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The Honolulu Advertiser
Posted on: Sunday, November 24, 2002

Bargain brands making a name

Advertiser Staff and News Services

You're not likely to find Sofitelle tissues in your supermarket. Or Purity Foods hot cocoa, Lil' Dutch Maid cookies or Pasta Leonardo hamburger dinners.

There are no commercials, billboards or coupons for them. You are more apt to buy Kleenex, Swiss Miss, Nabisco and Hamburger Help-er. Or maybe a store brand. But as the economy limps along and discount stores gain in popularity, shoppers are encountering aisles filled with obscure and inexpensive brands.

The brands represent a diverse subindustry of consumer products whose makers furnish retailers who compete primarily on price. In some cases, this niche is the producer's primary market, with a few forays into supermarkets as a low-priced alternative. Other products are repackaged surplus from a name-brand manufacturer.

Sofitelle, for example, is among brands of facial tissue available at 99 Cents Only stores. It is produced by Phoenix-based Royal Paper, which also makes store-brand, or private-label, products.

Sep Dardashti, vice president of Royal Paper, said that Royal makes economy-to-premium products, including baby wipes, toilet tissue and paper towels. The Arizona company, which employs about 200, approached 99 Cents Only after creating a line of products specifically for dollar stores. The deal helped expand Royal's product base.

"They (dollar stores) want to offer value that other chains can't offer because the brands are priced so high," Dardashti said.

Dollar stores are vital to off-brands because of the need to make a margin from a price as low as $1.

"We search far and wide to get the best possible deals," said Eric Schiffer, president of the 99 Cents Only stores, based in Los Angeles. The chain has 143 stores.

That means checking out food and consumer-product trade shows and discovering smaller manufacturers like Royal Paper or Fehr Foods, a company in Abilene, Texas, that makes Lil' Dutch Maid.

"They look at our stores as a huge opportunity," Schiffer said.

Makers of off-brands see a growth opportunity: Last year, 59 percent of households shopped dollar stores, up from 47 percent in 1998, according to market research company ACNielsen. Annual trips to the dollar stores are increasing, while those to grocery and mass-merchandise retailers have declined slightly.

The proliferation of dollar stores filled with off-brand merchandise has not hit Hawai'i, largely because added ocean freight costs ruin margins. But discount retailers are finding an expanding niche in the Islands.

Marukai Corp., a 35-year kama'aina retailer, four years ago opened a 99-cent store at Ward Centers, and expanded in May with a 20,000-square-foot location in Waipahu. Both stores import a lot of merchandise from Japan.

Company manager Roy Ishihara, who oversees the 99-cent stores, said there isn't much profit involved, but customers appreciate finding quality items for $1. "Because of the economic times, people are looking for bargains," he said.

Beth Tom, founder and president of Kane'ohe-based Price Busters, where item prices range from 5 cents to $24, said she usually buys name-brand merchandise overruns or inventory from retailers and manufacturers going out of business.

In 10 years, Tom has opened nine stores, including one downtown last week and the company's largest, a 22,000-square-foot store at Stadium Marketplace, in July.

Manufacturers catering to dollar stores save because they can avoid the heavy costs of marketing and distribution needed to get into traditional retailers.

Steve Fehr, president of Fehr Foods, started his cookie company 10 years ago and focused on nontraditional retailers to save on those costs.

"We're smaller ... and we can't compete with Nabisco," said Fehr, whose firm employs about 200 people.

Steve Vetter, plant manager for Noodles by Leonardo Inc., in North Dakota, said that the company recently started to focus on sales to dollar stores. The 22-year-old firm had done business with them for five years, but after losing some grocery and club store contracts, it looked for ways to cut costs and still grow sales. The strategy has helped produce double-digit gains, he said.

For consumers, shopping these off-brands can be a treasure hunt.

"So long as you are not overly concerned for brand name, there is value," said Michael Adams, a merchandising analyst in Scottsdale, Ariz., with California-based retail consulting firm RMSA.