Grocery Store Brands: Growth, Opportunities, and Issues

By Al McClain

There was a lot of buzz at the Food Marketing Institute convention this week around private label (PL), which some prefer to refer to as store brands. Just about everyone seems to agree that PL is hot, but there is some disagreement as to what that means and what to do about it.
 
There is plenty of evidence of growth for PL, but here are a few tidbits:

• Over 88 percent of consumers buy private label at least once per month. (Source: FMI)
• A recent Meyers Research Center study of 300 consumers tasting national brand items versus PL items across 12 categories found that consumers preferred the PL product 51 to 49 percent over the national brand. (Source: PL Buyer magazine)
• Seventy-seven percent of U.S. shoppers surveyed say that "private label brands are a good alternative to other brands." (Source: ACNielsen study via PL Buyer magazine)
• Nine of 10 consumers feel comfortable serving PL to guests. (Source: ACNielsen)
• Almost half of consumers say they would buy more PL if a larger variety were available. (Source: ACNielsen)

At the Daymon Worldwide Forum, "Partnering in a Smaller World," that preceded the convention, ACNielsen Senior VP Todd Hale shared these insights, among others:

• Heavier PL shoppers offset their branded spending with PL buying - enabling consumer savings and allowing retailers to compete in a "value-oriented" environment.
• Heavier PL buyers shop more often, providing opportunities to increase store loyalty.
• There is an opportunity to narrow the price gap between PL and branded items.
• Consumers spending the most have a weaker PL commitment - providing an opportunity to focus on premium PL offerings.

There seems to be an emerging consensus that shoppers are more comfortable with PL than they used to be, that PL is a good way for retailers to remain price competitive, and that premium PL represents a large growth opportunity.
 
Of course, all of this growth is not without controversy:

• If there is a problem with a single PL SKU, how do retailers ensure that shoppers aren't turned off to the entire store brand portfolio?
• Since branded CPG companies have the bulk of the R & D dollars, and are the new item innovators, in many cases, how does the industry keep the new product pipeline flowing if branded companies are receiving less of the benefit?
• When manufacturers of branded products get in to private label, how do they maintain the value of their brands, with consumers and retailers?
• If retailers use PL to stay price competitive with discounters, will consumers care that many of these retailers are only price competitive when comparing an entire basket, and not necessarily competitive on national brands that they do buy?
• What's needed in terms of sourcing best practices to ensure that inferior product doesn't find its way into the pipeline, potentially destroying a store brand's reputation?
• How do you optimize assortment and optimize pricing to ensure the right mix of national, PL, and regional brands?

Moderator's Comment: What would you advise supermarkets and other types of retailers on how to leverage their results in this area? How should national brand manufacturers approach PL? - Al McClain - Moderator