US study finds private label growth misleading
National brands, seemingly under siege by private labels, may have less to fear than previously thought.
New research from The Nielsen Company indicates that private label growth is driven by rising commodity and food prices and is not coming as a result of consumers abandoning national brands.
Over the last year, private label sales of CPG (consumer packaged goods) products have grown nearly nine percent to hold a 17.5 per cent share of supermarket dollar sales. Nielsen’s research establishes, however, that while dollar sales of private label products are up, unit sales are down slightly, implying that higher unit pricing is the main driver of growth.
“When private label dollar share started to spike, it appeared that shoppers were shifting to store brands in order to save money,” said Tom Pirovano, director of Industry Insights, The Nielsen Company. “That’s always been the conventional wisdom during economic downturns. Digging beyond the numbers, however, it’s clear that private label unit share is essentially flat. Higher prices in commodity categories like eggs, milk and cheese are driving private label dollars, not consumers deserting traditional brands.”
The top-selling private label items tend to be products with limited profit margins that are most impacted by an increase in shipping or raw materials, according to the report. In the food categories, this dictates that egg, milk and cheese products are typically the top private label items.
Another interesting observation of The Nielsen Company was the discrepancy in private label sales across the US. “Market consolidation appears to be an important indicator for private label share,” Mr Pirovano advised. “For example, San Antonio and other top markets for private label are dominated by just a few major retailers. New York and other markets with lower private label share, however, have several smaller grocery chains with less opportunity to establish shopper loyalty for retailers or their brands.”
While rising prices are responsible, to a large degree, for private label’s recent growth, the fact remains that in the long-run private label products are gaining share of wallet and share of mind with consumers. The Nielsen Company suggests that this presents an opportunity for CPG manufacturers and retailers, particularly in the organic and natural food categories.
Private label or store brands were originally offered as a less expensive option to national brands. Over the years, however, there has been a shift in the perception or role of private label. A number of retailers are developing their private label products as an exclusive offering that elevates the status of the store — and its products — with consumers.
“Private label products are in the pantry of virtually every U.S. home and not limited to low and middle income households anymore,” said Pirovano. “As prices continue to rise, private label products can be leveraged by retailers to entice consumers into the store and increase sales. Knowing what your consumers want is essential for developing your private label strategy. Do your customers want to save money with in-store brands? Are your customers willing to buy higher-end and more expensive private label products? In a challenging economy, private label products can serve as ‘destination’ products that truly differentiate your store from competitors.”
Pirovano adds that manufacturers need to understand that private label is competing on factors other than simply offering a lower price alternative. “In today’s marketplace, it’s more important than ever to differentiate national brands.”
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