FRBuyer: PL Price Gaps Too Wide
Through a special arrangement, presented here for discussion is a summary of a current article from Frozen & Refrigerated Buyer magazine.
Price gaps between private labels and national brands in the food category should naturally be determined at the item level, not by category or department. But it’s clear that in many segments, the gaps are still too wide.
"Particularly for those retailers more focused on premium private label, we think there are opportunities to narrow those gaps," said Todd Hale, Nielsen’s VP of consumer insights. He added that just a one-cent decrease in the price gap between store and national brands would result in an additional $437 million in annual sales.
Not only are retailers leaving money on the table, but in categories like ice cream where the gaps can be as wide as 40 percent, too-low prices make consumers question the store brand’s quality, said Albert Greenwood, director of frozen foods at Daymon Worldwide. Can a $2.49 gallon of private label ice cream really be as good as Breyers at $4.99? Of course it can, he answered, but consumers won’t believe it unless the prices are more comparable.
Part of the problem is that retailers that don’t have an economy tier are using their national brand equivalent store brands to fill two conflicting roles: reasonable alternative to the leading national brand and opening price point option for consumers looking for the best value, according to Jon Hauptman, a partner at Willard Bishop.
"When retailers add a robust assortment of economy private labels, they can recalibrate their national brand equivalent items slightly higher than before, which reduces unnecessary price gaps," he said. "Offering an economy tier also dramatically enhances a store’s price/value image," he added. As retailers communicate the low tier’s availability, "Shoppers will recognize that they don’t have to go to the dollar store, limited assortment store or supercenter to save," Mr. Hauptman said.
David Warrick, MMI’s director of analytics and insights, agrees that opening price point products in key categories represent a significant opportunity for private label. In fact, he reported, MMI is currently working with Family Dollar to identify private label opportunities in dairy and frozen. Traditional supermarkets that hope to compete will need to offer similar items at an equally low price.
Are the price differences between private label and national brands still too extreme? Has the focus on NBE and upscale PL hurt the economy tier and taken retailers’ eyes off the ball when it comes to pricing strategies?