US private-label growth is not just about price

Posted by Nicole Eckersley on 8th June 2010

supermarket shoppingRetailer brands have done very well during the recession in the US. But the growth and the concomitant weakening of affiliation between US shoppers and established household brands was an ongoing trend before the financial crisis and will continue after it.

It is one of the unfortunate truths of human society that terrible times will always produce a few winners. Stock-market crashes are good news for insolvency lawyers and a pandemic is probably no bad time to be looking for a job in healthcare.

By the same token, it is clear that the recession has provided a significant fillip for the US private-label sector. However, to see the recent good times for private label solely in terms of the recession would be simplistic and inaccurate.

The growth in private label was already happening prior to the recession and more crucially it seems certain to continue as economic conditions take a turn for the better.

That said, the recession does appear to have come at an extremely fortuitous time for those charged with developing retailer brands. The fact that development was already well underway ensured that the products consumers were seeking were in a sense waiting for them on the shelves. The recession just meant the steady migration to private label was greatly accelerated.

Through its Retail Forward Intelligence System, Kantar Retail tracks the opinions of US family shoppers through a monthly survey of 4,000 consumers. Mary Brett Whitfield, director of Retail Forward, believes private-label growth should not be seen as recessionary cause and effect but acknowledges the downturn has had a significant impact.

“Definitely it was a trend prior to the recession but I think the economic situation exacerbated consumers’ willingness to look at those products and perhaps consumers’ willingness to try private-label brands across a wider range of products,” Whitfield tells just-food.

Interestingly, Kantar’s research suggests a strong willingness among younger ‘Generation Y’, twenty-something consumers to switch to private label, and the general acceptance of retailer brands across all demographics clearly speaks to a significant change in US consumer attitudes.

Whether it is Betty Crocker, Cheerios or Tide soap powder, US consumer brands have enjoyed the most intimate rapport with their target audiences. Brands are arguably more intrinsic to the nation’s culture than elsewhere. One only need look at brand marketing of the 1950s and 1960s to see how closely linked household brands are to the American dream.

Certainly the growing assertion of retailer labels has given brands serious food for thought but the ‘mitigation strategies’ of branded manufacturers hint at the underlying truth that the US love affair with brands has not disappeared, but merely evolved.

As Sean Seitzinger, senior vice president, consulting and innovation at SymphonyIRI Group, points out, the worst mistake a branded manufacturer can make when trying to compete with private label is to view those products as anything other than competing brands.

“We believe private label is here to stay and it is primarily driven by consumer attitudes, behaviours and fundamentally better solutions on the shelf,” Seitzinger says.

“And when we see consumers adopting private label here in North America, it’s not because of price and value it’s because of a perception of quality parity, and it’s a perception around relationship with retailer brand.”

Whitfield agrees: “Manufacturers need to think about retailers as competitors when it comes to brands as much as the distribution channel by which they sell their brands. It’s truly a competitive situation as well. It’s certainly more than price, and in many cases we have seen private brands lead in terms of innovations, in terms of features or functionality or flavours.”

It has been noted that some of the strongest growth in private label has been seen in niche categories such as organic. “Private brands clearly have evolved beyond that basic generic price-point item,” Whitfield adds.

Indeed, manufacturers who try to compete on price are, Seitzinger says, simply taking the battle to a place “where the retailers are going to win every time”. It is therefore vital that manufacturers see this as a “brand versus brand” battle, he says, and look to compete with retailer labels on the same terms as they would any other competitor.

In other words, consumers have not abandoned brands but retailers – and subsequently consumers themselves – have woken up to the fact that retailers own potentially the largest and most powerful consumer brands of all.

And, Seitzinger points out, retailers enjoy an unrivalled closeness with their consumers which makes them even tougher adversaries. To make matters worse, he adds, branded companies have been poor at tracking retailers as competitors.

“When we talk to manufacturers, they’re so busy watching their number one competitor, they don’t know how much they’ve lost to private label.”

He believes retailers were well ahead of brands in planning for the economic downturn, allowing them to capitalise even more effectively on what was always likely to be a positive factor for them.

Arguably, given the strength of the branded culture in the US, for retailers to disturb the established order was always likely to be harder work than in the UK, where own-label market share is around 50%, or other countries where private-label penetration has grown much faster. But it has been happening steadily and now the economic downturn has, in Whitfield’s words, “catapulted” a prevailing trend.

Private-label penetration in US grocery is currently thought to be in the region of 25%, and analysts agree that it will definitely continue to grow. Whitfield believes the market share levels seen in countries such as the UK and Canada are achievable.

Where this leaves established brands is a subject for another occasion, but Kantar’s opinion research does provide one significant ray of hope for bruised brands. Although 20-somethings were seen to be keen adopters of private-label products, they were also shown to be the most likely to revert to brands once economic conditions improve.

However, it is clear private labels will no longer have to rely on being the ambulance-chasers of the food market, waiting for the next economic catastrophe. Rather, a fundamental shift in consumer attitudes has created a favourable market environment for retailer brands which is likely to stand them in good stead in good times and bad.

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