Private label growth could be sustained: analysts

Posted by Daniel Palmer on 23rd September 2009

Today, the global economy is showing glimmers of stabilising, energy prices have receded, and food prices are increasing at a much slower rate, but the growth of private brands continues, creating strong opportunities for retailers and serving as a cautionary tale for manufacturers.

According to the latest “IRI Times & Trends Report: Game-Changing Economy Taking Private Label to New Heights,” American private label unit share has grown at a similar rate to own brands in Australia – up 1.2 points to 22.8 per cent in the past 12 months. Despite this success, two questions are emerging as the economy continues to improve: will shoppers continue to purchase private brands in ever larger quantities, and how will name-brand manufacturers respond?

“The popularity of private brands will continue as a result of several factors,” IRI Consulting and Innovation President Thom Blischok contends. “These products offer a very strong value proposition based on quality as well as price. In addition, shoppers will continue their frugal shopping patterns long after the recession ends. And, retailers’ increasingly sophisticated private brand strategies will attract a larger and more diverse shopper base.”

Many private label brands in America are now viewed as similar to brand named CPG products. In many categories, private brands are able to compete on quality as well as price, and retailers continue to increase the breadth and depth of their store brand offerings. Kroger, for example, is growing its brands across three tiers: ‘private’ brands (premium tier), ‘banner’ brands (mid-tier) and ‘value’ brands (value tier) – similar to the Coles approach in Australia.

Despite remarkable strides made during the past several years, private label sales are concentrated in the hands of a relatively small number of consumers. The top 50 private label categories in the US, for example, represent 17 per cent of CPG categories and account for 69 per cent of store brand sales. As a point of comparison, the top 50 national brands represent less than half of total dollar sales. Even heavy private brand buyers allocate just 22 per cent of their CPG budget to store brands.

As consumers continue to look at affordability through a new lens, private label penetration in categories such as toilet tissue, ice cream and butter are seeing substantial share increases. However, private label is losing share in 26 per cent of the top 100 CPG categories, with national brands in America entrenched in categories, such as paper towels, weight control and cat food. And, national brands are gaining ground in key categories, including dog food, sugar and frozen plain vegetables.

The IRI report recommends the following strategic action be considered regarding private label:

* Manufacturers should increase frequency of feature ad and display-based merchandising across key categories/brands with a heavy focus on affordability and unique product attributes.
* Retailers must develop marketing, pricing and promotion strategies to ensure maximum relevance and impact among fiscally weary consumers.
* Manufacturers should evaluate partnership opportunities with key retailer partners to offer consumers solutions-based healthcare and meal solutions.
* Retailers should consider multi-tiered product development efforts to drive appeal across a broad segment of the stores’ key consumer segments.

Learning from the past?

In past recessions private label has also made big strides forward in terms of market share only to see much of the gains given back in the first couple of years of recovery. The difference this time is that private label was generally on the rise prior to the global financial crisis as retailers begun to improve their offering beyond just the basic home brand commodity products.