PL Buyer: Has Private Label Hit a Plateau?
Through a special arrangement, what follows is an excerpt from a current article from Private Label Buyer, presented here for discussion.
Some recent reports have said private label sales at supermarkets have peaked as national brands have stepped up marketing. Will the pattern continue in 2012 and how will the economy affect PL growth?
Christopher Durham, who operates the mypbrand.com blog, believes manufacturer-owned brands are realizing that increasing promotional and marketing spend appears to be the only way they can attempt to maintain market share. He said, "They will be forced to continue this trend into the coming year in an effort to stop the bleeding."
Craig Espelien, vice president of consumer products at MMI, likewise said private brands will likely decline at "retailers who are focused on creating buckets of profit rather than driving private brand support." Overall, he expects PL sales will be flat to slightly down with the economy continuing to improve. He added, "Some retailers will drive share higher but most will revert to taking funds from branded companies to shore up their bottom line. There will be some retailers who treat their PL brands as "brands" — and they will reap the benefits of this support."
But Dr. Krishnakumor Davey, managing director for Symphony Consulting, sees continued growth in private label regardless of national brands’ marketing thrust.
"Private label has historically been gaining share in select categories and store sections," Dr. Davey said. "We are seeing categories where private label’s share has slowed due to increased branded innovation (e.g., yogurt). However, there are other categories where retailers are making an emphasis to develop their private label in new ways, new benefits and positioning such as seen with HBC. Retailers will continue to drive their private label offerings as a means of supporting their bottom line performance as well as differentiating from their competition. Many retailers have some very aggressive share goals and are restaging their private label business to grow their shares (e.g., Safeway, CVS, Delhaize)."
Paul Osinski, senior vice president, commercial sales, with Salient Management Co., predicted PL would show only moderate gains next year as the economy continues to struggle through the first half of 2012, although he expects more notable gains will be found at best-in-class retailers.
"The better marketers will make further gains in their PL programs by tying together specific consumer information they are gathering through panels, loyalty card data and trends to promote and develop products that meet specific needs of their various consumer segments," Mr. Osinski said.
Discussion Questions
Discussion Questions: Do you see private label growth in the food/drug/mass channels expanding or contracting in 2012? What effect will national brands’ advertising spend and the economy have on PL?
Store Brands have ventured into many new categories over the past few years and these categories still have room for growth due to the previous low penetration (HBC, frozen etc.). Additionally, the recent innovation in categories such as yogurt will drive smart retailers to develop similar items that will continue to help them brand their stores and labels. The success that Kroger has enjoyed by increasing their store brand shares through their loyalty card marketing has not gone unnoticed by other retailers.
Yes the big brands will spend to get sales and share back as the economy improves, however, there are plenty of opportunities for good store brands manufacturers and retailers to grow their labels.
Private label means so many different things today to so many different types of retailers.
1 – Exclusive brands sold at Trader Joe’s and Whole Foods will continue to grow and do well.
2 – Private label programs that are treated like real brands will continue to have slow growth as more consumers understand quality and value.
3 – The traditional private label generics and knockoffs will probably show declines as the economy improves.
I think we have two forces operating. Some of private label’s growth came because of a weak economy, with shoppers looking for budget relief. At the same time, we saw the upgrading of a lot of private label “brands,” whether it was a real upgrade or a marketing-based upgrade. As the economy improves, that force for growth will diminish, but it in no way means growth can’t continue with marketing-driven improvements.
This one is simple. Retailers who treat their private label as “brands” will grow in excess of the brands. Those who treat their private label as a price proposition will be open to the swings of the economy.
There is clearly deterioration with the coming generation in the dedication to the historical CPG branding. The vulnerability is tremendous. Those retailers who offer great PL products will succeed with their programs.
Expanding. I think Europe still remains the measuring point for how far PL can grow as a percent of sales, and in which categories. While there might not be an exact correlation, there seems to be validity to what is attainable in many departments and sub-categories.
The economy certainly favors the proliferation of value shopping and continued experimentation with store brands. If quality is kept high and the customer experience is a positive one, those products will continue to be purchased even if the economy were to improve.
A parallel situation took place in the 70s when consumers began to shop discounters and found real value vs department store pricing. As the economy rebounded, most of these shoppers remained loyal customers of chains such as Kmart and Walmart and rather than hiding the fact that they shopped these stores, began to brag to their neighbors about the great values they were getting.
Finally, the national brand ad spend and support dollars will continue to sustain the leading products by creating customer demand and guaranteeing their place on the shelf. The threat to the power players is recalls, in the face of which they will certainly lose space to store brands and alternative branded products.
As SKU rationalization increases by chains looking to cut inventory dollars and realize real savings, pressure will increase substantially on mid-level and smaller players who do not bring innovation to the shelf or create a community of loyal customers by employing social media.
The battle for grocery store space between private label and mega-brand is THE retail battle of the next decade (that and online vs in-store). It will fluctuate as each responds to the others’ tactics.
Having said that, if the mega-brands finally decide to open their own stores, the battle will be much more interesting and fun than any of us could imagine. But you know, that ‘operations’ piece is pretty daunting. Perhaps mega-brands at retail will be the following decade, after they lose 50% of their selling space at retail.
Private label brands may suffer if national brands step up marketing, but grocers have one distinct advantage which is their in-store marketing. There are many ways to promote private label brands in-store which are less expensive than media buys and direct marketing. Loyalty programs are one communication channel that can be leveraged as well.
A good example is Loblaws in Canada. Through consistent promotion of their private label brands, they have built President’s Choice into a formidable brand that is almost synonymous, better yet — more powerful, than the Loblaws brand itself.
There are lessons to be taken away from our friends in Canada.
Those who know me know that PL is one of my favorite RW topics. I grew up in the 50s and 60s when TV enjoyed its introduction into most of the homes in the U.S., and brand advertisers used the new medium to gain dominance over store brands. A&P’s fortunes, for instance, began their decline at the same time because they built their business on Ann Page and other store brands they manufactured at their Horseheads, NY, mega-facility.
Then, the early 80s recession boosted store brands with the advent of generics. The demand was incredible, to the point where manufacturers ran out of the lower grades of raw products and had to substitute “fancy” and “extra fancy” grades in their place. All of a sudden, shoppers raised on national brands saw that some generics, i.e., “store brands,” were as good. Generics sold like crazy and occupied significant shelf space that was taken from national brands. And they were very profitable. This wasn’t lost on supermarket chains who, as the recession waned along with the demand for generics, saw a way to occupy the resulting shelf space with profitable store brand products.
Brands fought back with increased TV advertising and the silver bullet, coupons.
But as much as they liked coupons, retailers found that the way to grow PL with its attendant profits was simply to muscle national brands off the shelf in favor of their house brands. Like A&P did so long ago. No amount of national brand advertising can sell a product that isn’t on the shelf.
So now, according to Christopher Durham, we’re seeing this ongoing cycle repeat once again: Brands are “increasing promotional and marketing spend” and apparently seeing some positive results. I got a grin from Craig Epselien’s prediction that “most [retailers] will revert to taking funds from branded companies to shore up their bottom line.” Some things never change.
Another thing that never changes is Safeway’s PL myopia. They’ve been at it for quite a while, this store brand thing, and are quite good at it. Their once wholly-owned subsidiary, Glencourt (which was killed off in the mid-90s), represented Safeway’s huge manufacturing capabilities (like A&P’s Horseheads plants). Heck, they even made Armour-Dial’s gold-colored Dial bar soap at one time. Their research facility was state-of-the-art, able to duplicate everything from to Doritos to Heinz Ketchup (I was there, I saw and tasted it). But market pressures forced them to cut way back on manufacturing and leave it to their PL suppliers.
You can’t argue with success. Safeway tests, samples, and expands PL while shouldering brands off the shelf. It works for them. If brands are truly increasing promotional activity, I for one will be very interested in Safeway’s response.