Are retailers short-changing national grocery brands?

Discussion
Photo: RetailWire
Jun 11, 2018
Tom Ryan

A study from Acosta finds that shoppers overwhelmingly prefer national brands and that pushes toward private labels might be undermining their effectiveness.

Overall, shoppers agreed that “name brands are better than store brands” in 41 of 53 categories, including pet food, beauty & personal care, carbonated soft drinks, coffee and chocolate.

Name and store brands were found to be “about the same” in 12 out of 53. These were most likely in the perimeter (dairy, produce, fresh meat, bakery, etc.) as well as paper products and bottled water.

For no category did respondents believe that store brands are better than name brands.

Generally, the more personal, innovative and differentiated the category, the more likely a shopper is to choose a national brand over a private label brand.

The top three reasons consumers gave for purchasing national brands while grocery shopping included:

  • “National brand products are higher quality in taste and/or performance.”
  • “I can get better deals on national brands (through sales/coupons).”
  • “I trust national brand products more.”

Cost savings was the primary driver of private label brands, and purchases are often viewed as a compromise, the study found.

An accompanying study of over 100 retailers found:

  • Retailers need to sell 20 percent more to make up for the trade down from a national brand to a lower-priced private brand to keep revenue steady.
  • Fifty-nine percent of private brand items are priced lower than they need to be.
  • Over the past four years, private brands have grown assortment, but their strength per item has been diminishing.

Finally, national brands can help grocers offset the challenges presented from the rapid growth of limited-assortment value chains. The biggest drivers to the value channel were found to be best everyday prices (49 percent), better value for their money (47 percent) and cost savings/help within a budget (45 percent). Private brands came in at 23 percent and better-quality products, 17 percent.

John Clevenger, managing director and SVP at Acosta, said in a statement, “A clear takeaway for retailers is that they should understand the different roles national and private brands play.”

DISCUSSION QUESTIONS: Can private label expansion work against the positioning of national brands and overall category growth in the food channel? What advice would you have for building the optimal mix of national and private brands?

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28 Comments on "Are retailers short-changing national grocery brands?"


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Dr. Stephen Needel
BrainTrust

While private label growth may stunt revenue, it may improve profits. The right mix is what provides the best profits, tempered by customer satisfaction. Both are researchable.

Lyle Bunn (Ph.D. Hon)
Guest

National brands have billions in marketing spending over many years supporting them compared to relatively little for private label brands. Consumers who do take the time to read nutritional or incident labels still have a hard time comparing the value in national and private brands. Some private brands, such as President’s Choice in the Loblaw Group have taken steps to close this credibility gap including more attractive packaging and the creation of unique products such as bottled sauces, ice cream flavors, etc. which has served the development of this private label well.

Neil Saunders
BrainTrust
I don’t agree with this at all. The study is very narrow and is based on what people say rather than what they do. First, our own data (and that of others that I have seen), based on actual consumer behavior suggests that consumers have become more receptive to private label brands over the past five years. They are buying more for a variety of reasons. Second, not all private label is equal. Whole Foods’ 365 label is highly regarded and is more trusted than most national brands across a variety of attributes. Target’s Archer Farms is well respected and, since the rebrand, its Market Pantry brand is seen as very credible. Third, even within retailers there are different levels of private label to cater to the good/better/best spectrum. How does the study account for that? Fourth, national brands don’t defend against value chains because national brands are doing more with outlets like dollar stores, and dollar stores themselves trade heavily off their own brands. If supermarkets want to capture more dollar store customers, they… Read more »
Lyle Bunn (Ph.D. Hon)
Guest

You make a very important point, Neil — that not all private brands are created equal. Some, such as Costco, have earned a strong following while others erode their credibility by blending their branding with the retail outlet. Low cost is only part of the value proposition!

Neil Saunders
BrainTrust

Thanks, Lyle. Costco is a great example of private label done well!

Jeff Sward
BrainTrust

Kirkland forever! Private label done right. Value + superior quality.

Naomi K. Shapiro
BrainTrust

Neil: I also don’t agree with this assessment that national products are higher quality or deserve more sales than private label, although the consumer may, psychologically, think so. Remember that many private brands are “real brands in private label clothing,” coming from the same companies with whom they sit next to on the shelves. These days, many private label products even look, taste and smell like the real products, because it IS the real product, only costs less — many even having info on them that says, “Compare with such and such, i.e. the Charmin, the Palmolive, etc. Also remember that the retailer is paying less for the private label product and, with increased sales of private label product, is making good or greater margin. I advise the consumer to check carefully; they will often find the same product as a private label.

Michael La Kier
BrainTrust

While this study included some very useful information, it was done from a retailer and brand perspective. Shoppers don’t think about private label vs national brands. They are all brands. Many retailers have very valuable brands they created and curate (Trader Joe’s, Kroger, Total Wine, Whole Foods). Now to the strangest finding from the study — lower revenue from private label. The lower revenue from own-brands does not matter to most retailers as they are margin-accretive overall.

Chris Buecker
BrainTrust

Definitely yes, it can. It is important for a retailer to understand that private label needs to have a consistent and clear strategy. The best example in Europe is Aldi. For decades, Aldi has pursued the strategy that their private label products (and most of their assortment is made of private label) have the same quality as the brand leader in the same category. This consistent qualitative approach has led to an exceptionally high trust that Aldi has built with their customers. Customers nowadays know that when they buy a private brand of Aldi, it is usually of high quality. In recent years, Aldi has started to integrated some strong national brands into their assortment as well. So private brands should stand for more than just price.

Art Suriano
BrainTrust
Retailers need to maintain the right balance of private label and national brands. The private label brands were always less expensive for the consumer and more profitable for the retailer. In many cases that may not be true today. If the private label brand has something unique about it that appeals to the customer, it will remain successful. But if it has less quality than the national brand, that can turn the customer off. And with so many buying opportunities today between the number of competitors, buying direct and online, the customer may be able to find the national brand for the same price as the private label brand. There is no doubt there are many more challenges today which makes knowing what the right mix of private label versus national brand labels should be critical, along with pricing, what to discount with coupons, etc. For retailers, I think the solution is to listen to your customers and give them what they want. You may not always make the most amount of profit on the… Read more »
David Weinand
BrainTrust

This is actually a little surprising as private label brands have been improving for years. Costco, Publix and Whole Foods have proven that their brands can compete on the level of national brands in terms of quality and credibility. I would love to see the raw data on this study to see demographics and psychographics.

I don’t see private label growth as hurting the potential of category growth; retailers just have to understand their margins and attachment rate for each category and build their strategy to maximize each.

Jon Polin
BrainTrust

Another dynamic to this conversation is how an increased focus on private labels will continue to erode the traditional retailer-CPG relationship and the accompanying trade dollars that have always gone with that relationship. As retailers continue to compete against the CPGs who have always supported those retailers, and as e-commerce tools become more available and economical for CPGs to sell direct to their consumers, how does the newly fragile retailer-CPG relationship play out?

Peter Charness
BrainTrust

With the trend shifting toward any type of product being available anywhere, a retailer without its own brands finds itself in a competitive environment where they can only compete on price and place. As delivery gets faster this becomes a difficult equation to balance. Owning a brand is the best chance of excelling in the “Retail Renaissance.”

Ron Margulis
BrainTrust

Coming from a national brand sales and marketing agency, this study comes across as more than a little self-serving. Still, it’s revealing in what is not covered. A cursory review of the research shows little attention paid to the perimeter, where most of the action is. Granted, fresh foods haven’t traditionally been the strong suit for national brands (and sales agencies). But that is where the future is for them, so the lack of coverage in the report suggests their efforts aren’t as strong as they hope or private label lines are keeping stride with them.

David Weinand
BrainTrust

Bravo Ron!

Lee Peterson
BrainTrust

What you’re seeing is that it’s not so easy to do private label right. Just ask specialty retail, they’ve been at it for 40 years. You can’t expect to put your detergent right next to Tide’s without having a substantial organization behind that product: you need product development, marketing, R&D, product extension, sales teams, plan-o-grams, constant testing — and that’s just to start! These are not part-time jobs, by the way. And to boot, it takes time! Do we think Tide got to where they are in consumers’ minds overnight?

Besides, I don’t think food retailers have a choice. No matter what they sell in terms of national brands, they’ll get undercut eventually by Amazon. Whether it’s purely on price or by free Prime shipping or superior promotions and product tie-in. SO — stick to it, devote more time and quality people to it, and private label will work. It HAS to.

Dave Bruno
BrainTrust

Differentiated assortments are critical in this era of endless choice. Private labels give retailers the opportunity to define their own products to drive unique assortment. Given the successful track records of private labels from Costco, Whole Foods, Trader Joe’s and many others, I strongly endorse private label as a significant portion of any category lineup.

Andrew Blatherwick
BrainTrust
In the U.K., where own-brands are more developed and widely accepted, there has been a trend to proliferate rather than reduce the number and impact of store brands. In response to the reduced quality to achieve price, many large retailers have introduced premium stores brands, which are at least the equivalent of the national brands in quality. The retailers retain their existing store brands but add in the premium lines which provide choice at the expense of national brands. There is a place for both national brands and retailer brands. It is the responsibility of the brand management to provide the customer with reasons for buying their national brands, not the retailers. The retailer must ensure that their own brands are great quality and value as they carry their brand name and if they disappoint then that will reflect on the retailer in the customer’s mind. Store brands are often manufactured in the same factory to the same specification as national brands, it is marketing perception that drives customers to feel they are different. That… Read more »
Gene Detroyer
BrainTrust

There are only two strategies that work for private label; offering a better product at the same price or the same product at a better price. Those retailers who do that have proven to be successful. Today there is less trust in national brands and the trends and the research show it.

Jennifer McDermott
Guest

There are so many factors that go into the decision making process — price, trust, quality, convenience. National brands with big marketing budgets can better leverage these so the results are unsurprising. Online reviews, word of mouth and private labels increasing education efforts on quality comparisons will help shift mindset but it is still a long way off.

Lisa Goller
BrainTrust

Great topic. There’s a reason Amazon has invested in more than 80 private label brands: Private label is hotter than ever.

In contrast to this study’s findings, a recent global survey by Trace One found 72 percent of consumers are loyal to specific retailers because of their exclusive private label grocery products. (In the U.S., an above-average number of consumers also said private label offers good value and they recommend store brands.)

It’s not just about saving pennies. Private label has the quality and momentum to take on national brands because today’s consumers are less brand loyal, sparking private label expansion and the success of direct-to-consumer disruptors like Brandless.

That said, retailers with significant private label assortments (Trader Joe’s, Aldi and Whole Foods 365) have managed to earn consumer loyalty, showing private label can represent a smart investment. Adapting to consumer trends faster than national brands can help store brands stand out, and boost sales and loyalty.

Ralph Jacobson
BrainTrust

Without naming names, I can think of at least one national food retailers that has made itself one of the most profitable per-square foot store operators in the business by having an assortment made up of more than 90 percent private label products. That may be the exception, however there is an optimal mix of national brands and private label products. Other countries have done a better job, especially in certain European and Asian markets.

David Naumann
BrainTrust
David Naumann
Vice President, Retail Marketing, enVista
1 year 8 months ago

Offering the right mix of national brands and private label is the key. Some consumers perceive national brands to be of higher quality and are willing to pay more for knowing what they will get and the consistency of quality. However that being said, some private label brands at Costco, Whole Foods and Trader Joe’s have reputations for being on par with, or even of a higher quality than, national brands.

Understanding customer perceptions will help identify what products should be offered in your private label assortment. Even with an extensive portfolio of private label products it is important to keep national brands, as consumers have different preferences and they like to have options.

Sterling Hawkins
BrainTrust

Retailers should strive to create programs that serve a customer need. There’s not a one size that fits all strategy here. Loblaws’ PC brand stands out as one that emphasizes quality and story vs. price. Costco also does a nice job with their brand. Whatever the case, a retailer’s private label positioning should be clear to the shopper to help them understand the value and how it fits into their shopping experience.

Jeff Sward
BrainTrust

Too many retailers cheated and disappointed too many customers over too many years. Quality out, margins up, customer perception down. Done correctly, PL is a retailer’s best friend. Done poorly, it is a retailer’s worst enemy.

Craig Sundstrom
Guest

Who is Acosta? This firm that found “shoppers overwhelmingly prefer national brands” one asks; turns out it’s a company that helps firms in their brand management … gee what a surprise!

My cynicism aside, I think it’s fair to state the general perception is that private label is cheaper, and most people equate cheaper with “not as good.” So on average, I would expect private labels to do better in commoditized goods — like rice and milk — and less so in lines where “taste” is (all) important, but regardless, the answer to the question of “what is the optimal mix?” is the same: what maximizes profits for the store.

Kenneth Leung
BrainTrust

Private label is more profitable, but national brands have spent a lot of money building the category. The key to retailer success is to mix in private labels for the value conscious while keeping the brand selection that the loyal customers want in their basket. Remember, if there is one missing item in the basket, the consumer will go to some place else and not make two trips.

Min-Jee Hwang
Guest

This research on customer preferences between national and private brands is important for grocers to keep in mind when choosing which products to sell to their customers. Overall, shoppers feel that they can trust national brands more and feel as though they are compromising when they buy the private brand. Although private brands may save the customer money, brand recognition is important to the customer. Private brands are difficult to execute well, and as Neil mentioned, not all private label brands are created equal. The retailer must commit to facilitating word-of-mouth marketing and customer evangelism for private label brands to build credibility without the typical brand marketing support a national brand would have.

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