July 11, 2012
Americans Sticking with Store Brands
Even before the bottom dropped out of the U.S. economy back in December 2007, American consumers were turning to private label items. The reasons are pretty simple. Product quality has improved and everyday prices tend to be significantly lower than name brand equivalents. Chains such as Aldi and Trader Joe’s, on steady growth paths for years, sell private labels almost to the exclusion of national brands.
So new research from Accenture, which shows that 39 percent of Americans have increased their purchases of store brands in recent years, doesn’t come as huge surprise. It does serve as a reminder to national brands, however, that in today’s world, it’s differentiate or decline.
National brands find themselves in an uphill battle as so many purchasing decisions are driven by price. Among the consumer respondents to the Accenture survey, 87 percent said they would buy more national brands if the companies matched the store’s private label pricing. Fifty-one percent said the price match would have to be permanent if they were going to stick with the name brand.
"Extreme competition between retailers and consumer goods companies can result in inefficiencies and waste for manufacturers and retailers, and undifferentiated products for the consumer," said Bob Berkey, from Accenture’s Consumer Goods & Services practice, in a statement. "Consumer goods companies must develop a balanced strategy of collaboration with retailers in some areas and competition in others. This new dynamic — where competitors become partners — will require a considered focus from manufacturers."
BrainTrust
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Discussion Questions
Discussion Questions: What do name brands need to do to effectively compete with private labels? Can they do it without dropping prices? Should name brands declare victory and become private label manufacturers, as well?
Poll
Let’s take these questions in order:
(1) The fundamental dynamics of competition haven’t changed. National brands need to offer clearly differentiated, higher quality products and to innovate inside their lines. They also need to effectively communicate product values in terms that make sense to the consumer, something most of them are terrible about.
(2) Price is a function of all-in production costs and desired margin, so the answer to the question is “Yes,” if they want to; “No” if they aren’t willing to tweak the supply chain or adjust margin expectations; and “Maybe” depending on the competitive set in a category.
(3) Depends on the brand in question. Some aren’t competitive and becoming a controlled label manufacturer may be their only hope.
One last note — I think it’s critical to differentiate between “private label” brands and retailer-controlled brands. The difference is all about the retailer’s attitude toward the products he or she sells. The former is there to establish a price statement while the latter exists to make a quality statement.
There’s only one answer. Name brand products have to deliver a discernible performance or design difference to command the difference in price that funds the sort of r&d required to stay ahead. The days of name brands getting by on average performance and quality are over.
In many instances there are thinner lines between how we define “name brands” vs. “private label.” Private brands at Trader Joe’s and Whole Foods were not getting a lift only at the expense of the poor economy. These private brands have become “real brands” that consumers know and trust. On the other hand, commodity types of store brands will do well in all economies if they fall within categories and product segments where national brand equivalency is almost a given, for example, aspirin. Private brands that have inferior quality or bad packaging do perform better in sinking economies but they will not hold their edge on the “name brands” once more folks can afford to buy the better brand again. It’s a very mixed bag.
Name brands get by with better packaging, placement on shelf and perceived better quality. For quality conscious consumers, the name brand shows you care about what you and your family eat. Advertising and co-op funding can only combat price sensitivity for so long. A timely question for sure, but name brands narrowing the price differential is a dangerous path to take. You’ve seen name brand snack brands reduce the weight of their puffed up bags to “match” price of private label chips and snacks. Soon enough, the consumer feels they are ripped off when the bag they paid $4 for is half full of air!
To a great extent, the rise of Private Label reflects the speed at which the modern marketplace operates. We see niche brand innovation, adoption by market leader brands, and imitation by price brands and Private Label. We still have the traditional stages of the product life cycle, but now on steroids.
Brands have to anticipate this better. Clearly, the solutions for name brands involve faster recognition of market needs, more innovation, speed to market, and establishment of competitive insulation based on product differentiation and brand equity.
Retailer brands have made a big statement in stores recently, and to me, are very different from private label products. Many retail brands are growing because they are managed like national brands, and they’ve created product assortment in meaningful categories. My top-of-mind example of this is the Home brand by Kroger.
Many national brands bit the discounting bullet during the recession, with fingers crossed that consumers would come back to full-price purchases later, and are now stuck in the “volume anniversary” trap of more discounting versus true investment in brand differentiation. Many turned a blind eye to the trends that were in already place leading to quality as the decider, so retail brands amped up quality and exceeded shopper expectations. Thus, the permanent shift has less to do with price than most people think.
Now stores are shrinking, shelf space is precious and national brands have a big job ahead of them to hone down the SKUs and create meaning beyond discounts. Line extensions don’t count in this scenario.
National brands need to reach out and touch consumers where they live and play, not just where they shop. Brands that have meaning are out in the marketplace in all kinds of visible and experiential ways. The investment pays off in participation, preference and most importantly in purchases.
“Should name brands declare victory and become private label manufacturers, as well?”
Excuse me, please, but don’t most products, whether private label or national brands, come from the same manufacturers already?
The success of private labels is with the retailers not with the national brands. If retailers offer lower quality and lower prices, they will have little impact on national brands. If retailers treat their private labels like BRANDS, the national brands do not have a chance.
National brands can not exist without marketing spending. Private BRANDS can. The difference in margin gives the national brands a distinct disadvantage.
The key for the retailers is they MUST offer the same quality at a slightly lower price or a better quality (yes, some do) at the same price. Or, best yet, a better quality at a lower price, which is very possible.
I think if you look at Europe and other parts of the globe you see there are one, maybe two brands and then the store brand. It appears the US is moving in that direction, and if I were a manufacturer I would at minimum test the waters by launching Private Label items in places where it is hard for them to get distribution: Aldi, Trader Joe’s, Costco, etc. I think the days of flatly declaring you wont make Private Label is not in the best interests of your shareholders.
The results of the Accenture study are borne out by the most recent Nielsen numbers for FDM (including Walmart), which show private label dollar sales increasing by 6.1% in the 52 weeks ended June 9 (versus a year ago) and branded products sales gaining by 3.3% in comparison. The economy’s downturn introduced a large number of consumers to the benefits of a private label-laden shopping cart. They apparently liked what they got, and no longer see a reason to pay a price differential for a branded product. In addition, while there has been improvement in the economy, employment is still stalled, with the unemployment rate continuing above 8%. Net-net, private label, for the foreseeable future, is part of the competitive landscape for many branded manufacturers. Their strength is innovation, and that’s where their emphasis should lie.
We place our attention in the question on whether national brands have done as well as private labels in winning the hearts and pocketbooks of consumers as the food world changes and the economy burps. The only question would seem to be whether national brands have done as well as they could in better adjusting than has private label to changing times and new consumer motivations. And the answer appears in the trends.
Can national brands win by dropping prices? Or by becoming private label manufacturers? That seems a mirage — a road to nowhere.
There was a time when national brands offered better quality products than anyone else could offer and they established themselves … but making soups and sausages is no longer rocket science. So to stay ahead as the lead dog, national brands have to innovate a new course of perceived values that private labelers can’t now duplicate. Otherwise, during these emerging times, some financially-toxic rain could fall in national brands land.
And furthermore…Own-label food “keeps brands honest” – Sansbury’s Justin King.
Brand products need to offer value to consumers for the price. However, the value has to be something important enough for which consumers want to spend money.
National brands will always cost more than comparable store brand goods. To compete effectively without lowering price, national brands need to advertise and promote heavily to assure awareness and stimulate purchase. This is especially true for products aimed at children — breakfast cereal, for example. Also, national brands have the resources to innovate; that is, enhance existing products as well as developing new ones that ideally create new sub-categories.
Makers of private label goods have improved quality dramatically in recent years, while maintaining a price advantage over national brands. That is very attractive to budget-conscious consumers in tough times.
Some big-time national brands already are private label makers. My hunch is that will increase if private label continues to gain share.
Purchases are made based on price, availability and perceived quality. Unfortunately for manufacturers, in this economy of high gas prices, high unemployment and high under employment, even if their product is higher quality people will chose the less expensive product. Look at green beans for example. Name brands only ask a few cents more, but the quality is typically higher than a store brand. People can save a few cents and deal with the stems. They need their vegetables, but have to save every penny they have. Do manufacturers reduce the quality of their product to match prices? It’s a tough decision.
David Biernbaum’s comment is right, “Private brands that have inferior quality or bad packaging do perform better in sinking economies but they will not hold their edge on the “name brands” once more folks can afford to buy the better brand again.” Today the economy is bad. Do “Name brands” risk their perceived value for an economy that could improve a year from now?
And why not? With My Essentials at Bottom Dollar and Food Lion, loyal customers get the best quality at the lowest price. Afterall, when you buy private label products, you really do believe that piggy banks fly.
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Let’s take these questions in order:
(1) The fundamental dynamics of competition haven’t changed. National brands need to offer clearly differentiated, higher quality products and to innovate inside their lines. They also need to effectively communicate product values in terms that make sense to the consumer, something most of them are terrible about.
(2) Price is a function of all-in production costs and desired margin, so the answer to the question is “Yes,” if they want to; “No” if they aren’t willing to tweak the supply chain or adjust margin expectations; and “Maybe” depending on the competitive set in a category.
(3) Depends on the brand in question. Some aren’t competitive and becoming a controlled label manufacturer may be their only hope.
One last note — I think it’s critical to differentiate between “private label” brands and retailer-controlled brands. The difference is all about the retailer’s attitude toward the products he or she sells. The former is there to establish a price statement while the latter exists to make a quality statement.
There’s only one answer. Name brand products have to deliver a discernible performance or design difference to command the difference in price that funds the sort of r&d required to stay ahead. The days of name brands getting by on average performance and quality are over.
In many instances there are thinner lines between how we define “name brands” vs. “private label.” Private brands at Trader Joe’s and Whole Foods were not getting a lift only at the expense of the poor economy. These private brands have become “real brands” that consumers know and trust. On the other hand, commodity types of store brands will do well in all economies if they fall within categories and product segments where national brand equivalency is almost a given, for example, aspirin. Private brands that have inferior quality or bad packaging do perform better in sinking economies but they will not hold their edge on the “name brands” once more folks can afford to buy the better brand again. It’s a very mixed bag.
Name brands get by with better packaging, placement on shelf and perceived better quality. For quality conscious consumers, the name brand shows you care about what you and your family eat. Advertising and co-op funding can only combat price sensitivity for so long. A timely question for sure, but name brands narrowing the price differential is a dangerous path to take. You’ve seen name brand snack brands reduce the weight of their puffed up bags to “match” price of private label chips and snacks. Soon enough, the consumer feels they are ripped off when the bag they paid $4 for is half full of air!
To a great extent, the rise of Private Label reflects the speed at which the modern marketplace operates. We see niche brand innovation, adoption by market leader brands, and imitation by price brands and Private Label. We still have the traditional stages of the product life cycle, but now on steroids.
Brands have to anticipate this better. Clearly, the solutions for name brands involve faster recognition of market needs, more innovation, speed to market, and establishment of competitive insulation based on product differentiation and brand equity.
Retailer brands have made a big statement in stores recently, and to me, are very different from private label products. Many retail brands are growing because they are managed like national brands, and they’ve created product assortment in meaningful categories. My top-of-mind example of this is the Home brand by Kroger.
Many national brands bit the discounting bullet during the recession, with fingers crossed that consumers would come back to full-price purchases later, and are now stuck in the “volume anniversary” trap of more discounting versus true investment in brand differentiation. Many turned a blind eye to the trends that were in already place leading to quality as the decider, so retail brands amped up quality and exceeded shopper expectations. Thus, the permanent shift has less to do with price than most people think.
Now stores are shrinking, shelf space is precious and national brands have a big job ahead of them to hone down the SKUs and create meaning beyond discounts. Line extensions don’t count in this scenario.
National brands need to reach out and touch consumers where they live and play, not just where they shop. Brands that have meaning are out in the marketplace in all kinds of visible and experiential ways. The investment pays off in participation, preference and most importantly in purchases.
“Should name brands declare victory and become private label manufacturers, as well?”
Excuse me, please, but don’t most products, whether private label or national brands, come from the same manufacturers already?
The success of private labels is with the retailers not with the national brands. If retailers offer lower quality and lower prices, they will have little impact on national brands. If retailers treat their private labels like BRANDS, the national brands do not have a chance.
National brands can not exist without marketing spending. Private BRANDS can. The difference in margin gives the national brands a distinct disadvantage.
The key for the retailers is they MUST offer the same quality at a slightly lower price or a better quality (yes, some do) at the same price. Or, best yet, a better quality at a lower price, which is very possible.
I think if you look at Europe and other parts of the globe you see there are one, maybe two brands and then the store brand. It appears the US is moving in that direction, and if I were a manufacturer I would at minimum test the waters by launching Private Label items in places where it is hard for them to get distribution: Aldi, Trader Joe’s, Costco, etc. I think the days of flatly declaring you wont make Private Label is not in the best interests of your shareholders.
The results of the Accenture study are borne out by the most recent Nielsen numbers for FDM (including Walmart), which show private label dollar sales increasing by 6.1% in the 52 weeks ended June 9 (versus a year ago) and branded products sales gaining by 3.3% in comparison. The economy’s downturn introduced a large number of consumers to the benefits of a private label-laden shopping cart. They apparently liked what they got, and no longer see a reason to pay a price differential for a branded product. In addition, while there has been improvement in the economy, employment is still stalled, with the unemployment rate continuing above 8%. Net-net, private label, for the foreseeable future, is part of the competitive landscape for many branded manufacturers. Their strength is innovation, and that’s where their emphasis should lie.
We place our attention in the question on whether national brands have done as well as private labels in winning the hearts and pocketbooks of consumers as the food world changes and the economy burps. The only question would seem to be whether national brands have done as well as they could in better adjusting than has private label to changing times and new consumer motivations. And the answer appears in the trends.
Can national brands win by dropping prices? Or by becoming private label manufacturers? That seems a mirage — a road to nowhere.
There was a time when national brands offered better quality products than anyone else could offer and they established themselves … but making soups and sausages is no longer rocket science. So to stay ahead as the lead dog, national brands have to innovate a new course of perceived values that private labelers can’t now duplicate. Otherwise, during these emerging times, some financially-toxic rain could fall in national brands land.
And furthermore…Own-label food “keeps brands honest” – Sansbury’s Justin King.
Brand products need to offer value to consumers for the price. However, the value has to be something important enough for which consumers want to spend money.
National brands will always cost more than comparable store brand goods. To compete effectively without lowering price, national brands need to advertise and promote heavily to assure awareness and stimulate purchase. This is especially true for products aimed at children — breakfast cereal, for example. Also, national brands have the resources to innovate; that is, enhance existing products as well as developing new ones that ideally create new sub-categories.
Makers of private label goods have improved quality dramatically in recent years, while maintaining a price advantage over national brands. That is very attractive to budget-conscious consumers in tough times.
Some big-time national brands already are private label makers. My hunch is that will increase if private label continues to gain share.
Purchases are made based on price, availability and perceived quality. Unfortunately for manufacturers, in this economy of high gas prices, high unemployment and high under employment, even if their product is higher quality people will chose the less expensive product. Look at green beans for example. Name brands only ask a few cents more, but the quality is typically higher than a store brand. People can save a few cents and deal with the stems. They need their vegetables, but have to save every penny they have. Do manufacturers reduce the quality of their product to match prices? It’s a tough decision.
David Biernbaum’s comment is right, “Private brands that have inferior quality or bad packaging do perform better in sinking economies but they will not hold their edge on the “name brands” once more folks can afford to buy the better brand again.” Today the economy is bad. Do “Name brands” risk their perceived value for an economy that could improve a year from now?
And why not? With My Essentials at Bottom Dollar and Food Lion, loyal customers get the best quality at the lowest price. Afterall, when you buy private label products, you really do believe that piggy banks fly.