Private-Label Halo Effect

Consumer acceptance of store brands growing, benefiting many channels

Published in CSP Daily News

NEW YORK -- Two new reports both point to the growing in acceptance of private-label products by consumers, and one study suggests there is a halo effect to grocery-store private label that benefits other retail formats with their own brands.

First, a study by the Private Label Manufacturers Association (PLMA) shows that more and more shoppersa record 41% of those surveyednow identify themselves as frequent purchasers of store-brand products.

The news could have important implications for national brand manufacturers and retailers, [image-nocss] as the popularity of private label keeps growing with American consumers. Latest statistics show that store-brand products now account for more than $50 billion in annual sales, and virtually one-in-five items sold in U.S. supermarkets, drug stores and mass merchandisers today is a store brand.

The increase in frequent purchasers of store brands represents a significant gain from five years ago when just 36% of shoppers said they were frequent private-label shoppers and an extraordinary shift from 15 years ago, when only 12% of consumers polled said they brought store-brand products frequently, said Brian Sharoff, PLMA president.

Also, store brands are appealing to more affluent shoppers. Consumers in the middle-income ($30,000-$75,000) and higher-income (over $75,000) brackets are much more likely to buy a larger amount of private label in the coming year than those in the low- income (under $30,000) bracket, according to the data.

Almost seven of 10 shoppers in the study agreed that the private-label products they buy are as good, if not better, than their national brand counterparts, a substantial increase from five years ago when a little more than half of the respondents said they agreed with the statement.

This growing confidence in the quality of store-brand products points to even more growth in the future. Almost two-thirds of respondents said they would buy more private label in the year ahead if their store offered a greater variety of items, and six in 10 said they would do so if their stores introduced new and innovative private-label products. Eight of 10 said that their past satisfaction with supermarkets' or grocery stores private-label products would encourage the purchase of more private label in the year ahead.

The increasing popularity of store brands comes at a time of a profound change in consumer shopping habits. The frequency of regular of store visits is declining and the amount of money spent is being more widely distributed than ever. Only 64% of U.S. consumers said they shop weekly or more often, down sharply from 77% in 2001 and 88% in 1996.

At the same time, Americans are shopping in more kinds of stores, especially nontraditional formats and in fewer conventional supermarkets. The research reveals growing penetration for the rapidly growing value-added, specialty food stores, such as Whole Foods and Trader Joe's, Sharoff said. Mega-retailers, such as Wal-Mart and Costco are also becoming much more important with nearly half of all shoppers saying they shop at supercenters (discount stores with full grocery departments) or warehouse clubs.

The study also indicates that the popularity of store brands in grocery stores is having a halo effect in other store formats. Store brands are poised to spread further beyond supermarkets and specialty food stores into nongrocery outlets such as Home Depot or Staples, or even the Internet. About one-fifth of all consumers reported that they already frequently buy the private-label versions of health and beauty products, home office products, household products and home improvement products regardless of the type of stores in which they are sold.

Other key findings of Star Power: The Growing Influence of Store Brands in the U.S., include:

Almost half of those interviewed said their regular shopping basket now contains one-quarter or more of store brand products. Nearly four in 10 consumers reported that they are now more aware of supermarket private label products than they were a year ago, and almost half indicated that their awareness is greater now than it was five years ago. By some measures of consumer purchasing, U.S. store brands are reaching the same level as in Great Britain, long considered the strongest national market for private label. This suggests that U.S. store brands may eventually reach British store-brand penetration, which now surpasses 40% of retail sales, twice as high as in the United States.

Second, U.S. retailers are placing an ever-increasing amount of emphasis on developing private-label brands to drive sales growth, particularly in the center store. Unfortunately, many private-label strategies are not rooted in a solid understanding of changing consumer attitudes, said Private-Label Report: Understanding Emerging Trends & Key Success Factors in Private Label, a new report from Information Resources Inc. (IRI), Chicago.

Sales of private-label products in the United States are nearly $50 billion per year and command a 16% share in total consumer packaged goods (CPG), but there remains a huge business opportunity for retailers, said president of IRI retail solutions and strategic consulting Thom Blischok.

Retailers are evolving their private-label focus from an item augmentation/differentiation strategy to more of a consumer-centric strategy, so that private label becomes a valued long-term innovation-driven staple in the home. Having only manufacturer-focused insights is no longer enough, he added.

The report's key insights include:

Private label is positioned to grow in both healthy and struggling economies. A high propensity to buy private label among younger households bodes well for future private-label growth. Given that grocers are beginning to scale back center-store square footage, the growing presence of private label will increase the likelihood that second- and third-tier national and regional brands will lose shelf space and SKUs. Branded manufacturers believe that retailers have successfully closed the gap with their private-label brands in terms of product quality and innovation in many key categories. Manufacturers are focusing their resources to determine how to create space between their brands and private label in the minds of consumers.