Store Brands Stall
Correction: The Nielsen Company has alerted us to errors in this story and discussion based on a piece on the Brandweek website which was originally in error. According to Nielsen, store brands in fact continue to see growth, albeit at a slightly slower pace, rather than losing share. Please be advised that the following article and comments are left uncorrected. The revised Brandweek article can be found here:
Private Label Growth Slows – Brandweek
It’s only a four-week sample, but according to numbers from The Nielsen
Company, sales of private label goods in food, drug and mass lost share year-over-year
for the period ending April 18.
Private label growth has been the focus of much discussion in the industry
and there has even been talk that some national brands are looking at introducing
value lines or lowering the cost of existing items to cut into the price
advantage held by retailer brands.
Of course, the relative success of private label depends on the category
and support of the retailer behind it. A senior purchasing executive at a
top regional grocery chain, who requested anonymity, told RetailWire, “Our
support of private label in the past year is like night and day. We’re investing
in it because it gives us a point of difference while allowing us to sell
items at a competitive price point going up against all the 800-pound gorillas
we have to deal with. That said, there are some categories where consumers
are going to buy the store brand and others where they’re not going to touch
it.”
Matt Arnold, a food analyst at Edward Jones, said it was too early for anyone
to be writing off private label. In fact, Mr. Arnold, who covers Walmart
and Costco, said store brand sales at many chains was robust.
“A few months ago, there was so much uncertainty in terms of how bad
the economic picture could get and at one point, there was a lot of fear
that the bottom could fall out,” he told Brandweek. “It’s
gotten a lot better in terms of people trading down at all costs.”
Discussion Questions: Do you see conditions being right for national
brands to reclaim some lost share from private label? Will store brands
continue to become a bigger force in retailing even as the economy improves?
How do you explain the lack of success of private label in some categories
while it continues to grow in others?
Share in private label will continue to move up. There is still a lot of room relative to the European market achievements as well as it does give retailers a weapon against brands and a point of differentiation. The issue will be if retailers take the risk and really carve out a niche of unique and value added items. A great benchmark would be Trader Joe’s, where the item profile is more important than cost. Making another brand or size of French Green Beans is not going to be the winning strategy.
I have worked with national brands and also private label too for so many years that the upwards and downwards trends are almost too predictable. So much to say, but just a few historical things:
When the economy first turns south private label and value brands alike will often see a rise of up to 20% new consumers.
Private label will retain less than one third of its new consumers once the economy stabilizes or turns back north. For example, just a couple of reasons:
Not all private label and value brands offer the same quality of the national brands. Once the national brands become affordable, many consumers will upgrade once again.
The above effect can hurt private label and value brands across the boards, and across all categories; because the consumer loses trust. This is unfortunate for the private label and value brands that offer national brand equivalency or better.
Once the economy improves national brands regain their advertising strength which absolutely impacts turns. However, about one third of the new users will remain private label consumers in categories where brand loyalty is not so much a factor: for example commodities and generic types of OTC drugs.
The premium private label sector–retail store brands such as Trader Joe’s and Whole Foods–are not likely to decline after the recession. In fact, a good economy is better for that type of private label as much as a good economy is favorable for traditional national brands.
Maybe the question is why did store brands grow in the first place? Here in Atlanta, Kroger was very aggressive in advertising (TV and print) and promoting its own brands. Likewise, Publix had a separate circular just for its own products. If the ad/promo push was the cause of the growth, or a big factor in the growth of private label, then the downturn in the economy may not have been the main driver and a turnaround would likewise not be a major deterrent (or a continuing benefit).
Some categories work because the product quality of private labels is sufficiently similar to the quality of branded products. In other categories, private label is clearly a cheap knock-off. That may account for category differences. Interestingly, we often point to Europe as the exemplar of the potential of private label–generally speaking, their own labels are of higher quality than are ours.
Private label has gotten a lot of attention regarding its ability to make inroads against national brands. Now this article positions the contrary thought of private label losing share and the possibility of national brands competing more effectively against established private label brands. Who is David? Who is Goliath?
If we think of the retail environment as this huge marketplace with categories of products in which national brands and private label compete we can visualize the opportunities for each.
1. Consider the category and its shoppers. What are the motivating factors for purchase? How do the various brands and private label brands position themselves in this category? Is there a gap for either one to leverage?
2. Think about the equity of the national brand or private label. What do they stand for that is proprietary to their brand? How does this resonate with shoppers? How can this be better communicated to the consumer?
3. Do shifts in the economy and buying behavior create new opportunities for brands in this category? If the answer to this question is “no,” go back to step 1.
The initial Nielsen data could be indicating lack of repeat purchase for many store brands.
Part of the recent success of store brands was a wave of trial and household penetration, driven of course by the recession. But now that consumers have had a chance to try new store brands, they may not want a repeat purchase, especially if the product didn’t perform like their regular brand. Better to buy national brands at a discount or a Dollar Store than an “unknown” store brand.
National brands can certainly always have growth potential vs. private label products, as they both need each other from a positioning standpoint. Brands that listen carefully to shoppers, understand, and then leverage their relevant core value proposition to consumers will stay strong. This could be emotional or functional or both. Consumers will still connect with brands. What brands should not do if they want to win is to stay on the discounting path. Lower the price if it makes sense. Spend on research to find out what your “value” really is to both retailer and shoppers. Good reading in AdAge yesterday by Al Ries (one of my faves) on this topic.
On the other hand, I also agree private label will continue to grow. In many cases, consumers are doing a lot of diligent testing of different products as they seek to simplify life and spending as well. The test and learn behavior is well underway. Whatever the driver, shoppers are experimenting and will continue to do so. Quality remains a measuring stick, but a subjective one that marketers must work to understand by shopper segment and by category.
The pendulum will continue to swing. Shopper centric thinking will help everyone stay focused.
Could be just the impact of Easter. People probably spend a little more “up-market” for the holiday. It was on March 23 in 2008 and April 12, 2009–outside the 4 weeks last year, inside this year. It’s a big food holiday.
First, the sample too small and may be affected by holiday and weather. Private Label share trend is up with or without the recession. The recent growth rate will slow down, but is unlikely to decline at the rate seen in past recessions. National brands see a permanent share loss in some categories. Their options are to lower their price–which reduces the trade spending, create value brands, or introduce new products.
In the very short term, it could be a sign of consumer sentiment beginning to swing back just a bit in the direction of previous spending habits, which would be another indicator of a general turnaround later this year. Over the longer term, however, the larger forces which have been at work in building PL share are likely to continue.
I think a one period view of own brand sales either reflects the change in Easter Holiday timing versus 2008 and/or an increased investment in trade promotions and coupons by National Brands to secure volume in the first month of the second quarter.
I also think it is too early to predict that the trends for Private Label are going to soften. If we consider the massive shift in auto-related employment and retiree benefits that are occurring or will happen later this year and into next year, we might actually see a second wave of growth for these brands…especially in the Midwest.
Private Label had some big upward movement last year as the economy slipped. That said, I would not attribute all of that growth to the economy slip. Retailers have done some wonderful work on Private Label brands over the last few years. Take a look at Stop & Shop’s Simply Enjoy corporate brand. Not only are the prices competitive, but the brand image of Simply Enjoy is competing with premium brands and doing very well. The threat of Private Label taking share from CPG national brands is not even across categories. Although the quality has continued to improve and I would argue better in some cases, consumers still favor National CPG brands in certain categories. In the end there is room for both Private Label and National brands. The question I ask is how can they work together to help achieve each of their goals?
It looks like Easter slammed private label on its keester.
That’s a temporary shot in the arm for national brands.
But unless NB become even more innovative than the Trader Joe’s of today and similar retailers that could arise tomorrow–and come up with really new products that stimulate consumers’ imagination–one could expect that PL won’t make a whispering disappearance from the retail earth or become a continuing victim in the ubiquitous SOM game.
A better analysis of the trends would be to be able to read the trends of quality private label versus price or commoditized private label. The risks that branded goods face are not from private label in general, but from the retailers that upgrade their private label to equal or surpass the branded quality. While there is always a certain comfort and cache to brand purchases, in the long run shoppers aren’t stupid and will gravitate to the best product for their needs at the most reasonable price.
Shame on the retailer that doesn’t take this opportunity to upgrade their private label products! In economic downturns there is always a growth in PL trial. The retailer’s objective should be to surprise those customers who are trying PL for the first time because of the current economic conditions. If a shopper finds that a growing share of their own market basket is coming from a quality PL of a particular retailer, the retailer has a huge win.
I am reminded that an entire business can be built on quality private label, as I sit in a Starbucks, drinking their store brand coffee.
I see private label hitting a saturation point within larger retailers (the ones that drive the numbers) in the “usual” categories (apparel, food, home). Those retailers are focusing more on refreshing the private brands that they’ve already built equity with (ala Walmart’s Great Value and Target Home) vs. creating new ones. Major retailers are also moving toward licensing brands vs. owning them in some cases (Walmart and Op) or going the proprietary route (the exponential growth in J.C. Penney’s proprietary brand portfolio in home and apparel, for example).
We are watching Best Buy’s planned private label expansion in CE; however, unless Walmart follows suit (which we don’t anticipate in the short to mid term), that probably won’t move the overall private label needle significantly.
This question reflects the current price value equilibrium reset that is under way. Marketshare is divided by quality and price. The quality equilibrium has been upset and the private label products are now on par. If the “brands” continue to cut margins and price they will hold marketshare. If not, well you know the rest. Growth and margins for both will grow in the grocerant niche for ready-to-eat and ready-to-heat foods.
The effects of the Easter Holiday are being felt in this most recent Nielsen data release. Even though many people are still feeling the pinch of economic chaos and uncertainty, they will spend for branded merchandise to ensure they present themselves well to family and friends when entertaining. Also, the 4 week period ended 5/16; Mothers Day was 5/10.
If so many are still avoiding restaurants, etc, branded sales would have been up in the Nielsen data because of the “male shopper” effect. Let’s face it guys, we can’t shop as smart as our wives; at least I can’t as she reminds me every time I return from the store. :o))
I also expect the next Nielsen data release to show similar results due to two major events. Graduations and Memorial Day Weekend.
The recent release of unemployment data reported in the media reflected a significant drop in the unemployment filings. However, the data are skewed with the addition of an index normally not included in these data. Unfortunately I have forgotten the name of it, but it includes the lower strata of job growth from foodservice, retail and other service businesses. My opinion is this is not a reliable indicator of Quality Job Growth.
This indicates the Private Label plateau is still poised for significant growth.
Private Label flourished over last 12 months as a reaction to food inflation, the cost of everyday items increasing significantly. As brands increased prices to cover costs, Private Label was worth more than a second look, further fueled by shrinking shopper incomes. Now, the next level of quality enhancement is underway to provide more shopper value.
Shoppers are more careful about how and where they spend their money. They are not looking for the cheapest item, but the best value for their money. Many larger retailers are creating better PL products–Best Buy bringing out their own value tier products; Staples increasing durability of back-to-school items, Safeway selling their O brand organics to other retailers.
Meanwhile, Brands are working to provide more value in their products, better usage/less waste in food and household items, more convenience in preparation at the at home family meals are little nicer–but way better value than restaurantd, etc.
There will be growth in Private Label as the economy strengthens against lessons learned by those retailers who have invested in product/package development, meeting consumer needs. Brands have learned as well and will reposition in selected categories, supported by innovation that leads to new usage and better value.
It’s hard to judge on a snapshot, the information is too limited. And the factors can be as simple as private label core consumers reducing their expenditures to consumers trusting known brands and not willing to risk their purchase on private label products. The latter may explain why success of private label changes according to the category.
I believe the future success of private label must include a branding factor. Consumers want consistency and the consumer will perceive consistency if the brand is promoted. Another option would be for retailers to gain exclusivity with secondary brands, or the value brands about to be launched by top brands.
Well of course the Nielsen Co. data covers sales within the 300 or so food and non-food grocery categories that it tracks, so that’s the first dotted line we must draw around these findings.
If store brand electronics sales upticked at Best Buy during the 24-week period studied, for example, that would not be reflected in the report.
The snapshot looked at data from “six four-week periods,” so I doubt the Easter holiday was a large factor.
Within the grocery product sector, I’d be interested to see some breakdown of the trend by major merchandise department and channel of trade. Is it broad-based or are certain categories leading or lagging?
More likely we are witnessing a leveling off of PL growth in grocery, following a surge induced by the price volatility of the prior two years. Everybody take a breather. PL growth will continue over the long haul, as it has for the past two decades in this country.
Writing off brands that have been around 10 – 15 years is not such a good idea. Consumers have grown up with these brands, there are many consumers out their that are loyal to a brand…unlike some retailers.
Lies, damn lies and statistics. This is a short term snapshot for which we do not have a full picture. Did store brand sales fall in reference to the same national brands in the same store? How were the national promotions in these stores during the test period vs. a year ago? Are we considering the same number of SKUs with the same number of facings year over year? What about each store’s business for both the category and the store? Did these revenues rise, fall or stay the same.
There are too many questions, over a very short timeframe for which there is no clarification on the answers. Store brands are doing well, and will continue to do well since they offer the same or better value as the national brand at a fraction of the price.
Key points that have been mentioned for the most part in the comments:
1. This is too short a window to make any accurate conclusions
2. P/L is not always a trade down in quality by any means. There are plenty of top quality P/L items that rival national brands.
3. P/L will continue to grow, perhaps not to the extent as in some European nations, however it will take share. The margins are too good.