Kroger churns out brands to meet low-cost demand

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SPRINGDALE, Ohio --- Ice cream swooshes out of metal nozzles and swirls into 38,000 "party pails" per day here, one of many ways Kroger Co. is using its massive manufacturing capability to feed growing demand for low-priced 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 each at Kroger grocery chains like 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," Ms. Carter said.

Kroger makes almost half its roughly 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 Inc. -- has the biggest self-owned manufacturing operation with 40 factories; Safeway Inc. has 32.

Making store-brand products themselves gives companies better control over costs and production decisions, a key advantage as consumers' recession-driven frugality eats into sales. Less than four weeks after Kroger approved producing ice cream in four-quart pails, hundreds of thousands had reached stores.

"Speed to market is a benefit," said Krista Faron, a senior analyst for 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.

STORE BRANDS

HOW KROGER BENEFITS: The nation's largest grocery seller outside Wal-Mart Stores Inc., Kroger Co. has the largest network of in-house factories and now offers 14,400 different products (nearly double the number in 2003 including nonfood items like cleaners). Controlling production costs and timing lets Kroger respond more nimbly to changes in demand and gives it more control over prices.

BY THE NUMBERS:

- Store brands' share of Kroger revenue: 26 percent

- Share of products Kroger sells that are store brands: 35 percent

- Rise in store-brand sales by U.S. grocers from 2007 to 2008: 9.4

Sources: Kroger Co., Private Label Manufacturers Association, The Nielsen Co.


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