Store Brands Continue Rise in the U.S.
At its annual trade show in Chicago this week, the Private Label Manufacturers Association released a survey revealing that store brands are becoming increasingly popular to American consumers. Among the survey’s results were:
- 32 percent of the products in a shopping cart were private label items;
- 41 percent of shoppers consider themselves frequent store brand buyers;
- 70 percent of consumers agreed that private label brands are just as good as national brands;
- Middle and upper class consumers are more likely to be purchasing private labels in the upcoming year than lower-class citizens.
The survey, conducted by Ipsos MORI, also concluded that, “The popularity of grocery store brands has lent a halo effect to non-grocery private label products” and proved that private labels are being accepted in grocery stores. Almost two-thirds of consumers said new brands and a wider variety of store brands would encourage them to buy even more.
Specialty chains and mega-retailers are growing; 45 percent of consumers shop at supercenters and warehouse clubs, as well as supermarkets.
The full report released by PLMA, STAR POWER: The Growing Influence of Store Brands in the U.S., highlighted 10 trends in store brand programs:
- Profound changes are taking place in ways consumers shop.
- The role of mega-retailers and specialty chains is growing.
- Consumer awareness increases the likelihood private label will be purchased.
- Market baskets are filling up with store brands.
- Frequent store brand shoppers account for 41 percent of consumers.
- Perception of store brand quality and performance has reached new levels.
- Popularity of grocery store brands spreads a halo effect to non-grocery private label products.
- Americans in middle and higher income brackets are more likely to increase their purchase of store brands than those in lower range.
- Future store brand growth is linked to retailer initiatives.
- The U.S. is drawing closer to Great Britain on consumer attitudes toward private label.
Discussion Question: What does the near-term future hold for store brands?
While this year’s PLMA show wasn’t quite as vibrant as the last one I went to in 2002, it was still very active, and the level of retailer and wholesaler
interest was very high. The two buyers I spent some time with both said senior management is putting more resources behind their programs, even hiring extra staff for the one
buyer to conduct market research separate from the rest of the merchandising organization. – Ronald
Margulis
Sales for store brands are out there. It’s up to the retailer to provide selection, value and trust in their products. Sampling can introduce consumers to new products. Equally important are clear product labeling, quality, health components, and overall value.
Comments above are superb as we come to expect from this group. Since I can’t add new facts, I’d like to amplify Ben Ball’s insightful comment about retailers as marketers. Discussion of technical issues such as price gaps aside, I see more retailers stepping up as brand marketers in their own right. The Safeway O line (also mentioned above) is a fine example, as is Trader Joe’s approach. Let’s not leave out Sears, especially its Craftsman line, or Target’s designer home decor offerings.
All reveal evidence of conscious positioning and awareness of consumer insights. This may be relatively new territory for retailers, but the handwriting has been on the wall (on the gondola?) for a decade or more. Retailer consolidation has concentrated more resources among the top 10 players. Feels like a tipping point approaching to me.
The growth of private label brands indicates America’s concern over pricing and the perceived value of branding. There is a real value in developing and selling private label product since it is a win/win relationship for consumers, retailers and major national brands. This also allows retailers to brand products and increase their bottom-line operating income, while enjoying the profit gaps between manufacturing and retailing. Best yet, retailers can compete with their suppliers, while enjoying all of the benefits of a retailer.
The future of store brands is very bright indeed, in the short term, but it’s important to remember that the long-term future will depend on what national brands do that impact store brands. If, for example, national brands adopt strategies that do not challenge store brands, e.g., don’t try to narrow the price gap, the store brands will have a lot more upside potential. If, on the other hand, national brands develop a more collaborative approach with retailers, it’s likely that there will be less room for store brand growth since the opportunity will be filled by the collaborating national brand who is, in the process, supporting the retailer.
It’ll be interesting to see which way the business goes.
Building proprietary brands is the epitome of “retailer as marketer.” In the battle for share of consumer franchise, owning outlet franchise + brand franchise wins every time. This trend goes nowhere but up.
Private label is near and dear to my heart, but at the rate things are going, hoopla aside, I don’t see it cracking the 20% mark by 2010. ACNielsen data for the 52 weeks ending Sept. 30 shows private label up 2.8%, vs. a gain of 3.1% for all brands combined. It also shows private label’s dollar share of market down from 15.4% to 15.3%. Now of course that doesn’t include Wal-Mart, which has an excellent, and growing, private label program. But I’d put its private label program at about 15%, too. Yes, all the factors cited would seem to be pushing private label up, and they are in many places. But many pl marketers at retail are still good at shooting themselves in the foot. They don’t understand pricing and promotion strategies, elasticity, and some of the basics of category management when it comes to private label. With all due respect, I’ve talked to enough of them to feel quite strongly that way. I just finished surveying a broad group of frozen and refrigerated food manufacturers about their agreement with this statement: “Private label will gain 3+% in my category over the next three years.” The average response, with 1 being “disagree strongly” and 10 being “agree strongly,” was 5.8. My own guess on private label penetration in 2010? 17.4%.
Private Label will continue its growth rate for at least 5 more years. The US market will likely reach 35% Private Label as retailers learn that this is the best tool to be different. Additionally, as retailers learn to market, they will add the items consumers want but National Brands ignore.
As long as we continue to have excess retail capacity, store brands will continue to be important as a way for retailers to try and make a difference with consumers. Secondly, with Tesco moving into the US, and their attention on store brands, we can’t help but see even more growth in the use and importance of store brands. The key to growing store brands is for retailers to emphasize quality and to be patient in terms of building market share and not try to use price as a way to build market share quickly.
This is not a short term phenomenon. Look at the growth of Trader Joe’s and Aldi. The direction of SuperValu’s Sunflower, SuperTarget and the expansion of Wild Oat’s label into other retailers. Quality and unique products will continue to drive private label at the expense of branded products.
With all the talk about the importance of differentiation and achieving customer loyalty, I don’t understand why private label hasn’t developed more quickly over there. Perhaps the money put in by manufacturers to promoting and publicising their brands? Bearing in mind that these are the same manufacturers making money by using some of their capacity and purchasing power to build store brands, my mystification is not dispelled. It’s an area where value can be exhibited in terms of quality not just low prices and a chance for both manufacturers and retailers to prove their goodwill to consumers. The other thing that puzzles me is the reluctance of lower income families to go for private label. Do they believe there is some stigma attached to it? Possibly there has been but this could be another area where it is possible to improve perceptions and, therefore, sales. The whole area seems an ideal way for everyone to work together for mutual benefit, nay profit, even that of customers.
Bill Bishop brings up two interesting scenarios, and ones that have been discussed at length in the Industry.
Strong national consumer marketed brands’ vocabulary doesn’t include reducing the price gap compared to the average private label brand. These strong national brands and their products are entrenched in the consumers’ minds, the market-place and always are reinforced through their USP with consumer advertising. Movement figures prove this.
Note: With W-M requesting manufacturers to reduce the packaging cost of their brands in distribution, the challenge and possible battle of Brand price integrity vs. private label, begins.
Side bar: Will W-M continue its low to lower retail pricing approach (perhaps, for Wall Street), as the strong national brands hold their marketing position and deal support?
But maybe, for other retailers (and W-M ?), as the channels of distribution continue to be plentiful and blurry for Brand product sales, the competitive advantage still remains crucial. National Brands fill part of this competitive advantage, in unseemly ways, and with the consumers.
Private label brands bring us a different quality level and/or product benefit level. The noted exception, as seen in the marketplace, is Kroger’s Private Selections that is equal, if not better than national brands in quality, product usage, etc. But, pricing is equal to if not higher than the comparable national brand.
As for less consumer supported national or regional brands, flankers can deal with private label price differences.
No new news, but a lot to think about for Brand Management, Corporations with consumer packaged goods and foods business, and retailers that may want to deal with this whole topic differently! Hmmmmmmm
Consider the source – the Private Label Manufacturers Association – what sort of report do we expect them to release? By definition % is growing as the % of business moves away from smaller stores to larger corporate retail entities that are able to take advantage of the economies involved. Consumer behavior has not changed an iota…they respond to what is presented to them and how well it is presented (and priced)…very few have any sort of predisposition to private label.
WOW, the posts on this have been phenomenal! I agree that the PL brands make the retailer the marketer and this is a position that companies understand better and better and are beginning to use to their advantage. It is also true that there are TWO categories here – as pointed out by Mr. Lilien. We see basic pl goods, which are fine and should be steady for the respective company, and then there are premium PLs which is really where the excitement is. Yes, these are “sexy,” however as pointed out by Mr Kouzomis, these can really be utilized by a company for a small boost on return, as well as building beneficial feelings toward the retailer itself.
As mentioned, the private premium brands at Kroger are as good or better than the natl. brands and the SAME can be said for PUBLIX which, early on, saw the benefit of premium house brands and the use of packaging and experimenting with exotic options and offerings in wide varieties of goods.
It is in these premium PL offerings that big return can be obtained. When customers start to go to the store for their premium brand specifically (and I am thinking of Publix premium ice creams, in particular), then the company really has a win. Of course this is almost expected for Whole Foods and Trader Joe’s and the like, however, these are opportunities that need to be advantaged by the traditional companies as well as noted –(and WELL done by) Kroger, SuperTarget, Publix and should be used MORE by their competitors, so as to stay relevant and “needed”.
I find that younger customers also – as mentioned – have already used PLs and are happy with them and try new PL offerings and again – as mentioned – PLAN to continue using them in the future.
Store brands will continue to be a strategic priority for the obvious reasons (higher margins, differentiation, price and quality perception), but they will also benefit from the increasing focus retailers are placing on meeting the needs of their better and more profitable customers.
Through our work prioritizing the weekly ad items for each customer, the results clearly reveal the importance of store brands to a retailer’s better customers. As retailers begin to strategically skew their marketing efforts toward what their top customers want, the focus on their own store brands is sure to increase.
High margins AND giving your best customers what they want? Sounds like emphasizing store brands is a winning approach to me.
One of the most interesting programs I’ve seen is Safeway’s O label for its organic groceries. This is one of the fastest growing retail categories out there, and combined with PL, it’s almost a natural, so to speak. It may mark the next level in PL, as few players in organic and natural have national brand presence, giving retailers an opportunity to become the leading brand.
Try the organic pasta, btw. The linguine is the best dried product I have tried, including some of the expensive imports. I bought up a ton of it when it was on sale for 99 cents. The quality of the whole line appears to be excellent.
The near term future of store brands is on the upswing…and so will their long-term future. Why?
America’s top food retailers have increasingly become good product developers and marketers as well as merchandisers. Visit a Wegmans, a SuperTarget, a Trader Joe’s, a Kroger or a Byerly-Lunds store — and many others too — and you’ll become glaringly aware of the impact and proliferation of quality store brands, most impressive of which are the fresh products being produced in-store in addition to the quality processed items in new upscale packaging.
The tide seems to be turning in the battle between national brands and store brands, but – of course – the jury is still out. Now excuse me, I have to go out and buy a Byerly brand soup for lunch.
There are 2 different private label worlds. “Commodity Private Label” is the classic price-driven copycat volume leader. Examples are giant packages of corn flakes and cheaper versions of over-the-counter drugs. “Creative Private Label” is hard-to-compare unusual formulations, like those found at Whole Foods and Trader Joe’s. The Commodity PL will grow at the rate of inflation. It’s a mature business, since the outlets aren’t growing quickly. Its most recent fast growth came when warehouse stores were still multiplying.
The Creative PL grows at a much faster rate, since it’s driven by new store openings of Whole Foods, Trader Joe’s and other faster-growth retailers. Some conventional supermarkets are also investing in Creative PL, but their bravery isn’t widespread.
In my Food & CPG Marketing Strategies class at Western Michigan University we use a Harvard Case on Store Brands. With very few exceptions my students are big Store Brand users and for the most part they do not plan to change their purchasing habits after graduation. The notion that Store Brands are for the economically challenged is no longer true as these young consumers strongly link the quality and reliability of the Store Brand to the Retailer. Some of them have also ventured into Premium Store Brands and many of them are excited about the expansion of Store Brands into organics. If my students are typical of today’s young adults, there is no doubt in my mind that leading-edge retailers will continue to grow their Corporate Brands and use them to successfully leverage a differentiated position with consumers now and in the future.
You just to point to the granddaddy of private labels, A&P, to see that private labels are indeed thriving.
Though their huge Horseheads, NY facility is but a distant memory, A&P pioneered and nurtured the private brand sector, bringing quality and value to the American consumer.
Today A&P and its family of fine food stores offers a multi-tier full product line of food products starting with America’s Choice, then Master Choice and soon to be introduced, the Food Emporium line of gourmet, exotic, fresh and fine foods.
Even this time of year, Jane Parker makes a traditional return to A&P with her magical fruit cake offerings.
Private labels are fun. They offer the consumer quality and value. As long as merchants such as A&P continue to test new products in their quality controlled kitchens, and provide equal or better quality than national brands, there will always be room for private brands.
Private label will continue to thrive when brands fail to deliver value-added innovation and new news to their positioning and categories. Consumers will continue to trade down when they perceive little difference in the brand/ private label comparison. Those manufacturers that are not committed to differentiation and innovation will continue to see private label make inroads into their categories.
Private brands, private labeling or OEM has been around for a long, long time. Perhaps now it is becoming more important to retailers in all areas as it give the perception of a difference in products. Private label is also a manner for a retailer to offer the same product as the “premium labeled” product but at a reduced price. Typically, the private brand is sold less the marketing cost and thus the consumer gets to pay less for it. With the over-saturation of retail locations in today’s marketplace, private label will become more and more necessary to create a difference.