Findings from a 2010 Nielsen global online survey of more than 27,000 respondents across 53 countries show that the private label phenomenon is here to stay. In fact, while more than half of online consumers surveyed said they purchased more private label brands during the economic downturn, fully 91 percent said they will continue to do so when the economy improves.

Global Progress is Continual
On a global scale, the impact of the economic environment on private label has played a more marginal role. Looking at a comparison across markets, there is a slow, but steady continuation of private label progress, which is actually the result of more retailers deploying private label products in a growing number of categories, a phenomenon that’s continued for more than two decades.

The victims of this transformation are the small and medium brands that get de-listed in favor of private label. Generally, the leading brands in the category are not suffering and private label isn’t fatal for healthy brand leaders. Consider this: In Europe where private label is most developed, store brands still only capture an average 35 percent market share. In the U.S., private label’s market share is still under 20 percent.

As retailers continue to become more adept at using national advertising to build store brands, growth will surely continue. The advertising of retailer banners has grown over time and this has a positive impact on the brands that these retailers carry. The evolution of private label products has also resulted in these brands operating above the lowest price band. Increased store visibility through facings and a proliferation of SKUs has resulted in greater familiarity and awareness of these brands among shoppers.

National manufacturers will realize that the best way to guard their brands’ turf will be to treat private label as legitimate competition and reactionary price reduction measures will only provide a temporary reprieve. Clearly, national brands still command a greater proportion of their categories at an overall level and private label usually takes the place of ‘challenger’ to a vibrant and dynamic market for shoppers.

Private label brands are in a position to compete on value and quality—key attributes that today’s consumers seek. The opportunity for retailers is to use private label to differentiate themselves and lead the way with innovation to help build and sustain the image of the entire franchise.

• For more detailed country-by-country review, download the complete report: The Rise of the Value-Conscious Shopper – A Nielsen Global Private Label Report

Insights on the Private Label Consumer

• Heavy private label buyers are typically from larger households (three or more) with families (kids under age 18); under 45 years old, with higher incomes ($70K plus).
• Super heavy and heavy private label buyers account for nearly 60 percent of total private label dollar sales.
• Top private label buyers spend more than the average shopper across all product categories and spend more per shopping trip, with private label products accounting for more than one-third of their total shopping trip bill.
• The face of the private label buyer is evolving to one person households, age 55 – 64 years, no kids, with incomes of $100K plus.

“Not only is it critical for retailers to know who is buying private label today, but also who will be the primary private label buyers in the future,” said Carman Allison, director of Industry Insights, Nielsen. “As the face of the private label consumer evolves along with general demographic trends to smaller, older, higher income households, retailers need to make sure they are planning for the future by innovating to meet the needs of tomorrow’s private label consumer. This could mean an increased focus on smaller sizes or portion-controlled products, health and wellness offerings such as low fat or low sodium, and premium offerings to attract higher income consumers.”

Insights on the State of Private Label in Canada

• Fast-moving consumer goods (FMCG) private label sales in Canada remain flat at $11.4 billion, and unit sales are down one percent. National brand dollar sales are up three percent to $50.9 billion while unit sales are up two percent.
• Canadians spend $844 on private label products annually, up two percent from last year.
• On average, private label products are 30 percent less expensive than national brands, but the gap, fueled by higher levels of inflation for private label, has slightly narrowed.
• Canadians spend $12.20 per trip on private label products, up three percent from last year and the average Canadian household makes 69 trips per year to purchase private label products.

“The battle of the brands continues,” said Allison. “Despite the economic downturn, Canadians did not switch from national brands to private label products. National brands are meeting consumers’ needs for value by driving more sales through feature pricing while private label increased prices at a higher rate, narrowing the shelf price advantage. That said, Canadian retailer concentration is increasing, with the top five retailers representing the majority of the grocery trade. This translates to increased private label development.”

Pretty deep. According to Nielsen, three-quarters of U.S. households believe store brands are a good alternative to name brands and nearly two-thirds of households say that store brand quality is just as good as name brands. In a recent Progressive Grocer Store Brands article, the depth of store brand buying reveals just how much consumer’s behaviors and attitudes have aligned.

With nearly 70% of store brand dollar sales coming from consumers who are “variety-seekers,” retailers can encourage deeper levels of store-brand buying by:

• Rewarding key consumers with continuity-based promotions.
• Implementing repeat stimuli efforts
• Targeting specific shoppers through direct mail efforts

For more details and tactical examples, continue reading at Progressive Grocer Store Brands.

To get a better sense of where the fast moving consumer goods industry stands – and where it’s going – in Asia Pacific Nielsen has released its comprehensive mid-year report highlighting regional trends such as total FMCG category growth, the role of hypermarkets and the changing gender profile of shoppers as well as country highlights on retail trends in 14 key nations.

FMCG Growth
Volume growth in the industry was down across many Asia Pacific countries as consumers cut back during the recession.  But there were some standouts: India and Vietnam posted value sales rises of nearly 15%.  In China, where value sales had been posting double-digit gains for much of the decade, growth slowed to just 3% in 2009.  But thus far in 2010, the segment has rebounded nicely, with 11% in the sector in the first quarter of the year.

Modern vs. traditional
The traditional retail trade, both wet markets and counter service mom & pop stores, continues to play an integral role throughout much of Asia.  Even in countries experiencing rapid growth such as China, Vietnam, Indonesia and Malaysia, the wet market continues to be the main place for buying fresh food.  But modern grocery stores, such as hypermarkets and convenience stores are now an established presence in most urban areas, with the strongest growth for such formats seen in China and Korea.

Modern channels have continued to grow steadily and now account for 53% of all packaged grocery sales in the region, up from just 35% in 2000.  But that trend varies widely: almost all packaged grocery shopping was done in the modern market in Taiwan and Singapore (94% and 92%, respectively) while in India, just 5% went through self-service outlets.

China has been the most dynamic country over the past decade, with the modern trade growing from 34% in 2000 to 64% in 2009, the fastest retail ever seen with Korea fast on its heels, expanding from 63% in 2000 to 86%.

Format Wars
The expansion of hypermarkets has been a boon for many shoppers, especially those in urban areas.  Today, this format is the strongest modern trade channel, accounting for 28% of packaged grocery sales in China.  In Shanghai, 77% of shoppers use hypermarkets as their main store, while in Beijing, 45% do the same.  In Korea, the channel accounts for 31% of trade.  Meanwhile, in Southeast Asia, Hypermarkets are strongest in Thailand with 90% of urban shoppers using them regularly, there has also been significant development in Malaysia where nearly 40% of shoppers spend most in this format.

In many of these countries, the traditional grocery store has been in slow decline as it has faced increased competition.  In Korea, the traditional channel posted a closure rate of 5% per year, accounting for more than 50,000 store closures over the course of the decade.  Although the hypermarket is making huge gains in Malaysia, most shoppers (over 70%) still visit traditional grocery stores two to three times a week. Asian shoppers now have a wide portfolio of alternative shopping channels to meet different shopping needs and occasions including both traditional and modern stores.

Any visitor to Asia will notice the surge of small format stores, both convenience stores and mini-marts, with some intersections boasting two or more such stores on the corner.  Convenience stores such as 7-Eleven, Familymart and Circle K have continued to grow strongly throughout the region, with shoppers attracted by their convenient location and food service offer.

Indonesia has seen explosive growth in mini-markets, small modern grocery stores, with local chains leading this change.  With just 2,000 such stores at the start of the decade, the nation now boasts more than 11,500, and this channel’s now accounts for more than 17% of grocery sales.

Tapping the Potential of Private Label
In North America and Europe, private label goods have experienced strong growth, especially during the recession.  What’s more, consumers in those regions say that they expect to continue buying private label goods even after the recession is over.   The story is very different in Asia.  The private label concept has yet to make a significant dent in sales, and only in Hong Kong do they have above 5% share of sales.  Retailers across the region have been investing in the development of Private Labels but still have a lot of work to do to convince shoppers of the quality and value of these products compared to leading brands.

What’s Ahead
The changes shaping the retail scene in Asia Pacific go beyond store size and format.  Nielsen has identified a number of trends that will affect retailers and manufacturers in the next decade, including:

• The growing role of the male shopper – Tradition still leads the way in most countries in the region, but an increasing number of men are becoming involved in grocery shopping.  Only in India and Indonesia do housewives dominate, and Korea and Vietnam also still strongly adhere to traditional roles.  Across the region, 22% of the “main” grocery shoppers for households are now male, up from 14% a decade ago.

While there are signs of change in Korea, likely driven by the development of Hypermarkets, only 11% of men claim to be the main shopper for their families.  In Vietnam, the percentage is likely to stay low for a while as long as the traditional Wet Market channel continues to dominate packaged grocery sales.

• Hypermarket growth stalls as multi-format strategy gains – Smaller formats that offer shoppers a more convenient way to “top-up” shopping have gained in popularity, many being opened by the leading hypermarket chains themselves.
• Shopping outside the store – Shopping done via the TV or Internet is gaining traction in Asia Pacific, with Korea leading the online shopping sector.   Koreans have embraced this “format,” with 4% of shoppers saying they use the Internet for the majority of their grocery shopping and 71% saying they use it regularly to purchase groceries and personal care items.  An additional 30% say they use TV shopping.

These and other trends are discussed in the 2010 APAC shopper trends report.

Shoppers around the world took many steps to stretch their budgets during the recession such as eating at home more frequently or cutting back on vacations.  While improving economies may prompt consumers to return to restaurants or take a vacation, one trend that looks likely to remain—and perhaps even grow—is the shift to private label goods.

A 2010 global online survey conducted by The Nielsen Company reveals that 60% of consumers across 55 countries from Asia Pacific, Europe, North America, Latin America and Middle East/Africa (consisting of countries from Saudi Arabia, Pakistan, United Arab Emirates, Egypt and South Africa), say they are stocking cupboards with more store brands as a result of the economic downturn. Across the regions, Latin America led the way at 66% and the Middle East/Africa/Pakistan area trailed at 51%.

The highest levels of private label purchase intent during the economic downturn were reported by consumers in Colombia, Spain, Portugal and Greece at 80%, 79%, 74% and 70% respectively, reflecting recessionary realities, depressed export activity and raging deficits. Meanwhile, the lowest reported drift toward private label came from consumers in Sweden (70%), Thailand (62%), Hong Kong (60%) and Denmark (59%) who indicated they did not purchase more store brands during the recession.

While econometric pressures are driving many value-oriented consumer shopping decisions, it is just one factor influencing private label purchasing. A strong push from retailers and improvements in both quality and selection are contributing factors. It should also be noted that not all private label categories are alike. Store brand share varies widely by category and they still represent the minority stake when compared to premium brands.

Store brand share is typically strongest in commodity categories like milk, fresh eggs, rice, edible oil, vinegar and sugar/substitutes or in those with little differentiation (first aid and wrapping materials). Store brand share is usually the lowest among categories where there is strong marketing support for top brands (e.g., candy, gum, beer) and those where a high-level of innovation occurs (e.g., detergents, deodorant, cosmetics).

Staying Power
Fully 88% of shoppers globally said they intend to keep buying private label even after the economy improves, suggesting that store brand quality has reached parity with national brands and delivers on consumer expectations. While Latin American and Middle East/Africa levels were slightly less than the global average at 83% and 79% respectively, the overwhelming majority still intended to pursue a value strategy.

Countries with the most value-conscious consumers on the private label dimension included Austria, Germany and Sweden, all registering a better than 95% intent to continue purchasing private label, while more than one-quarter of shoppers in the Ukraine (31%), Pakistan (28%), the United Arab Emirates (27%) and Venezuela (27%) had no intention to buy private label in the future.

The economic downturn prompted many consumers to try private label goods for the first time, and once they did so, they discovered that not only was the pricing right, but the quality of the goods met or exceeded expectations. Regardless of the pace of economic recovery, retailers continue to have a tremendous opportunity to convert shoppers to private label for the long term.

Regional Round-Up

Asia Pacific
In most Asian markets, private label is still relatively undeveloped with only Hong Kong having a share above 5% overall. There has been significant investment by many leading retail chains into launching new private label products over the last five years and they are gaining acceptance particularly in the basic commodity categories. In these categories, such as cooking oil, rice, bathroom tissue, market shares can reach up to between 20% and 30% in some countries.

Asian consumers are still largely brand loyal and retailers will need to increase their private label marketing support to build consumer trust in their own brands. During the economic downturn in 2009, there was strong private label growth in many countries. For example, in Thailand, private label grew by over 25%, as shoppers increasingly looked for value when buying grocery products.

In the Pacific markets of Australia and New Zealand, private label is much more established with the majority of households regularly purchasing private label products, which account for up to one-quarter of all supermarket sales.

Latin America
Private label continues to have a stable presence in the region. In Chile, store brands represent 8.4% of the market as of April 2010. Market share remained relatively flat in Argentina and Mexico, reporting shares of 7.6% and 6.6% respectively during the rolling year ending April 2010. While Mexico’s private label market share was flat, sales grew 23% compared with the previous period (April 2009). Store brands in Brazil have 4.9% of importance (YTD April 2010).

The categories where private label market share are strongest varies dramatically by country. In Argentina, the top five categories are dominated by foods such as fish, pasta, ice cream and vegetables, while in Chile, four out of the top five are non-food categories (clothes hooks, candles, pots/pans and cotton swabs). In Mexico, sugar and pies hold the greatest market share, but disposable plates, glasses and place settings round out the top five.

Europe
Private label continues to show solid performance in most European nations, with Switzerland, the United Kingdom and Germany leading the way reporting 2009 store brand value shares of 46%, 43% and 32% respectively. While year-over-year growth was relatively flat or minimal, Turkey and Spain boasted the biggest year-over-year increases of 2.7% and 2.5% respectively.

North America
Private label has taken off in the U.S. For year ending July 2010, store brand unit sales reached an average 22% share across all departments, with share gains in all but dairy. Store brand unit shares range from a high of 40% in the dairy department to a low of less than 1% in alcoholic beverages.

In Canada, private label represented $11.4 billion in national sales for year ending July 2010, which is 18.3% of overall consumer packaged goods spend. Over the past year, private label share has declined slightly with overall dollar sales flat, while the total market increased +3%.

Middle East
Middle Eastern consumption patterns often run counter to the West for a variety of reasons, and respondents in the region indicated the least likelihood of purchasing private label today or after economic recovery. However, as awareness has increased over the last few years, volume is growing—albeit from a very small base. While only 18% of shoppers in the United Arab Emirates perceive private label as a better value for the money, certain categories such as household cleaners are regarded more favorably. Fully, one-fourth (26%) of shoppers in Saudi Arabia consider these store brands as worthy.

Note about online survey methodology
While online survey methodology allows for tremendous scale and global reach, it provides the perspectives on the habits of existing Internet users, not total populations. Where noted, the Nielsen Global Online Survey data is supplemented with measurement of private label consumption by market.

Richard Reeves, Associate Director – Consumer Research, The Nielsen Company, Australia

Brand promotions are vital weapons in the sales and marketing arsenal, whether they are price discounts, multi-buys or additional quantity. In Australia, it is estimated that up to 30% of all grocery purchases are made on promotion and trends indicate that this could increase among key retailers. This proportion is similar to the U.K., where one-third of groceries are bought on promotion.

Nearby, our New Zealand kin are serious about promotions, with almost half (46%) of all grocery purchases being bought on promotion – reflecting the strong historical value focus of this market.

Just as there are differences between countries when it comes to promotions, there are even greater differences by category – this can range anywhere from 25% of volume being sold on promotion in one category, to a staggering 75% in another!

Clearly, for the manufacturer and retailer, promotions represent significant investment in time and money. So, the question is, how do these promotions affect the Australian shopper and what strategies or tactics can be employed to increase their effectiveness?

The Australian Shopper
Nielsen research has shown that the impact of the global financial crisis caused Australian consumers to re-assess how they spend and shop. We have witnessed a fundamental shift in shopper sentiment from the spendthrift, debt-driven early 2000s to a greater sense of caution and restraint post crisis. We have seen the rise of the “savvy shopper” who is happy to buy private label in one category and premium priced brands in another. We have also seen private label products being launched successfully in more and more categories. It would appear shoppers are becoming more willing to try and stick with these products where they perceive them to be just as good or just plain good enough.

Shoppers are increasingly using coupons and visiting more stores during their shopping trips as they search for the best value. This behavior has been observed in Australia with shoppers increasing their store repertoire. Furthermore, 30 per cent of Australian shoppers claim “they will still look for cheaper grocery brands even though the crisis is over” (Nielsen Global Consumer Confidence Survey, June 2010).

Given the shoppers’ search for value, a promotional strategy looks to be an excellent response. However, relatively speaking the Australian shopper is less sensitive to promotions than shoppers in other countries.

We see in this chart that nearly half the shoppers claim promotions rarely change their brand choices, or they only buy promotions when they already like the brand.

It is a minority who claim to regularly buy different brands because of promotions. These results are congruent with the view that shoppers tend to have a limited number of brands that they buy regularly even if their total repertoire is quite broad.

Australian shoppers’ knowledge of the prices they pay is relatively weak  with nearly half unsure of what they actually pay.

Nielsen research has found that in some heavily promoted categories such as beer and bread, (among consumers who have some knowledge of price); shoppers believe the promoted price is the normal price – not the shelf-price. So, it appears that the number and frequency of promotions has fundamentally shifted shoppers’ price perceptions.

There is also strong evidence that shoppers are aware that another promotion ‘will be along in a minute’ and are willing to wait. This can be seen across the grocery channel and in other areas such as the petrol market with the “cheap Tuesday” phenomenon, the automotive equivalent of pantry stocking, i.e., filling the tank.

So what options are open to the manufacturer in the face of these almost contradictory behaviors of the shopper, that is, being value-focused, but uncertain of the shelf price? We all know sales increase when brands are promoted, but are these additional sales profitable and is the promotion actually supporting the brand?

Key Considerations for Promotions

1. Is the promotion a tactical response to competitor activity? For example, is it a response to a new entrant into the category; or is it to take advantage of above-the-line support? The strength of the brand’s equity and percentage of volume sold on promotion versus its shelf price need to be understood. Relatively speaking, stronger brands tend to sell more at full price than their weaker competitors.
2. Does the promotion increase the number of households buying the brand (household penetration) or does it increase the amount spent on the brand per household (Average Weight of Purchase – AWOP)? If it is the latter, the promotion may be rewarding loyal buyers and protecting share, but may undermine a brand’s price premium in the long term.

To understand if the additional sales are coming from new households (increased penetration) or increased AWOP, one needs to use actual purchase data from services such as Nielsen Homescan.

Nielsen has found in a number of categories that there are a proportion of shoppers who only buy on promotion. We have seen this group to be as high as 60% in some categories. While shoppers are loyal to specific brands, when their preferred brand is not on promotion it’s likely a competitive brand they know and may be partial to is. The role of the preferred brand in this situation is to ensure the competitor is only considered and not purchased.

This presents a dilemma for the brand. Above-the-line support may be needed to help reinforce the brand and its unique position, but if funds are diverted from in-store promotional support, it will lose significant share. Innovation within the category may be the only way to break the promotional cycle.

Additional Considerations

• How does the brand repertoire change when on and off promotion?
• What is the depth of the price cut, and how deep does it need to be to be effective?
• Is it better to have more frequent promotions with smaller price reductions or the opposite?
• Is the promotion reflective of historical practices? For example, if the brand has always had a promotion at Easter. Is this really the best time for the promotion?
• Is the promotion communicating the right message about the brand?
• And finally, will the promotion generate additional profit, as well as generating additional volume?

We know shoppers are looking for value, or at least value among their preferred brands, so communicating the promotion and using the best triggers is vital to maximize its impact. Therefore, are gondola ends and shelf labels enough to drive awareness of the promotion; or is it worth considering additional communication channels?

Given the importance of promotions, it is vital to treat them with the respect they deserve, as their correct use can drive the brand and profitability. Conversely, ill-considered promotions can weaken a brand and undermine a company’s bottom line. So, the question remains: Can you identify what purpose your promotion is serving?

Todd Hale, Senior Vice President, Consumer & Shopper Insights

In 2007 and for much of 2008, rising gasoline and commodity prices led to a wave of price increases in the consumer-packed goods industry. For some categories, it was not uncommon to have two to three price increases as ingredient, packaging, energy and transportation prices jumped sharply. During that time, many retailers—particularly those selling food and beverages—experienced a lift in sales and profits. As recessionary pressures intensified at the end of 2008, gasoline and commodity prices started to drop and many retailers began passing on the savings to their shoppers and cutting prices broadly to be more competitive with value retailers.

Lower prices on groceries, gas and other household items have offered some degree of relief to stretched American consumers. With uncertainty about the economy persisting, shoppers continue to watch their money and seek out value. But to retailers, lower prices present challenges: how to grow market share without taking a hit on the bottom line; and, after being very vocal about the savings they are providing their shoppers, how do retailers elevate prices without disenfranchising shoppers?

Nielsen’s recent review of retail prices found that over the 4-week period ending June 12, 2010, prices were off or flat versus year ago providing exceptional value to consumers, but weakening trends for retailers. Unit prices have been dropping sharply since March 2009, and the number of items on promotion—in the form of feature ads or displays—has gone up. When one store slashes prices to gain competitive advantage, others follow suit. Meanwhile, brands have resorted to more promotions to stimulate sales and stem the growth of private labels.

Unfortunately for retailers, these price cuts and heightened promotions have not achieved the desired effects as both dollar and unit sales are off in each of the last three (four-week) periods. But the big unanswered question is: would the situation be worse without these value efforts?

Which Departments Are Faring the Best?
For consumers, the good news is that prices across all departments are better now than what was experienced for much of 2008 and into early 2009. Some departments showed price increases in recent quarters, such as dairy, fresh meat and fresh produce, but prices are still very attractive for consumers seeking savings. Within dairy and fresh produce, it is interesting to note that increased prices are yielding stronger retail sales trends.

The deli department has held up quite well, while alcoholic beverages is the shining star of departments, posting sales increases in both dollar and unit terms.

The departments with the most negative sales trends were fresh meat, non-food, and general merchandise, with dollar and unit losses the greatest among the non-food and general merchandise departments. Dry grocery department sales trends were similar to the total store trend. The frozen department was on a stronger sales trend, but unit and dollar sales have fallen in recent periods.

In a further sign that price cuts were not having a positive impact, only one of the top 16 categories with the largest price cuts actually saw dollar sales rise. So drastic price cuts don’t appear to provide incentives to alter the frequency of consumption!

Unemployment Continues to Stall Recovery
Perhaps the biggest factor preventing retailers and CPG companies from raising prices is the state of the U.S. economy. While the Great Recession may be officially over, the recovery has really only started in earnest—and in unique ways, namely, without the growth of jobs. After four straight months of job creation, the momentum was stopped dead with a surprise June announcement that the economy had once again shed jobs—this time 125,000. The unemployment rate dropped to 9.5%, but including people who are not working full-time but would like to be, that number goes up to 16.5%. Moreover, almost half (46%) of unemployed individuals have been without a job for more than 27 weeks. And, unemployment is particularly high among ethnic, younger, less educated and male populations.

These statistics are obviously sobering, and they limit the ability of CPG manufacturers and retailers to raise prices without losing customers to value brands and channels.

What’s the Answer?
As prices have fallen, so have same-store sales trends for retailers, particularly those focused on grocery. Retail price wars are having a negative impact.

So how do retailers get through this period? In the short-term, look for opportunities to raise prices on selected items when justified; merchandise assortment that you have a competitive advantage; look for opportunities to up sell shoppers to build baskets; offer your biggest spenders the special kind of attention they deserve.

Until consumers feel more confident about the state of the economy, their personal finances and job prospects, they are going to seek bargains and keep their spending in check. While there have been some signs of optimism, it seems as if something arises that cancels out any progress made. One thing is for certain, however: until there’s a period of consistently positive economic news in the U.S., consumers will be skittish, and retailers and CPG manufacturers need to be prepared to continue weathering the storm and finding innovative ways to grow share without sacrificing dollars.

SUMMARY: Everybody, everywhere likes a good value, which is why store brands outperformed national brands in the U.S. on an average unit sales growth basis and has posted gradual gains over time in this country as well as in many European countries. Turns out, heavy store brand buyers are good for sales overall, leading the charge on unit growth, unit spending and trip frequency criteria. Store brands have won favor among younger households, boding well for long-term store brand prospects.

Prompted by belt-tightening as consumers respond to the long-tailed economic downturn, store brand offerings posted value or currency share gains in two-thirds of the 21 European and North American countries Nielsen studied, picking up an average of 1.3 share points during 2009. The U.S. trajectory was more pronounced, with store brands advancing to a 17.3% share of dollars and a 21.9% share of units by March 2010—up 2.1 and1.9 points respectively from 2007. Branded products, however, still drive the vast majority of dollar (82.7%) and of unit (78.1%) sales.

Even as store brands secured their spot on consumer shelves, branded offerings demonstrated consistent, gradual improvement over the last half of the year. During this time, store brand average period unit sales grew by 2.5% while brands realized incremental growth of 0.4%. Increases in promotional support behind branded products helped stabilize a declining trend.

A Force at Retail
Store brands demonstrated its power by capturing a 20 unit share or higher in 48 of the 117 categories analyzed by Nielsen. Store brand share fluctuated widely by department from a high of 40% for the dairy department, to a low of less than 1% for alcoholic beverages. This mirrors the typical pattern of store brand strength in commodity categories like milk, eggs and sugar, as well as those with little “consumer-perceived” differentiation such as first aid or wrapping materials.

In categories with a history of strong brand marketing support like beer and candy, or those with a high demonstrated level of innovation such as deodorants and detergents, store brand share remains relatively weak and undeveloped. The low hanging fruit for store brands involves cherry-picking sales at the expense of smaller brands with commensurately smaller marketing support budgets.

The Price Point
Significant real price gaps between store brand and national brands present an opportunity to drive category sales by narrowing the gap in select categories such as those with a high consumer value perception. Consider the upside of making a strategic pricing move to support store brands. To demonstrate the impact of a unilateral, almost imperceptible one cent price gap decrease across categories, Nielsen calculated the yield at up to $400 million in incremental annual unit sales due to increased volume.

Other strategies available to successfully compete with national brands require that retailers adopt and adapt the branded playbook. That means investing in store brand programs that highlight product innovation backed by aggressive advertising and promotion campaigns. However, don’t forget that branded products hold the majority share position in most categories. Retailers need to balance their efforts to ensure they give the proper focus to the national brands and regional brands that dominate most store shelves.

Super Savers
Heavy buyers made a bigger impression on store brand sales in 2009 versus 2008. Comprising just 20% of households and 46% of store brand unit sales in 2008, super heavy buyers expanded to 22% of households in 2009 and chalked up nearly half (48%) of store brand unit sales. Not only did super heavy store brand buyers ring up big store brand sales, they also accounted for 34% of total purchases across the store in 2009.

To put super heavy buyer clout into perspective, their all category buying rate is three times that of the super low store brand buying segment, and they deliver twice as many buying occasions as super low store brand buyers.

Even as the recession amped-up super heavy store brand buyer activity, store brand unit share also increased across the lighter store brand buying households examined. However, brands dominate the overall share picture as they commanded 91% of super low buyer unit sales, 85% of low, 81% of medium, 77% of heavy and 68% of super heavy user volume.

Buyer Profiles
In contrast to the manufacturer coupon model, where the heaviest users are the most affluent consumers, store brand heavy users cluster in the middle income range with annual household earnings of $30,000 to $69,999. While it’s logically consistent that bigger households, with more mouths to feed, would be focused on a savings-based shopping strategy, store brands also have a loyal following among two-person households looking for value.

Perhaps surprisingly, younger female heads of household have a propensity to shop store brands, which is contrary to the conventional brand management wisdom of targeting young buyers to secure their loyalty early on. At the opposite end of the spectrum, the lightest store brand shoppers are men over the age of 65. Heavy store brand buyers tend to be white vs. ethnic households that live in comfortable country or plain rural living areas with 3+ person families. Brands beware—the demographic segment that experienced the fastest growth in store brand unit sales among the heaviest store brand buyers came from households with incomes of $100,000 or more.

Store Brand Buyer Profile (it’s not who you think)

• Middle income families (between $30-$70K annual incomes)
• Reside in “plain rural living” and “comfortable country” areas
• Larger households with 3+ members
• Younger female head of household
• Fastest-growing segment is families making $100K+

Tiered Offerings
Long gone are the days of generics with stenciled package labels. Today’s store brand portfolio is multi-tiered and can include a value tier with low opening price point, national brand equivalents with comparable quality at a savings, and a premium or specialty strata such as a natural/organic label, one-of-a-kind innovative items or a line that does not include the store name at all.

No matter which direction the economy takes, consumers have had a taste of life in the store brand lane, and they like it! Expect store brand quality to climb, along with price points, while the store brand SKU list expansion continues offering premium and unique items never before available.

Hear more from Todd Hale in this interview with the Private Label Manufacturers Association.

Store Brand-Boosting Strategies

1. Close the price gap
2. Enhance product quality
3. Advertise aggressively
4. Promote consistently
5. Shelve advantageously
6. Reward heavy buyers
7. Stimulate new user trial
8. Cross-promote complementary items
9. Retain high penetration, high frequency and strong niche brands

Concentrated Strength
In most countries, the concentration of a few dominant retailers correlates well with higher store brand share, but there are exceptions. This is also true in the U.S. where higher store brand shares in markets are served by a few dominant retailers. With the likelihood of continued consolidation of U.S. retailing in the years to come, expect to see continued growth in store brand shares.

Todd Hale, Senior Vice President, Consumer & Shopper Insights &
Dan Brady, Director, Insights Consulting, The Nielsen Company

SUMMARY: A consistent pattern of reduced shopping trips continues to be a major element of consumer’s economic coping strategies. In the latest battle for share of wallet, those retailers who satisfy consumers through differentiation will gain more of less.

The recession continues its ravaging effect on retailers. According to Nielsen, the downward trend of consumers shopping less hit a new low in February 2010, reporting a 4% year-over-year decline in monthly all-outlet shopping trips. And while per trip shopping basket rings began to pick up during and after the holidays, February remained static with a 1% increase compared to last year. Retailers’ focus on store brands and retail price cuts helped keep spending levels in check driving more value for shoppers.

A closer look at monthly shopping trips shows that trends have virtually flat-lined in total and across all major retail channels. Grocery stores have been shopped two plus times more often than competitive retail channels. Other Nielsen trends show that consumers are not shopping more stores looking for deals as consumers consistently shopped fewer retailers each period in 2009 than they did in 2008. It is a tough market and breathing life into a different retail environment will take new strategies that keep shoppers satisfied and spending while they are in the store.

Food Matters
As consumers are eating in more and out less, retailers are converting lost restaurant trips into grocery trips. And while grocery trips were up in the last eight of twelve periods ending February 2010, trips in the last four months are down. Value channels such as dollar stores, warehouse clubs and supercenters have fared the best showing growth in most periods in the last year and one-half. In fact, only supercenters and club stores had positive trip growth in each period in 2009. Both, however, declined slightly in 2010 as consumer confidence remained low and poor weather conditions plagued major population centers.

Continuing to take a hit are drug, convenience and regular mass merchandiser formats, although drug trips are showing signs of improvement as consumers stock up on meds to combat the effects of the cold and flu season.

Shopping trips to discretionary retailers such as toy, electronic, department, liquor and home improvement stores continue to feel the economic pinch. Electronic, toy and department stores have been hit especially hard, with year-over-year shopping trip declines in the latest four-week period ending February 2010 of 33%, 18% and 7% respectively.

Do More With Less
With less store traffic, retailers need to capitalize on consumers’ time in the store like never before. Three priorities should top the list for every retailer:

1. Satisfy loyal shoppers with savings linked to shopping frequency and spending levels.
2. Entice new shoppers with promotional offers such as a free reusable shopping bag or product.
3. Offer value and low prices, but more important, stake a claim to at least one or two points of differentiation to maintain a competitive advantage.

In the past 20 years, store brands—otherwise known as private labels—have come a long way in the United States. When store brands were in their infancy in the 1980s, product quality was inconsistent and packaging was either generic looking or designed to mimic the leaders in a given product category. It’s a much different story today.

Over the past several years, retailers have invested in quality improvement, product and packaging development, and marketing their store brands, making them one of the few bright spots in the current retail landscape. At The Nielsen Co., we measure what consumers watch and what consumers buy and our research shows that store brands represented 21.8% of unit volume in 2009 while only comprising 10% of items in stores.

In contrast, economy national brands made up 21.3% of sales, while taking up 29.7% of items in stores. Consumers, who might have thought twice about including store brands on their shopping list years ago, now regularly purchase store brands, seeing them as a good value for certain grocery and household goods. The recent surge in store brand sales has a number of retailers wondering what’s next. What will the future hold for store brands in the U.S.?

The Future Is … Europe
To see the future of U.S. grocery store brands, we need look no further than Europe. Thanks to massive consolidation among retailers and early investment in store brands, some European retailers already report over 40% of store sales coming from store brands, according to Europanel.

Consolidation has enabled companies to invest in product innovation, consumer research, and marketing, all of which has contributed to strong store brand growth. In comparison, the retail universe in the U.S. is much more fragmented, and the most successful retailers tend to have 20–30% of sales coming from store brands, highlighting a significant opportunity for growth. Examining what European retailers have done and are doing to drive growth can provide clues to what could be in store for the American market.

• Download the complete article “The Future of U.S. Store Brands” which originally appeared in Food Technology magazine.