Picking up private label
Sales of store-brand products are significant, but stagnant. Here's how to grow them, and help name brands win too
Here’s a question: In which country is private label most popular? Give up? It’s Switzerland. There, 45% of CPG dollars go to store-brand products. By comparison, private-label penetration in Canada is 18%, slightly higher than the global average of 16.5%
In Canada, the social stigma of store brands has virtually disappeared. Most shoppers are pleased with private labels, calling them a good alternative to name brands (73% agree), a good value (66%) and as good as national brands on quality (61%).
Private label’s main problem? Share is stagnant. Five years ago, share stood at 18.1%. Rather than lower their food bill with private labels, shoppers have turned to promotions to save. And in the last few years, name brands have driven more sales through savvy pricing.
At Nielsen, we recently did a private- label study of more than 30,000 consumers in 60 countries, including Canada. We examined their attitudes about private label versus name brands. And we identified ways that name brands and private labels can increase basket share. Allow me to go over some of the findings.
Private-label sales and shares are strongest in commodity-driven, high-purchase categories and in those where consumers perceive little difference between name brands and store brands. In Canada, this includes condiments and sauces, paper products, meat, bread and eggs, to name a few. Private label success tends to come at the expense of small to mid-size brands, whereas category leaders remain safe.
Several factors are driving sales. One is the millennial consumer. Even though this powerhouse generation is underrepresented in CPG spending (27% of population, yet 12% of CPG dollars), it will outnumber boomers by 2020. Millennials are less brand loyal and more open to trying new products. They represent a big growth opportunity for private label. Another factor is some retailers’ multi- tiered approach to private label. Offering upscale, mid-tier and value-conscious lines have become effective strategies to appeal to different consumers.
To increase chances of success, retail- ers should increase in-store awareness, visibility and provide value-for-money options. Rather than replicating name- brand products, they should offer more unique items (as some are now doing). A premium private label tier, for instance, allows retailers to offer items not found anywhere else, thereby driving store loyalty. Having more original products also makes it harder to price match.
Better research would also help retailers. Most don’t do as rigorous a job of analytics around store brands as CPG companies do on national brands. Doing so would help retailers get the right products in front of shoppers in the right categories, at the right price and margin.
As for name-brand makers, they need to develop mainstream branded offerings that are more compelling than basic private label lines. CPGs also need to differentiate premium lines to coexist with premium private label–staying one step ahead through innovation.
CPGs should also consider joint pro- motions with private label. For example, if one group of consumers prefers a name brand in a category and another prefers private label, consider promoting them both in the same week to drive overall category sales versus brand substitution.
Finally, CPGs should look for areas where private label doesn’t have a presence, and discuss placement options with retailers in those categories.
Although retailers and CPGs can choose to be at odds over shelf space and basket share, ultimately they should know that consumers buy store brands and name brands at varying times, in disparate categories and to fill specific needs. Capitalizing on what already works and partnering where appropriate can help both groups drive sales.