I recently shared some thoughts on how CPG manufacturers can protect their brands from private label expansion. Of course, it didn’t take long to hear back from retailers asking for tips on growing their own brands so here are a few private label ideas for our retailer friends.

1. Study the category consumer before going upscale. Consumer understanding is the common thread among top-selling brands. It’s not enough for a retailer to roll out a quality product in premium packaging.
2. Disguise your premium store brands. Many consumers still associate private label with cheap knockoffs. There – I said it. But what if they don’t know it’s a store brand? Look to position premium store brands as exclusive products like Choxie at Target and Canopy at Walmart.
3. Get your pricing right. The price gap between store brands and national brands varies significantly across categories. The same shopper who chooses private label bottled water for a 3% discount may require at least 20% savings for private label barbecue sauce.
4. Offer multiple brands in multiple tiers. Although Costco may be the exception, most retailers are finding growth with multiple store brands. No one brand can stand for value and gourmet and healthy eating.
5. Eliminate weak links. One bad product experience can hurt the entire store brand, not to mention the retail banner itself. Product quality needs to be consistent across each store brand. Your brand’s perceived quality is only as good as its weakest SKU.
6. Drive trial. If your store brand is really as good as the national brand (or better), let your shoppers try it. Offer a free package with a $50 purchase. Consider a trial size or in-store product demos.
7. Promote your store brands. There’s a wide range of feature ad support for private label. Using ECRM’s Marketgate data, we found that private label’s percent of feature ads ranged from 45% at Wegmans to 25% at HEB to only 10% of ads at Publix.
8. Don’t be too quick to drive out value brands. Some value brands can drive lower price and higher margins than retailers can achieve through private label. The shampoo category is an excellent example with some well-known brands at very low prices.
9. Embrace a cause. Use package labeling to show how your store brand supports local suppliers, promotes health & wellness, saves the environment, or funds local charities. You’ll find that many of these causes attract similar consumers. Regardless of sales performance, taking the high road can help to build a retailer’s image.
10. Understand the difference between strong sales vs. strong brand equity. Walmart’s Great Value brand claims to be the #1 food brand across categories, but would shoppers ever choose Great Value over a national brand at the same price point?

Bonus: (It’s one better than a top 10 list) Sell your store brand in someone else’s stores. Safeway is taking the lead by selling its “Eating Right” and “O” brand at other retailers in non-competing markets. Opportunities exist for retailers to sell their store brands not just in new markets, but in new channels (convenience, hardware, toy stores) in their own. Share your tips, stories, feedback in the comments below.

The beginning of the year brought some surprising good news for retailers: retail sales (excluding automotive) rebounded in January and February.  While the figures were not earth-shattering – sales grew 1 percent and January and 0.7 percent in February – they were significant improvements on the last four months of 2008, where declines ranged from 1.2 percent to 3.1 percent.

Using data collected by the Nielsen Homescan Consumer Panel, we saw improved trip performance in the first two months of the year in most channels.  Exceptions were drug stores, which were affected by a weak flu season, department and toy stores.

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While we expect that March will be weak, due primarily to Easter falling later this year, signs seem to be indicating that we may be near a bottom of the economic downturn.  Data from the second quarter will be critical in determining whether renewed growth is on the horizon, or if we are in store for several more months of decline.

Sales across all of the company’s key divisions – Walmart Stores, Sam’s Club and International – grew on a year-to-year basis by more than 6 percent.  Comparable store sales in the U.S. grew 2.8 percent in 2008.

“Every player in the CPG industry is affected by Walmart in some way,” said Tom Pirovano, Director of Industry Insights at Nielsen.  ”By combining several Nielsen services, we can measure Walmart store count growth, Walmart advertising, Walmart shopper demographics and what shoppers are buying.”

The key to Walmart growth: food departments.  Sales of dry groceries, perishable foods and alcoholic beverages all showed strong results (11%, 11.5% and 18.5% respectively).  The top five food and beverage categories were pet food, bread and baked goods, carbonated beverages, snacks and packaged meat. Top growth categories were flour, pasta, vegetables & grains -dry, wine and shortening/oil.

Like many retailers, Walmart has seen solid growth in sales of private label (PL) products as consumers look to get the most value for their money.  Private label sales share was 15.8 percent across all Nielsen categories, with milk, sugar/sugar substitutes, unprepared meat/seafood, shortening/oil and canned fruit making up the top five categories.  Additionally, Walmart’s PLs outperform the grocery channel in a number of channels and can serve as a benchmark for other retailers.

Although Walmart has significant operations across the country, southern and western regions have most of the markets where Walmart dominates total sales:

While many top retailers have cut back advertising spending, Walmart actually increased spending by 56 percent in 2008, with a focus on groceries, furniture and health and beauty. More than 21 percent of their spending is on network television, with another 20 percent on cable. Almost 7 percent of their spend is on Spanish language network TV.

But Walmart is not immune to changing consumer behaviors: shoppers are making fewer trips.  And the company remains under-developed with higher income households.  Walmart continues to adapt to the market environment with a number of innovations such as their new Marketside format to attract upscale shoppers without the Walmart name or the “Big Box” image.

“Mass merchandisers and grocery stores are feeling the impact of the supercenter,” said Todd Hale, senior vice president, Consumer & Shopper Insights for Nielsen.  “While the grocery channel has traditionally been viewed as recession-resistant, it is not recession-proof.”

That said, grocery stores saw some gains, helped by tens of thousands of convenient locations, prescription drug shifting from drug stores and gas promotion tie-ins from convenience and gas retailers.

To read the whole press release about retail channel trends, click here.

Of the more than 122,000 items introduced, 3,882 (3.2%) achieved more than $1 million in sales, while 198 items (0.2%) achieved more than $10 million in sales.  Only 15 items (0.01%) generated more than $50 million in sales.  The new items generated more than $21 billion in sales in 2008, representing 5.7 percent of all CPG sales reported by Nielsen for the year.

Those categories that saw the most new product launches were cosmetics, candy, paper products and bread and baked goods.  The snack category, which saw 3,619 new products, generated the highest sales – more than $21 billion – and accounted for 18.2 percent of all snack sales for the year.

“Most of the top new items are extensions of existing brands.  Of the top 100 new items, 98 were extensions, with only 2 entirely new brands,” said Tom Pirovano, Director of Industry Insight at Nielsen.

Even though the number of new items introduced in 2008 remained about the same from 2007 (122,743 versus 122,530), they generated 6.6% more sales.

“The consumer shift to private label items requires that brands innovate and add new features to win back shoppers.  It is difficult to predict the year ahead, but we expect new products to have more health and wellness claims, additional package size adjustments and more premium private label products,” said Pirovano.

Grocers, drug stores and mass merchandisers are seeing strong growth in store-brand items.  Unit sales of those items grew an average of 4 percent in the last six months of 2008, led by dairy, packaged meats, frozen foods, deli, dry grocery and beverages.  Meanwhile, branded items declined an average of 3.3 percent during the same period, with all categories except for fresh meat showing drops.

Unit sales during 2008 declined 1.3 percent across the store, with the largest declines among non-edibles.  Unit sales of health and beauty, non-food and general merchandise dropped 2.7, 3.7 and 6.7 percent, respectively.

Store brand sales continue to be strong, as consumers realize their quality and value, as well as the increased range of products available.  Nevertheless, store brand sales slipped slightly in the last month of 2008.  At the same time, sales of branded items declined almost across the board.

“Inflation and the weakening economy have led consumers to switch to store brands and to cut-back their total purchases. Additionally, they are cooking more at home and purchasing more staples than in the past,” said Todd Hale, Senior Vice President of Consumer and Shopper Insights at Nielsen.

“Nothing illustrates the consumer shift more than what categories showed the most growth.  In boom times (2004 to 2005), the top five sales leaders were dessert-dairy, men’s toiletries, tea, yogurt and bottled water.  In the period 2007 to 2008, the top five sales leaders were canning and freezing supplies, wine, vitamins, fresh meat and dry vegetables and grains.  Clearly the economy has shifted many consumers to a back-to-basics approach when it comes to eating,” said Hale.

SUMMARY: Credit markets freeze. Financial institutions implode. Economic benchmarks plummet. Consumer spending plunges. Unemployment skyrockets. Bail out plans are unveiled. Global markets fall like dominoes and consumers tighten their hold on wallets. What are a retailer and manufacturer to do? Read on for strategies on how to manage the economic downturn.

The September 2008 “misery index”, a combination of unemployment and inflation rates, suggests that if misery loves company, consumers had lots of company in recent months. Who can blame them, given the perfect storm of worsening recession, corporate scandals, ongoing wars, volatile gas prices, housing troughs and energy crunch? Retail sales stalled out during 2008, hitting an eight-year low point in October with a 3.1% monthly drop driven by big declines in gasoline, apparel, department store and specialty sales.

While declines in discretionary expenditures have been taking a toll on low-, mid-, and high-end department stores like Kohl’s, Macy’s and Nordstrom, select retailers within grocery, dollar, club and drug stores fared better. Retailers carrying more “need-to-have”, not “nice-to-have” assortment have registered positive same store sales growth. Similar patterns were seen overseas with retailers like Carrefour and Delhaize.

Trip trouble
Tracking shopping trips across outlets, Nielsen showed that total Q3 shopping trips were down overall on a year-to-year basis. However, there were bright spots in the retail landscape despite the generally depressing economic news, particularly in value channels and those with food. Online, supercenters, dollar, club, drug and pet stores all posted an uptick in trip count. Hardest hit on the trip count measure were mass merchandisers, office supply and department stores.

Offsetting negative trip count news was the general trend of higher basket rings per trip, with convenience/gas, pet and toy stores recording the largest percentage increases in register rings per trip.

However, since the start of the U.S. financial crisis that commenced mid-September, most retail channels showing growth in shopping trips in the third quarter experienced slower growth in the last four weeks of the quarter. And those retailers showing declines in shopping trips saw even greater declines. As these trends are examined for the first four-week period of the fourth quarter, some surprising shifts in these metrics are being evidenced. Online trips took a big hit, and growth in shopping trips came only from those channels associated with value or food.

Defensive shopping
Consumers—protective of their spending power—learned to trade down to value channels, reduce purchase frequency, move from on-premise consumption to off-premise purchasing and downscale from premium to mid-tier or value brands. A big winner in the battle to sustain lifestyle even as purchase power waned: wine.

Wine posted the greatest unit sales growth of any category over the prior year and achieved that result by aggressively pursuing innovation strategies like finding new distribution outlets. Chief among them was Walmart, which expanded the number of stores selling wine by 24%. Growth also was fueled by an influx of new drinkers who discovered wine, a growing social acceptance of wine drinking spurred in part by movie placements and celebrity labels, and a preference for wine among higher-income consumers less affected by economic tremors.

Margin pressures
The economic squeeze play at retail includes lower prices due to discounting activity, private label growth, value retail expansion and a strengthening dollar. On the other side of the equation, commodities are beginning to back off an all-time high, while fuel prices finally showed some weakening, impacting both transportation costs and consumer perceptions of buying clout.

A sign of the times is the dramatic action taken by some retailers. The Winn-Dixie “Good ‘Til” program reduced prices on over 1,000 items through January 7. Sam’s Club offered a limited membership costing $10 for 10 weeks. And Hy-Vee offered ways to feed a family of four for just $8 a day.

Manufacturers also weighed in with their own value programs. Campbell’s leveraged its legacy with a 10 cans for $10 offer. Kraft comparison ads touted the Kool-Aid value proposition, with four pitchers costing the same as a two liter bottle of soda. ConAgra advertised Banquet frozen dinners for the first time in more than a decade.

The ad game
Despite the nearly 2% decline in total ad spending that Nielsen has reported for the first half of 2008, gainers almost offset losers by media type. Cable TV made a strong showing with sales increases of almost 8%, followed by syndicated TV, Spanish language TV, free standing inserts, network radio, outdoor advertising and local magazines.

Print, ethnic and electronic outlets suffered the most, with local newspapers posting more than a 7% decline, followed by network TV and Internet ads, African-American TV and national magazines. Yet many major consumer packaged goods firms remain committed. Kraft advertising was expected to top $1.55 billion. Sara Lee announced a multi-million dollar ad campaign. Hormel Foods planned to expand both its budget and the number of brands supported. Heinz tagged an 8-12% marketing spend increase as an integral element in its two-year growth plan.

Media nation
Cable TV may owe much of its success to the election year, since twice as many people dialed-in to cable news networks during 2008 as the prior year. Another significant factor for advertisers was the fact that cable attracted affluent households with incomes over $100,000. Financial news networks, another cable staple, enjoyed a 50% increase in viewing with a strong showing among households with incomes over $75,000 or those who have felt the greatest pain from a decline in financial markets spending more time watching programs to gauge how to minimize the impact of the stock market decline on their investments. Looking at the big picture, total U.S. HUT (households using television) levels actually increased 1% on a year-to-year basis.

Penny pinching
By October 2008, one-third of all U.S. consumers in a Nielsen survey said they didn’t feel secure in their jobs, while half believed they were worse off financially than a year ago. As a result, consumers are taking steps to cut back spending, particularly on major purchases for the home (87%), carpeting (77%), automobiles (73%), major appliances (65%), and vacations (49%).

Fully 40% of shoppers think that food and personal care prices have increased over the past three months. When offered some ideas for coping, consumers expressed a preference for larger sizes with a lower price per serving (47% of shoppers) over smaller pack sizes at lower prices (17%), modestly downsized packaging at the same price (9%), a proportionate price increase (8%), fewer sales (8%), the same number of sales but at less of a savings (7%) or slight reductions in quality with no price change (4%).

Category inequality
When cash-strapped consumers cut spending, it doesn’t happen equally across categories. While dairy, dry/canned goods, fresh produce and meats would suffer double-digit declines, deli (40%), beverages and health & beauty (30%) would take a much larger hit.

Categories with less price sensitivity in a challenging market include those with few alternatives—like diapers, occasion- or ingredient-based categories, low-price-point or low-promotion categories, or long-purchase-cycle categories. The more price sensitive categories are characterized by heavy promotion activity, a host of substitutes, discretionary or non-essential items, and stockable products.

Rather than pull back from investment spending in recessionary times, history shows a robust return on investment for companies that stay the course. In the 1980s, companies that maintained aggressive sales and marketing efforts enjoyed more growth after the recession—some 275% in the first five years after the recession versus the 19% growth among companies that cut their sales and marketing budgets.

Private label
One alternative in a troubled economy is private label goods. With $82 billion in U.S. sales and a 16.4% dollar share within food, drug and mass merchandisers including Walmart for the year ending 11/02/08, private label goods appear on the shelves of virtually every home in America. Despite such a robust showing, the U.S. lags other, more developed private label markets in Switzerland (a 46% share), the U.K. (43%), Germany (30%), Belgium (29%) and Spain (26%), to name a few. Nevertheless, the trajectory is decidedly upward for private label dollar and unit sales, reaching a 21.4% unit and 17% dollar share for the latest four-week period.

Retailers have capitalized on the momentum, introducing house brands in the dairy case, deli department, frozen case, fresh meat and dry grocery areas, fresh produce and non-food, health & beauty and packaged meat. Even as private label expands its footprint in-store, national brand performance is worsening in just about every department, especially in commodity categories and those with little product differentiation.

Product parity
Nielsen research shows that shoppers are increasingly happy with private label products, calling them a good alternative to name brands, at parity with or better than national names on quality criteria, while offering good pricing and value. The social stigma is gone, along with boring generic-looking packaging. Many retailers treat private label and exclusive brands as an integral part of their corporate brand image.

To further elevate the private label positioning, retailers can offer product guarantee or quality assurance programs that underscore product confidence, or pursue a multi-tiered approach like Food Lion, Kroger, Safeway, SuperValu and Winn-Dixie. In addition to the core house brand, they’ve expanded into premium and natural/organic lines.

Tough times
Forecasts call for continuing tough times and economic instability that filters throughout the economy. In short, we can brace for more of the same, and expect existing behaviors to intensify. Shoppers will first meet their basic needs and forego discretionary purchases. At-home opportunities will climb. Variety and convenience will take a back seat to value. Trading down will become an acceptable way to stretch budgets. Local sourcing gains traction, not as a green activity, but rather as a strategy for controlling costs, delivering value and maintaining product freshness.

Edible essentials, like bread, milk, cheese, and fresh produce, were among the top retail categories for October, according to Nielsen. 

Discretionary items like carbonated beverages, candy, and snacks were also among the top sellers in October — but most of these categories showed year-over-year unit and dollar sales declines.

Top Categories: October 2008 (Dollar Sales: Food/Drug/Mass Merchandiser Sales)

Top Categories: October 2008 (Unit Sales: Food/Drug/Mass Merchandiser Sales)

Products geared toward at-home use — canning supplies, baking ingredients, and wine — were among the fastest growing food, drug, and mass merchandiser retail categories in October, according to Nielsen. 

That trend may signal a shift in consumer behavior, as Americans increasingly opt to save money by staying in and eating at home. 

Fastest Growing Categories: October 2008 (Dollar Sales Growth: Food/Drug/Mass Merchandiser Sales)

Fastest Growing Categories: October 2008 (Unit Sales Growth: Food/Drug/Mass Merchandiser Sales)

Learn more about global consumers’ responses to the current economic crisis on Nielsen Wire.