Nielsen discovers private label growth misleading, product shrinkage not necessary

Posted by Daniel Palmer on 22nd August 2008

Decisions by manufacturers to shrink product sizes in order to prevent price hikes have disappointed consumers, who instead seek larger package sizes with lower cost per serving. In more positive news for many manufacturers, though, the recent surge in private label sales in America has, contrary to popular belief, not been driven by national brand abandonment, according to The Nielsen Company.

Private label
Supermarkets across the western world are embracing private labels, with reports that consumers have been drawn to the products in the wake of recent economic turmoil. Private label products can generally be purchased at a cheaper price than many national brands and the prospect of cost saving was considered by many to be enough for consumers to abandon their favourite brands.

Retailers continue taking a bullish outlook to private label, with American supermarket Safeway recently reporting that they will sell two of their private label products to competitors, as retailers endeavour to turn private labels into a strong brand in their own right. US supermarket chain Publix has also sought to join the array of supermarkets cashing in on private label with the decision to go head-to-head with some national brands. Their one-week promotional campaign will enable consumers to compare private label and national brands with a free equivalent private label product given away to each customer who purchases one of four particular brands. Australia’s Coles, meanwhile, yesterday reported private label sales growth of 14% for the 07/08 financial year.

The buoyant outlook for private label may be overstated however, with The Nielsen Company believing that inflation, caused by higher food commodity prices, has in fact been the spur for sales growth. The evidence for this is highlighted by the fact that, despite sales figures rising over 9 per cent to $77 billion, unit sales of private labels have actually witnessed a slight decline. Consequently, a significant shift in consumer preferences away from national brands is not yet apparent.

Product shrinkage
As commodity prices have driven up the cost of ingredients for manufacturers, many have decided to shield consumers from the pain of higher prices by cutting back on quantity. The Nielsen Company discovered that some 12 ounce bags (about 340 grams) of potato chips have been scaled back to 10 ounces (about 280 grams), with chocolate blocks and cereal box sizes also being downsized.

A recent Nielsen Panel Views study in America established that such strategies do not appease the consumer, with consumers instead preferring a larger package size with a lower price per serving. Such findings provide food for thought for manufacturers as they seek to deal with the issue of food price inflation.