Supermarket delis are increasingly becoming crowded venues for co-packed proteins.

More retailers are rolling out or expanding their lines of private-label meats in a quest to further differentiate their offerings from those of competitors, while generating potentially larger profit margins.

Yet, while the payback from store-branded initiatives can be great, the launch of private-label items also makes merchandising more complex.

It is crucial for deli operators, for instance, to determine the optimal mix of proprietary and supplier-branded proteins that must be carried in each location in order to best meet the needs of all shoppers.

While many consumers will be attracted to the typically lowerpriced private-label items, others still have more confidence in the taste and quality of national brands and are reluctant to switch allegiances. As a result, retailers must find the right balance of each without alienating customers.

“A strategic objective for more supermarkets is to increase their private-label revenues and there is tremendous potential to expanding store brands in the packaged deli,” says Jon Hauptman, a partner with Willard Bishop LLC, a Barrington, Ill.-based retail consulting firm.

“But it also is important to maintain a strong assortment of national brands or otherwise competitors with such items will have an advantage.” As a result, Hauptman states that most merchants should cap their percentage of private-label products throughout the store at about 35 percent. The current industry average is approximately 17 percent, he notes.

He predicts that the percentage of store-branded items—which have been steadily increasing in recent years—will expand at an even greater pace as more retailers start emphasizing the category.

Hauptman says merchants are attracted to the prospect of acquiring co-packed proteins at a lower price than they pay for supplier branded products, and generating a higher profit on the items, even with a smaller price tag.

“It is important for all stores to have a strong assortment of private-label products because all shoppers, regardless of income, are looking for good values,” he states.

“The trick is ensuring that private label doesn’t force out the national brands that are needed so an operator can maintain a strong image of having variety.” Yet, retailers also must determine how much effort they are able to devote to a private-label initiative.

While store brands can help delis become more profitable destinations, they also force retailers to take on such added responsibilities as product sourcing, quality control and marketing.

“A challenge is fitting private label into the retailer’s overall promotional strategy so the products get their fair share of attention in the ads and on the shelf,” Hauptman states. “Merchants also must communicate to shoppers what the product stands for and generate trial of the item.” Nevertheless, both national and co-packed items are valuable to delis because each attracts shoppers, notes Jerry Smiley, partner with Strategic Growth PartnersInc., a Roselle, Ill.-based food manufacturing consulting firm.

“Delis still need manufacturers’ brands because there are privatelabel customers who also are brand shoppers and the suppliers’ brands often are first in their minds,” he states. “But it is important for stores not to carry too many supplier brands in order to limit product loss and spoilage.” Indeed, Smiley says stores that carry both supplier and privatelabel proteins must be careful not to have too many SKUs of the same variety.

“A deli can easily have four smoked turkey breasts, including two from top-tier manufacturers, one from a secondtier supplier and a private-label offering,” he states. “That can create a logistical nightmare.” Michael Quint, vice president of sales and marketing for West Liberty Foods LLC, a West Liberty, Iowa-based co-packer of party trays, sliced meats and fully cooked proteins, says retailers should base their mix of private-label and national brands on the sales volume of specific categories.

He notes, for instance, that it often is not appropriate to carry a private-label meat if there is low demand for the fl avor or variety.

“Retailers cannot generate operating efficiencies if they are buying products from co-packers on a small scale,” Quint states. “Such merchants also have the expense of developing preprinted film with graphics and managing the inventory.

Sometimes the volume doesn’t warrant such investments.” Deli operators, he notes, also must determine the image they want to convey and an acceptable price point for the product before deciding to launch a co-packed item.

“The key is for retailers to decide what they want to do in terms of packaging, cost and quality,” Quint adds.