Insights into threats and opportunities of private label

Posted by Daniel Palmer on 27th August 2009

A new American study has presented a view of potential strategies for manufacturers and retailers in the wake of higher customer acceptance of private label goods.

The research, “Private Label 2009: Understanding and Mitigating Private Label Threat” from Information Resources, Inc. (IRI), is from a nation where the private label share hovers at a similar level to that in Australia.

“Although nearly 80 per cent of shoppers have positive attitudes toward private label, dollar and unit share are still below 25 per cent,” IRI Innovation & Consulting President Thom Blischok noted. “Retailers still have enormous opportunities, and our research uncovers exactly where they should play and increase the likelihood of their success. We also analysed the private label competitive landscape for branded manufacturers and how they should respond at the category, market and retail banner level.”

Private Label Trends

Private label’s strongest growth performance tends to be within commodity-driven categories without a dominant national brand and with relatively low innovation. Retailers are in command in categories such as butter, natural cheese, processed cheese and facial tissue and are developing in categories like peanut butter, pet supplies and biscuits, according to the research which saw fresh/perishables as the biggest growth area during the first half of this year.

The commodity-driven categories are seen around the world as strong performers for private label, with products like flour, eggs, milk and sugar having high market shares in Australia.

Consumer Perspectives
“Four out of five shoppers are now ‘sold’ on private label quality indicating that product marketing during the current recession is successfully expanding the positive reputation and reach of these products,” IRI Consulting & Innovation Senior Vice President, Sean Seitzinger, said. “However, branded manufacturers still have key advantages in the strong emotional connections between their brands and their loyal customers. For instance, personal care products have successfully differentiated themselves in the minds of shoppers.”

Shoppers across all income levels and age groups agree that variety is an important factor when buying private label, with 65 per cent of shoppers preferring stores that offer a high level of private label variety. This research indicates that retailers need to think about variety in terms of products and packaging within a category, and manufacturers should be thinking about how they expand the expectations that consumers have for choice within a category.

“For retailers to maximize their private label strategies, it’s not as much about the products anymore,” adds Seitzinger. “It’s about developing marketing programs that will drive purchase behaviour, including trial, repeat and long-term loyalty. A successful marketing approach will center on taking these positive consumer attitudes and converting them into new shopper behavior across categories.”

As for branded manufacturers… Understand the brand you own and its meaning to customers. The emotional connection to a brand doesn’t disappear because of economic turbulence, rather a lack of investment in the brand to enhance value for the consumer.