Private Label, Part 2: Managing the Pricing Gap

"Private label offers money-saving opportunities," observes John McIndoe, Senior Vice President of Marketing, SymphonyIRI Group. "Additionally, private label products are opening doors to attributes which have historically been out of the reach of many consumers by bringing them into an affordable price range."

Still, there are a number of other factors affecting shoppers' purchasing decisions, including packaging, brand image and uniqueness. Nonetheless, the economic reality of which Mr. McIndoe speaks is undoubtedly keeping many CPG manufacturers up at night.

In the past year, national brands have been dealing with an average pricing gap of 29 percent vs. their private label counterparts, according to SymphonyIRI's newly released report: Private Label - Brand Positioning in the New World Order.   However, the study notes that across a majority of CPG departments, prices of both private label and national brands are on the rise. What is significant in some categories is the disparity with which those increases are occurring.

On average, private label price per volume increased 5.3 percent during the past year versus a total industry average of 1.9 percent. And in some departments, such as the fresh/perishable department, prices are rising even more sharply, at 11.6 percent and 8.4 percent, respectively.

On average, private label price increases are much sharper versus hikes seen in national brand solutions. For instance, in fresh/perishable, private label currently offers consumers nearly 36 percent savings, on average, over nationally branded alternatives. However, today's price gap is 2.8 points less versus the same period year ago.

The exception to this trend is the beauty and healthcare departments, where the average discount offered by private label is the same or better today than it was a year ago.

Despite the imperative to save money among a great many Americans, the diminishing national brand/private label price gap has likely contributed to the private label share losses seen in some categories in the past year, according to SymphonyIRI. Brand manufacturers may see more opportunities to exploit this trend in the months ahead as prices are expected to continue to rise.

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