May 22, 2012
Consumers Experiencing Private Label Fatigue
New research suggests that many consumers are buying private label because they feel as though they "have to" rather than "want to" buy store brands.
According to The NPD Group, private label as a percentage of U.S. household purchases has grown from 18 percent in 2000 to 27 percent at the end of last year. In recent years, however, satisfaction with those purchases has dipped somewhat and the research firm’s findings suggest that consumers may move back to brands when their personal finances allow. In 2009, 34 percent of adults said they planned to buy more private label foods than the previous year. Today, fewer than 25 percent answer the same way.
The categories where private label remains strongest are commodities and products used as ingredients. Flour and butter are the two biggest categories fitting this description.
"The question is if food inflation declines and at the same time the economy improves, will consumers return to the name brands they know and trust," said Darren Seifer, NPD food and beverage industry analyst, in a press release. "This could become a reality if retailers don’t respond to declining satisfaction and if name brand manufacturers continue to aggressively build loyalty. On the flip side, name brands need to be aware that private label usage continues to increase and the quality perception is improving."
BrainTrust
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Discussion Questions
Discussion Questions: Will consumers move away from private label and towards national brands as they feel better about their own financial situations? Have retailers missed an opportunity here? What do they need to do to keep consumers from switching back to national brands?
Poll
There is indeed a certain percentage of consumers that buy private label with economic downturns because they have to save money, however, the term private label itself means so many different things across so many different types and categories. For instance, the private brands at Trader Joe’s thrive during all types of economic times. I do believe that most consumers still prefer “brands” vs knock offs and lower quality alternatives that are sold in some supermarkets.
Some consumers will move back, others will cut back, and others will stay with what they’ve come to like and can pay less for. Some retailers have probably missed the boat, but lots did not. How do you keep them? Good quality, good prices, and good variety.
Note that a reduction in people planning to buy more private label is not a bad sign in and of itself — it’s simply a sign of trial saturation.
Product selection can be a many splendored thing. Sure there is disappointment when your budget is tight and buying private label only seems right. When your finances improve you are inclined to buy the more expensive items, not because they are better and affordable, but because they give you a sense of psychic income.
Today retailers are benefactors of this phenomenon.
But they should have a plan in place to focus on the virtues and values in PL, which are many. Just perform product comparison “cuttings” and that will help clarify things.
That all depends on the level of investment in the product by the retailer – quality, packaging, positioning, marketing. There are several retailers (Publix comes to mind) that have done an excellent job in producing a private label program with products that are superior to the nationals. Regardless of the state of the economy, their PL will do fine.
Retailers (especially in department stores) have been in an arms race for the last few years to develop more and more private labels and exclusive brands. Sometimes it’s driven by perceived assortment voids but just as often to drive margins.
The consumer move back to national brands may signal that exclusive labels are not always offering perceived value. More likely the consumer is expressing some dissatisfaction with over-assortment and lack of brand clarity.
If consumers are satisfied with the quality of private label products they will continue to buy them, even with an improving economy. The Great Recession has taught consumers not to waste money. Retailers need to support their brands through constant improvements in quality and packaging and vigilance on price.
It seems to me there are two real but opposing factors at work here.
First, the current economy has given private label manufacturers an unprecedented opportunity to expose consumers to their products. Ideally private label manufacturers and retailers should be using this opportunity to impress consumers with quality and value. If an improving economy results in a private label product losing share, it is most likely due to the perception that that product does not provide the same value as a “brand”.
Second, there is no question that effective advertising can feed an aspirational need for consumers, part of a product value proposition, a need that would seem to be stronger with “brands”. This aspirational drive should serve “brands” well as economic positions improve and consumers move from budgetary-driven purchasing to aspirational-purchasing.
Loss of share by a private label product to a brand product during an improving economy suggests to me that the private label manufacturer likely failed with their opportunity to convince their consumers that the private label product provides the greatest value.
No one likes “have to” purchases. Or in the semi-serious philosophy equation “the absence of a negative does not create a positive.” In other words, absence of higher price does not in and of itself make me like the product. Especially not if my perception is that I’m buying it because it is “all I can afford.” That means I’m already in a negative mindset — about myself — and this purchase just reinforces it. Yuck!
That’s why successful “private brands” offer so much more than low price in a plain brown wrapper. To repeat my now very tired old mantra — the only difference between a successful “brand” and a successful “private brand” is who owns it.
Private label has always piggy backed on the marketing done by the national brands. When a consumer walked into a store they would compare prices between the national brand and the private label right next to it. The decision is: Can I be satisfied with the private label? Is it good enough? The narrative in their mind: They just want to save money. It really doesn’t matter whether they are at Kroger or Walmart – the narrative is the same. Unless the retailer brands their private label like some retailers have done like Walgreens and others, the consumer will only have one narrative in their mind – “Save Money”. As a result the private label brands will rise and fall with the consumer’s sentiment.
The NPD study aside, it seems to me that store brands are alive and healthy. Using some Nielsen data for the year ended mid-March, store brands are maintaining their strong sales growth relative to branded items, despite predictions that the private label surge would run out of steam as the economy improved. The data indicates that consumer packaged goods private label dollar sales in FoodDrugMass including Walmart, increased 3.9% for the year, while branded products only gained 0.9%. Beyond these two stats, it seems that private label is showing some strength in other ways. For example, the store brand dollar gain was nearly twice that achieved in the preceding 52-week period, and store brands have widened their share steadily over the past few years from 17.2% in 2010 to 18% currently. The average price of a store brand is $2.36 compared to $3.03 for a branded item, so shoppers are still getting a clear benefit from purchasing store brands. Moreover, positive store brand trends are taking place in categories other than those that are commodities. For example, private label cosmetics were up 28% in the year to mid-March. Store brand beer gained 43%. Coffee was up 27%. This would appear to suggest that store brands still receive a high level of acceptance on the part of shoppers.
This was a common theme in past recessions. Consumer moved to private label during the recession and back to national brands when times improved. Remember generics – what consumer would not move back to branded after buying them? Today things are different. Over the last 10 years private label product quality and packaging have greatly improved. Additionally there are now many private label products for which there is not a national brand. These sales will not decline after consumers think things are better as they have no alternative. In some categories there may be a dip in private label sales which may result in a slowing of their growth rate, but not a decline overall.
It would be a mistake to think that private label brands are not brands themselves. Even without brand building efforts consumers form an opinion about an unsupported brand. While private label does well due to distribution advantages, it is a mistake not to treat them like brands. In the absence of support they are perceived in many cases as low price/low quality products, hence their current attraction. Trader Joe’s was mentioned by a colleague as an exception because they always do well. Consider their ongoing brand building efforts in good times and bad.
Retailers need to create a private label that is as good or better than national brands. It’s a huge opportunity for the retailer to control the experience and offer a differentiated product brand. You can’t get your favorite ice cream anywhere but Wegmans!
Retailers who are building their private label stocks still have plenty of upside in growth, as long as they focus on quality, convenience, selection, price/value. While consumers are comfortable with brands, two items to keep in mind are 1) consumers see retailers’ selections as brands, and 2) in most categories of consumables and household products, consumers will tell you that they have “no preference” for a brand 35% to as high as 75% of the time.
Both retailers and CPG firms would do well to better understand how those “no preference” consumers can be won over within a category.
The BIGinsight Monthly Consumer Survey shows how these two factors weigh in. In the Ice Cream category, Breyers is the preferred Brand by 10.8% of respondents. Store brands are preferred by 7.4% of respondents. Further, the Kroger Private Select Brand enjoys a healthy Net Promoter Score of +35.2%, while Breyers has an equally impressive NPS of +35.0%. Yet, fully 42% of respondents stated that they have “no preference.”
Similar patterns emerge among frozen vegetables, frozen chicken and turkey and laundry detergents and additives. While Birdseye is preferred by 14.6% of respondents, fully 11.7% of respondents like the generic store brand. Tyson is preferred by 15.8% of respondents for chicken, but 5.6% say they are comfortable with the store brand. Tide shows up with high net promoter score marks for laundry detergent, a whopping +38.3%. That’s not stopping people from buying Kirkland or Great Value Detergent, when they weigh in selection (fragrances and sizes), price/value, and convenience.
Given the commoditization of grocery products, it is unlikely that consumers will return to branded items that in many cases are the same products as the generics with different packaging. Once the consumer realizes that fact, it will be difficult to encourage them to pay premium prices again.
The only solution for manufacturers will be to generate significant product improvements that justify a premium price.
Retailers must continue to reinforce the parity of their products in order to maintain top of mind awareness and volume. In effect, grocery retailers must learn to act like packaged goods marketers, just on a more local scale.
No big surprise here. After a few cycles of purchase, consumers realize that many PL products are not consistent and certainly not “equal or better” than the National Brand. Novel and different at first, but then they miss the consistency of a National Brand with a long history. Secondly, the retailers have deep discounted their PL brands with Bogo and 10 for 10 pricing which further cheapens the image. Certain shoppers will continue to purchase Private Brands to be sure. Those with resources and a little more refinement of taste will return or stay with brands.
No. Private label is here to stay. The growth in private label profits continues to drive many retailers, including Target, Costco and Safeway, some of the largest retailers in America. Their continued investment in private label branding is a reflection of consumer spending on these brands, which continues to become a larger part of these retailers profits.
Could I be reading this wrong? Private label growth over the last decade has been astounding! How much higher do we expect it to go? From 18% to 27% share. that is a 50% increase in share in ten years. Sounds good to me.
With regard to where it is going, I agree with most of the comments of my colleagues. If the retailer presents their brands as “brands” in quality and presentation, growth will continue. If the retailer sees private label as a price strategy of low-quality knock-offs, it will decline.
Mr. Retailer, don’t give any customer an excuse to go back to the brands, and you will win.
Private Label products offer both cost savings and product quality across many categories, increasing their penetration and frequency as shoppers feel good about buying them — even if they don’t feel the need to do so for economic reasons.
Creating product innovations is the key to success — for Retailers to achieve additional growth in those categories that have met with some resistance, and for National Brand Manufacturers who must give a meaningful reason to shoppers to pay more for their offerings. In the long run, increased innovation will be a winning formula for all.
Excuse me, but 27% buying more than last year is still MORE than last year (regardless of what the corresponding number was then); of course we also need the number who plan to buy less, and people often don’t do what they say.
I suspect the numbers (on private label) will regress when — or if — the economy improves more, but not to the levels they once were … hence over time, the numbers will creep up further. Paradoxically, the higher-end brands will also grow, the difference coming from “popular” brands.
I believe the behavioral shifts of the recent recession are likely to be enduring with respect to value-seeking. This is manifest in private label purchasing habits as well as trip planning and coupon clipping and a decline in recreational shopping.
Habit is the operative word here. The economic lessons suffered by the middle class have been painful and their memories will fade slowly, if at all. Those of use whose parents or grandparents came of age during the Great Depression of the 1930s know this can be a lifelong attitude. In the present instance, this attitude is being reinforced by the ubiquitous reminders on our gasoline pumps.
Private label share growth will never be continuous and smooth. It may level off some when better times arrive, but a reversal of the long-term trend seems very unlikely in our lifetime.
My sense is that consumers are tired of store brands that aren’t meaningful. (Incidentally, they’re also tired of traditional brands that aren’t meaningful.)
The old “generic” store goods delivered a meaningful value — low price with reasonable quality. A solidly developed store brand (supported with communication) delivers additional value that’s in sync with the store’s values.
Unfortunately, consumers are now confronted with store brands for everything — which are purely tactical responses by retailers to fill their goods with lower margin goods. Unfortunately, that usually turns the category for the store into a lower revenue category as well.
Retailers should focus on developing their brands to deliver solid meaning.
I’m not sure I really get the view that private label satisfaction is truly down from this report.
It seems to me that growth may be decelerating, which wouldn’t surprise me especially given the macro differences between now and 2009.
They seem to be doing pretty well as far as I can see with some doing a good job of becoming strong brands in their own right.
I don’t think Trader Joe’s, Whole Foods and COSTCO missed anything with regards to Private Label. Private Label has grown in the US for two reasons. 1) poor economy, 2) quality. At some point we have to expect the US economy to improve. When it does, the retailers that have built quality Private Brand items will have an edge on competitors. As I have stated in several of my blogs. Private Label is one of the best ways to compete and build customer loyalty.
Best way to compete against National Brands when the economy improves? 1) partner with National Brands to drive their brand and your brand, 2) Keep quality high, 3) Innovate.
PL doesn’t have to mean lower quality. Several stores, grocery, apparel and others, have done a great job in developing high-quality national brand alternatives. We shouldn’t limit this discussion to grocers.
Also, internationally, PL dwarfs the US penetration, so we are most likely the anomaly.
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There is indeed a certain percentage of consumers that buy private label with economic downturns because they have to save money, however, the term private label itself means so many different things across so many different types and categories. For instance, the private brands at Trader Joe’s thrive during all types of economic times. I do believe that most consumers still prefer “brands” vs knock offs and lower quality alternatives that are sold in some supermarkets.
Some consumers will move back, others will cut back, and others will stay with what they’ve come to like and can pay less for. Some retailers have probably missed the boat, but lots did not. How do you keep them? Good quality, good prices, and good variety.
Note that a reduction in people planning to buy more private label is not a bad sign in and of itself — it’s simply a sign of trial saturation.
Product selection can be a many splendored thing. Sure there is disappointment when your budget is tight and buying private label only seems right. When your finances improve you are inclined to buy the more expensive items, not because they are better and affordable, but because they give you a sense of psychic income.
Today retailers are benefactors of this phenomenon.
But they should have a plan in place to focus on the virtues and values in PL, which are many. Just perform product comparison “cuttings” and that will help clarify things.
That all depends on the level of investment in the product by the retailer – quality, packaging, positioning, marketing. There are several retailers (Publix comes to mind) that have done an excellent job in producing a private label program with products that are superior to the nationals. Regardless of the state of the economy, their PL will do fine.
Retailers (especially in department stores) have been in an arms race for the last few years to develop more and more private labels and exclusive brands. Sometimes it’s driven by perceived assortment voids but just as often to drive margins.
The consumer move back to national brands may signal that exclusive labels are not always offering perceived value. More likely the consumer is expressing some dissatisfaction with over-assortment and lack of brand clarity.
If consumers are satisfied with the quality of private label products they will continue to buy them, even with an improving economy. The Great Recession has taught consumers not to waste money. Retailers need to support their brands through constant improvements in quality and packaging and vigilance on price.
It seems to me there are two real but opposing factors at work here.
First, the current economy has given private label manufacturers an unprecedented opportunity to expose consumers to their products. Ideally private label manufacturers and retailers should be using this opportunity to impress consumers with quality and value. If an improving economy results in a private label product losing share, it is most likely due to the perception that that product does not provide the same value as a “brand”.
Second, there is no question that effective advertising can feed an aspirational need for consumers, part of a product value proposition, a need that would seem to be stronger with “brands”. This aspirational drive should serve “brands” well as economic positions improve and consumers move from budgetary-driven purchasing to aspirational-purchasing.
Loss of share by a private label product to a brand product during an improving economy suggests to me that the private label manufacturer likely failed with their opportunity to convince their consumers that the private label product provides the greatest value.
No one likes “have to” purchases. Or in the semi-serious philosophy equation “the absence of a negative does not create a positive.” In other words, absence of higher price does not in and of itself make me like the product. Especially not if my perception is that I’m buying it because it is “all I can afford.” That means I’m already in a negative mindset — about myself — and this purchase just reinforces it. Yuck!
That’s why successful “private brands” offer so much more than low price in a plain brown wrapper. To repeat my now very tired old mantra — the only difference between a successful “brand” and a successful “private brand” is who owns it.
Private label has always piggy backed on the marketing done by the national brands. When a consumer walked into a store they would compare prices between the national brand and the private label right next to it. The decision is: Can I be satisfied with the private label? Is it good enough? The narrative in their mind: They just want to save money. It really doesn’t matter whether they are at Kroger or Walmart – the narrative is the same. Unless the retailer brands their private label like some retailers have done like Walgreens and others, the consumer will only have one narrative in their mind – “Save Money”. As a result the private label brands will rise and fall with the consumer’s sentiment.
The NPD study aside, it seems to me that store brands are alive and healthy. Using some Nielsen data for the year ended mid-March, store brands are maintaining their strong sales growth relative to branded items, despite predictions that the private label surge would run out of steam as the economy improved. The data indicates that consumer packaged goods private label dollar sales in FoodDrugMass including Walmart, increased 3.9% for the year, while branded products only gained 0.9%. Beyond these two stats, it seems that private label is showing some strength in other ways. For example, the store brand dollar gain was nearly twice that achieved in the preceding 52-week period, and store brands have widened their share steadily over the past few years from 17.2% in 2010 to 18% currently. The average price of a store brand is $2.36 compared to $3.03 for a branded item, so shoppers are still getting a clear benefit from purchasing store brands. Moreover, positive store brand trends are taking place in categories other than those that are commodities. For example, private label cosmetics were up 28% in the year to mid-March. Store brand beer gained 43%. Coffee was up 27%. This would appear to suggest that store brands still receive a high level of acceptance on the part of shoppers.
This was a common theme in past recessions. Consumer moved to private label during the recession and back to national brands when times improved. Remember generics – what consumer would not move back to branded after buying them? Today things are different. Over the last 10 years private label product quality and packaging have greatly improved. Additionally there are now many private label products for which there is not a national brand. These sales will not decline after consumers think things are better as they have no alternative. In some categories there may be a dip in private label sales which may result in a slowing of their growth rate, but not a decline overall.
It would be a mistake to think that private label brands are not brands themselves. Even without brand building efforts consumers form an opinion about an unsupported brand. While private label does well due to distribution advantages, it is a mistake not to treat them like brands. In the absence of support they are perceived in many cases as low price/low quality products, hence their current attraction. Trader Joe’s was mentioned by a colleague as an exception because they always do well. Consider their ongoing brand building efforts in good times and bad.
Retailers need to create a private label that is as good or better than national brands. It’s a huge opportunity for the retailer to control the experience and offer a differentiated product brand. You can’t get your favorite ice cream anywhere but Wegmans!
Retailers who are building their private label stocks still have plenty of upside in growth, as long as they focus on quality, convenience, selection, price/value. While consumers are comfortable with brands, two items to keep in mind are 1) consumers see retailers’ selections as brands, and 2) in most categories of consumables and household products, consumers will tell you that they have “no preference” for a brand 35% to as high as 75% of the time.
Both retailers and CPG firms would do well to better understand how those “no preference” consumers can be won over within a category.
The BIGinsight Monthly Consumer Survey shows how these two factors weigh in. In the Ice Cream category, Breyers is the preferred Brand by 10.8% of respondents. Store brands are preferred by 7.4% of respondents. Further, the Kroger Private Select Brand enjoys a healthy Net Promoter Score of +35.2%, while Breyers has an equally impressive NPS of +35.0%. Yet, fully 42% of respondents stated that they have “no preference.”
Similar patterns emerge among frozen vegetables, frozen chicken and turkey and laundry detergents and additives. While Birdseye is preferred by 14.6% of respondents, fully 11.7% of respondents like the generic store brand. Tyson is preferred by 15.8% of respondents for chicken, but 5.6% say they are comfortable with the store brand. Tide shows up with high net promoter score marks for laundry detergent, a whopping +38.3%. That’s not stopping people from buying Kirkland or Great Value Detergent, when they weigh in selection (fragrances and sizes), price/value, and convenience.
Given the commoditization of grocery products, it is unlikely that consumers will return to branded items that in many cases are the same products as the generics with different packaging. Once the consumer realizes that fact, it will be difficult to encourage them to pay premium prices again.
The only solution for manufacturers will be to generate significant product improvements that justify a premium price.
Retailers must continue to reinforce the parity of their products in order to maintain top of mind awareness and volume. In effect, grocery retailers must learn to act like packaged goods marketers, just on a more local scale.
No big surprise here. After a few cycles of purchase, consumers realize that many PL products are not consistent and certainly not “equal or better” than the National Brand. Novel and different at first, but then they miss the consistency of a National Brand with a long history. Secondly, the retailers have deep discounted their PL brands with Bogo and 10 for 10 pricing which further cheapens the image. Certain shoppers will continue to purchase Private Brands to be sure. Those with resources and a little more refinement of taste will return or stay with brands.
No. Private label is here to stay. The growth in private label profits continues to drive many retailers, including Target, Costco and Safeway, some of the largest retailers in America. Their continued investment in private label branding is a reflection of consumer spending on these brands, which continues to become a larger part of these retailers profits.
Could I be reading this wrong? Private label growth over the last decade has been astounding! How much higher do we expect it to go? From 18% to 27% share. that is a 50% increase in share in ten years. Sounds good to me.
With regard to where it is going, I agree with most of the comments of my colleagues. If the retailer presents their brands as “brands” in quality and presentation, growth will continue. If the retailer sees private label as a price strategy of low-quality knock-offs, it will decline.
Mr. Retailer, don’t give any customer an excuse to go back to the brands, and you will win.
Private Label products offer both cost savings and product quality across many categories, increasing their penetration and frequency as shoppers feel good about buying them — even if they don’t feel the need to do so for economic reasons.
Creating product innovations is the key to success — for Retailers to achieve additional growth in those categories that have met with some resistance, and for National Brand Manufacturers who must give a meaningful reason to shoppers to pay more for their offerings. In the long run, increased innovation will be a winning formula for all.
Excuse me, but 27% buying more than last year is still MORE than last year (regardless of what the corresponding number was then); of course we also need the number who plan to buy less, and people often don’t do what they say.
I suspect the numbers (on private label) will regress when — or if — the economy improves more, but not to the levels they once were … hence over time, the numbers will creep up further. Paradoxically, the higher-end brands will also grow, the difference coming from “popular” brands.
I believe the behavioral shifts of the recent recession are likely to be enduring with respect to value-seeking. This is manifest in private label purchasing habits as well as trip planning and coupon clipping and a decline in recreational shopping.
Habit is the operative word here. The economic lessons suffered by the middle class have been painful and their memories will fade slowly, if at all. Those of use whose parents or grandparents came of age during the Great Depression of the 1930s know this can be a lifelong attitude. In the present instance, this attitude is being reinforced by the ubiquitous reminders on our gasoline pumps.
Private label share growth will never be continuous and smooth. It may level off some when better times arrive, but a reversal of the long-term trend seems very unlikely in our lifetime.
My sense is that consumers are tired of store brands that aren’t meaningful. (Incidentally, they’re also tired of traditional brands that aren’t meaningful.)
The old “generic” store goods delivered a meaningful value — low price with reasonable quality. A solidly developed store brand (supported with communication) delivers additional value that’s in sync with the store’s values.
Unfortunately, consumers are now confronted with store brands for everything — which are purely tactical responses by retailers to fill their goods with lower margin goods. Unfortunately, that usually turns the category for the store into a lower revenue category as well.
Retailers should focus on developing their brands to deliver solid meaning.
I’m not sure I really get the view that private label satisfaction is truly down from this report.
It seems to me that growth may be decelerating, which wouldn’t surprise me especially given the macro differences between now and 2009.
They seem to be doing pretty well as far as I can see with some doing a good job of becoming strong brands in their own right.
I don’t think Trader Joe’s, Whole Foods and COSTCO missed anything with regards to Private Label. Private Label has grown in the US for two reasons. 1) poor economy, 2) quality. At some point we have to expect the US economy to improve. When it does, the retailers that have built quality Private Brand items will have an edge on competitors. As I have stated in several of my blogs. Private Label is one of the best ways to compete and build customer loyalty.
Best way to compete against National Brands when the economy improves? 1) partner with National Brands to drive their brand and your brand, 2) Keep quality high, 3) Innovate.
PL doesn’t have to mean lower quality. Several stores, grocery, apparel and others, have done a great job in developing high-quality national brand alternatives. We shouldn’t limit this discussion to grocers.
Also, internationally, PL dwarfs the US penetration, so we are most likely the anomaly.