American consumers warming to private label

Posted by Daniel Palmer on 18th November 2008

Once considered a lower-price, lower-quality substitute for name brands, private label products, or home brands, are now viewed in a more positive light by the majority of American consumers, according to a new survey by The Nielsen Company.

Nearly three-quarters (72 per cent) of consumers believe store brands are good alternatives to name brands and 62 per cent of consumers report they consider store brands to be as good as name brands, up three points since 2005. Private label products now account for more than $81 billion in the U.S, up 10.2 per cent over the past year. Private label represents 16 per cent of dollar sales and 21 per cent of unit sales in the US, indicating that branded products still manage to capture the lion’s share of product category sales.

supermarket shopping

In Australia, it is believed that private label sales represent around 20% of packaged grocery sales in supermarkets, although this is set to rise as the major retailers increase their private label offerings and Aldi continues to gain traction. There are a number of sectors clawing back market share, though.

Nielsen’s survey indicates that an improved perception of quality is likely a driving factor for consumers’ positive attitude toward private label products. Sixty-three percent of consumers believe that the private label brand quality is as good as name brands and one-third (33 percent) of consumers tell Nielsen they consider some store brands to be higher quality than name brands.

“While private label products continue to follow the success of consumer packaged goods (CPG) manufacturers’ name brand introductions, more CPG retailers are making private label a priority with messages on quality as strong as messages on value,” said Todd Hale, senior vice president, Consumer & Shopper Insights, The Nielsen Company.

There are still a number of consumers that view store brands less than positively, however. Sixteen per cent of respondents maintain that store brands are not suitable when quality matters and 16 per cent say store brands have “cheap-looking” packaging.

Price and Value Matter
According to Nielsen’s survey, price and value are paramount. Seventy-four per cent of consumers believe it is important to get the best price on a product, two-thirds (67%) of consumers agree that store brands usually provide “extremely good value” for money and 35 per cent of consumers are willing to pay the same or more for store brands if they like them. Just under a quarter (24%) of consumers believe that name brand products are worth the extra price, according to Nielsen.

“In today’s economy, consumers are looking for ways to save money and for many of them, that means taking a new look at private label products,” Mr Hale said. “With more retailers offering satisfaction guarantees on private label purchases and even serving up blind taste testing and trial programs, consumers’ exposure to private label products has never been greater.”

Rising Commodity Prices Continue to Drive Private Label Sales
Earlier analysis by Nielsen shows that an increase in private label dollar sales is driven primarily by rising commodity and food prices, particularly in staple categories that are dominated by private label brands and not in unit sales. However, a recent uptick in private label unit sales suggests that budget-conscious consumers may be starting to shift away from some established brands in search of cheaper prices.

“Private label development varies greatly by department and we see strongest growth in products where private label has historically been strong. Translating private label growth outside of commodity categories requires innovation – – an area where CPG manufacturers, rather than retailers, traditionally excel,” Mr Hale concluded.