image of the company’s symbol, the Irma girl, and the label carries a description of the flavor/aroma, a feature that reminds one of a wine label. This coffee, like others, comes from a Swedish supplier via the Coop Norden alliance of Nordic coops. All of the Irma deluxe PL coffees come in a bag that has the Irma girl, and the labels are like stickers with information about the particular product. To support marketing, Irma’s website contains extensive information about Fair Trade and organic growing, along with descriptions of coffees and brewing tips.

What is noteworthy in Denmark, especially in Irma stores, is the size of the coffee-tea sections of supermarkets in proportion to other sections. They are quite large and tend to have a broad selection that demands frequent merchandising activities to keep all the SKUs visible. In a typical coffee aisle in Irma, well over three-quarters of the space is dedicated to PL items, even more than that if we look at just coffee for brewing. While Irma carries some PL instant coffees, the brands have a larger presence in this area, although Irma does have three instants, including an organic product. The PL line also includes a non-coffee-bean “coffee” made from grains as well as a whole-bean de-caf.

Tea Forest

The tea sections of supermarkets tend to have a vast number of products and labels. Prices, packaging sizes and types cover an extremely broad range. The consumer truly has some choices to make when it comes to tea.

Irma’s selection of teas, like their deluxe coffees, also aims at the discerning consumer. The company has a line of luxury teas, Irmas Udvalgte (Select) sold in bags of loose leaves. There is also a line of eight traditional teas under the Irma PL, and more than a dozen other special teas from various regions of the world. Nearly all of the Irma PL teas are sold as loose leaves, but there is a handful of the most common types sold as teabags.

At Dansk Supermarked, only Netto sells the House of Tea PL. The line features four varieties sold as loose leaves and five as packages of teabags. Prices are markedly lower than the brands. All of the products are traditional types of tea and originate from Sri Lanka. “We want a quality that matches the brands so we sell only pure Ceylon teas. One source gives us a consistency we want,” says Thomsen.

Full Circle

Coop Danmark’s Cirkel coffee is an icon and posters of its distinctive package have been in art exhibits. Though the coffee has been around for more than a century, the company trademarked Cirkel in the early 1950s Since then it has become a firmly established brand in Denmark, though it is a PL.

Cirkel carries a lower pricetag than brands and is very visible in stores. It comes as whole beans or pre-ground from various sources. Weekly flyers often offer it at a discount for several packages. A newcomer to the line is a Colombian or Nicarauguan Fair Trade product.

Café Luxury is a PL with around a half dozen varieties of finer coffees sold in 250-gram packages of whole beans.
Änglemark is the pan-Nordic Coops’ organic and eco-friendly PL. The line includes Fair Trade coffee, cacao and tea, and an instant chocolate drink that contains Fair Trade sugar as well as cacao. There are several varieties of Änglemark tea with various seals of approval on the packages.

The flagship Coop PL has traditional and exotic tea selections sold as loose leaves or teabags. The same label also features a cacao drink. Their X-tra PL is priced to compete with deep-discount outlets and has a small selection of teabag products and an instant chocolate drink. These PLs and Änglemark are sold through Coop’s Kvickly, SuperBrugsen, Irma and the Fakta discount chain.

Netto’s Amora includes Organic-Fair Trade Colombian coffee, sold at just under 10% more than other Amora coffees.