Digital CPG Blog

Retailers are continuing to expand their private label products while pushing brand label products off the shelves. Where retailers were once content with building their brand in basic CPG categories, they have continued to expand their reach.

Most recently, Kroger has more than doubled the number of items in its Mirra line of private-label cosmetics, shampoos and other beauty products, and plans to add more, reports Dan Sewell. The grocery chain is making store brands a priority, and already offers more than 20,000 store brand items, up 25 percent from two years ago.

“CEO David B. Dillon said Kroger identified health and beauty as an underdeveloped area among store brands,” Sewell reports. Kroger points to the success of Whole Foods cosmetics as a reason to plant a foot into the beauty category.

Certainly, it will be interesting to see how CPG manufacturers respond to the expansion of private label into previously undisturbed categories. Will they go online? Sell direct? Appeal to customer loyalty?

Consumers are swayed by branding and labeling, according to a new report published in the Journal of Food Quality and Preference. Heavily swayed, in fact.

Labels and brands exert more influence on consumers than price. “Overall, label styles enticed consumer attention on-shelf, according to the study, followed by brand recognition and finally, flavor/taste perception.”

“Younger consumers were said to use multiple factors in their purchase decisions, including product packaging and price; while older consumers were found to be more brand-loyal overall, despite price comparisons.”

Brands that are looking to make the shift online will want to ensure that all the money they’ve spent on their brand and label for the store shelf isn’t wasted once it’s product hits the virtual shelves of shopping.

The recession has caused a shift in the shopping approach for consumers when purchasing national or private label with 75 percent of consumers saying they are more open to trying private label store brands products than they were two years ago, according to a recent Deloitte survey.

More than 2,000 household shoppers and food preparers were polled in a joint study released by Deloitte and Harrison Group titled, “The 2010 American Pantry Study: The New Rules of the Shopping Game,” on how they have changed their grocery shopping behavior in the last two years.

Check out the chart below:

Consumer Goods Technology recently interviewed Pat Conroy, vice chairman, U.S. Consumer Products Leader, Deloitte LLP. Here’s a summary of his suggestions on how to compete with store brands:

1. Change the Mindset. “Consumer products companies should address each store brand as a real competitor brand. That means understanding the brand and product differentiation strategy today, and in the future. Of course, ongoing product innovation plays a major role in differentiation.”

2. Create Destination Brands. “These are products that consumers actively seek out, believe the product performance is demonstrably superior, and will go to another retailer to find the product. Nearly half of all executives surveyed showed strong agreement that consumers will switch stores if their preferred brand is not offered.”

3. Create Retailer-Specific Product Portfolios. Companies should create retailer-specific product portfolios to compete with the multi-tier range of low-end to often premium store brands. Less than two out of five executives surveyed believe that consumer products companies have a product lineup to successfully compete with store brands.

4. Create Local Versions. “That is, localized versions at the regional, state or even city level. Our survey results show that retail executives are much more tuned in to this opportunity for national brands, compared to consumer products executives.”

5. De-Emphasize Discount-Driven Promotions. “Consumer products companies should deemphasize discount-driven promotions as undermining the national brands and increasing consumer price sensitivity. Nearly seven in 10 respondents showed strong agreement that consumers are more price sensitive due to national brand promotions.”

To implement these strategies, like destination brands and localized versions, CPG manufacturers will also have to create strong loyalty programs that demonstrate the value and experience of the brand. That’s another reason why the online channel is a great resource for CPG manufacturers. There, they have a learning lab of data that can help them compete successfully against store brands.

Young women in their 20s and 30s are expected to surpass Baby Boomers in their consumer packaged goods spending. A recent report from Information Resources outlines this growing consumer demographic’s key behaviors. Compared to the preceding generation, women born between 1979 and 1989 tend to shop less, buy more during each trip, and frequent supercenters more.

Some key findings from the study:

- Private Label Acceptance is Higher than Gen X. Seventy percent of Millennials perceive store brands to be of “excellent quality,” IRI said, challenging the general belief that private label acceptance evolves over time.

- Gen Y Wants Healthy Products. Millennial women want products that are good for you and have healthy options, but this is less important when purchasing beverages, however.

- Coupon Use Isn’t High With Gen Y. This generation uses coupons and circulars less than their baby boomer parents and are more likely to impulse shop as a result. They are also more likely to shop without a budget and make impulse grocery purchases. They’re also time-strapped and not as budget-savvy.

- Gen Y Feels Emotional Attachment to Shopping. This group of young shoppers value characteristics such as a store’s “value proposition, location, user-friendly layout and variety” when it comes to deciding where they’ll shop, according to IRI.

Many of these findings suggest that traditional advertising media, such as TV and print, may not be as effective as they once were in reaching younger consumers, and marketers should turn to more nontraditional means, said Sean Seitzinger, IRI’s SVP of thought-leadership.

Want some evidence that private label store brands are becoming a huge threat to national CPG brands?  Look no further than Walmart’s recent efforts with its Great Value Brand.  According to a recent Ad Age article (subscription required) Great Value Brand sales are estimated to be larger than $10 billion.  $10 Billion.  As Jack Neff points out in the Ad Age piece, that means Great Value sales are:

• Nearly twice the worldwide revenue of Clorox Co. ($5.5 billion) or Hershey Co. ($5.1 billion).
• Bigger than the U.S. revenue of McDonald’s Corp. ($8.1 billion) or Kellogg Co. ($7.9 billion).
• More than the U.S. sales of Amazon (about $9.6 billion).
• Close to the sales of Dollar General Corp. ($10.5 billion).
• Approaching Procter & Gamble’s fiscal ‘09 sales to Walmart Stores (about $11.9 billion, or 15% of P&G revenue).

The Great Value brand is out in front of a concerning trend for national CPG brands–Retailers are now full-blown branded manufacturers, and they are competing directly and effectively against you. In the U.S., private label CPG unit share has grown 1.2 percentage points to 22.8% and dollar share has grown 0.7 percentage points to 17.6%, according to this recent study by research firm IRI (via Retailer Daily).

The most concerning element of this growth? Private label brands are no longer cheap, generic versions of the national brands. In many cases, private label brands are working to lead the market with innovative products priced across a broad spectrum.  This is a huge, aggressive step for retailers.  As the folks at Integer Group pointed out in this recent post:

Branded consumer goods and private label have traditionally coexisted by way of segmenting the consumer population on perceptions of value. Those consumers who correlate value exclusively with price have been the rightful territory of private-label brands, whereas those consumers who use additional factors such as “performance” and “experience” have tended to lean toward branded goods.

Take-away: Retailers are no longer satisfied to be the bottom dwellers in the market.  They are going hard after the mainstream consumer and it is working.  It will be very interesting to see how the national brands respond.

Private label-circa 1980

Private label-2009