When you open just about any cupboard in Canada you will find a private label product.
Yet despite $11.6 billion in sales and nearly 100 per cent penetration among Canadian households, private label has lagged total market growth.
Over the past few years, national brands have fended off the private label onslaught with some savvy pricing strategies that combine regular price increases with dramatic temporary price reductions. This has narrowed the gap between private label pricing and promotional national brand pricing to less than 10 per cent.
But aggressive national brand pricing has had the unintended effect of teaching consumers to wait for deals.
Value-oriented Canadian consumers have also deployed an entire portfolio of penny-pinching strategies.
And buying private label is relatively low on their list, behind shopping sales, using coupons, stocking up during promotions and store hopping for best prices.
So, what does this mean? At Nielsen, we’ve just put together a report called Canadian Private Label: a Value Alternative.
Let me walk you through some of the key findings.
Who buys private label?
Private label isn’t just for very young, very large or very frugal families anymore. There has been a marked uptick in the number of one-and two-person households (baby boomers with a head of household 55 to 64) and households with incomes between $70,000 and $99,000.
They all buy more store-brand goods than the average family. Western Canadians and Maritimers have the strongest interest in private label, while share trails significantly in Quebec.
What drives purchases?
Different factors influence private label purchase decisions, and the relative importance of those factors changes depending on the department.
The top five purchase influencers are: price; trust/previous experience; product labels; family/friend recommendation; and in-store display.
Price is the top influencer across store categories, especially in the household goods department. Trust/previous experience matters most in food.
Product labels, family/friend recommendations and in-store displays influence fewer than five per cent of purchases decisions.
What does it mean for retail?
Private label has the greatest share in the grocery channel, accounting for almost onequarter of sales, followed by drugstores at a distant 17 per cent.
Mass merchandisers are emerging as a viable distribution channel, registering a 22 per cent increase in dollar share for the year ending July 2011 (roughly equal to the warehouse club private label sales contribution). Much of that increase can be attributed to the number of mass merchandiser stores opening across Canada.
Store brands are no longer just the low-cost option; they now compete with national brands at multiple quality levels and price points.
Private label helps build store equity, and as baby boomers “age into” private label, savvy retailers should re-examine their product lines, adjusting to mature tastes, physical limitations, smaller households and larger wallets.
One advantage retailers enjoy with respect to marketing is they control in-store channels, and such messaging often has the highest impact on purchase decisions.
Retailers’ ability to market private label in stores could grow even further as instore mobile marketing gets developed.
What about manufacturers?
To remain competitive against private label, manufacturers should embrace differentiation. They should lead the way with product innovation, attractive packaging, convenient new forms and desirable special ingredients that appeal to the upscale store brand buyer.
One advantage area for manufacturers is marketing. Deep brand management experience and comparatively large ad budgets help national brands tell their story e ectively. Engaging consumers at multiple contact points, including social media, helps legitimize the “brand tax” of higher prices.
Pricing remains a challenge. There needs to be a balance in how national brands connect with consumers on value and emotion.
While value is important, the volume knob needs to be turned down to bring the most bang for the investment in terms of ad spending, promotion and innovation.
Brands need to make an emotional connection with consumers.