The “U.S. Store Brand Development” found that both private label dollar and unit sales significantly increased for the 52-week period ending July 11, 2009 versus the prior year.

Dollar sales grew by 7.4 percent to $85.9 billion within food, drug and mass-merchandisers (including Walmart), with shares recorded at 16.9 percent. This reflects an increase of 0.7 points from the previous year. Growth peaked in 2008 but then slowed slightly in 2009 with falling commodity prices and increased retail discounting.

Unit sales similarly experienced high growth during the same period. Sales increased by 5 percent to 39.5 billion units and unit shares rose by 1.3 points (a total of 21.5 percent).

All store brand food and non-food categories experienced better performance versus brands, but edible departments saw the greatest uptick in both dollar and unit sales.

Top dollar growth categories were frozen pizza and snacks (38 percent), flour (36 percent), and dry vegetables and grains (31 percent), and dry grocery and dairy departments accounted for 59 percent of total sales. Baby food (37 percent), candles and incense (23 percent), frozen pizza and snacks (22 percent), cheese (16 percent) and flour (15 percent) topped unit sales.

The importance of food and at-home meals in this down economy has led to strong growth for both branded and private label offerings in some basic food categories such as flour (36 percent store brand growth compared to 17 percent branded), dry vegetables and grains (31 percent to 20 percent), salad dressing and mayo (30 percent and 8 percent), pasta (27 percent to 15 percent) and baking mixes (22 percent and 10 percent).

“When categories are sorted by store brand share, from high to low, some patterns emerge,” said Todd Hale, SVP, Consumer & Shopper Insights at Nielsen. “Store brand performance and share is strongest in commodity categories. Milk, fresh eggs, sugar & substitutes and canned vegetables top the list). Where store brand share is the lowest is among categories where we see strong marketing support for top brands including candy, gum, beer and those where a high-level of innovation occurs like detergents, deodorant, cosmetics.”

In a June 2009 survey, 57 percent of consumers said that they had been switching to private label goods over the past year, and more than a third said that they would continue to purchase them even when economic conditions improve.  Younger households were most likely to indicate an affinity for private label products.

“The younger generation would probably not have experienced the old world of private label with questionable quality, limited range and bland packaging. They see private label as a very compelling alternative to proprietary branded goods.  Private label products have yet to realize the gains experienced in Europe and North America, but this generation is likely to drive growth in the sector in the coming decades,” said Kosta Conomos, Executive Director – Retailer Services, Nielsen Pacific.

Read the full press release.

Read the corresponding presentation: Consumer or Consumed.

More video and presentations available at Consumer360.com.

Over the latest six (4-week) periods ending 5/16/2009, store brand unit sales averaged a 5.7% increase in consumer-packaged-goods departments tracked by Nielsen in food, drug and mass-merchandisers (including Walmart).  Most of this growth is from edible departments (i.e., fresh meat, fresh produce, packaged meat, dairy, dry grocery, frozen and deli).  While branded unit sales declined, on average by 3.1%, unit sales in the last two periods were up 2.2% and off 1%, respectively.  While this is not a definitive sign that brands are turning the tide in our down economy, it is definitely a positive sign for brand marketers.  Departments contributing to the largest declines in branded unit sales are mostly non-edibles (i.e., health & beauty, non-food and general merchandise), but the dry grocery department is having growth challenges too.

For the latest annual period, store brand unit sales reach a 21.3% share and we see share gains in all departments.  However, this means that branded products still drive the vast majority (79%) of unit sales.  Store brand unit shares range from a high of 40% in the dairy department to a low of 1% in alcoholic beverages.

As we look at the last quarter within the latest annual period, we see unit growth improvements for both store brands and branded departments, but branded sales are negative in most departments.  But the fact that branded unit sales trends are improving is a sign that manufacturer actions in the areas of new products, promotions and advertising are impacting consumer purchase decisions.

It is also interesting to see how the categories driving the greatest unit brand growth are food and beverage categories, the same pattern as noted for store brands.  The categories struggling the most are mostly discretionary categories.

Successful manufacturers will be those who dig deeper into these data and collaborate with their retail partners to drive both brand and store brand sales which yield stronger overall category sales.

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.

1. Health Claims – “Now with More Calcium”, “Good Source of Antioxidants”, “Natural”, “Made with Real Sugar”.  First look for claims you can make without reformulations.  Then consider adding nutrients to add perceived value. 
2. Unique Packaging – Consider Dean Milk Chugs in a category dominated by private label.  Older shoppers may appreciate packaging that easier to open, easier to re-seal, and easier to read without glasses.
3. Line Extensions – Look at the soda category with only 6.1% private label share.  Every year we see many new soda flavors, but very few really “new” brands.   In most stores, private label is left with limited SKUs and shelf space.
4. Promote a Cause – Don’t just offer a percent your profits.  Build awareness.  Educate the consumer about a cause you can really embrace.  Let them know how they can get involved.   
5. Odd Ounces – It’s easy for store brands to copy products sold with the same package size year after year.  Shifting a 12 oz. package to 15 oz. makes it difficult to compare prices to store brands.  Going metric makes the price comparison even harder.
6. Offer Your Own Value Brand – Look at the hair care category with only 2.2% private label share.  National value brands make it difficult for store brands to get a foothold.   
7. Local Ties – Each year have your sales force apply labels to packages in the store, reminding shoppers when a product is grown locally, processed locally, or warehoused locally.  In today’s environment, shoppers are likely to support the local economy.
8. Differentiate Yourself – Compete with private label like you compete with any other brand.  Set your brand apart with a clear case for why it’s worth more than the store brand.
9. “Green” Sizes - We used to call them “value sizes” or “club packs”.  Most large pack sizes use less packaging by nature.  Combine the value message with the green message.  Give shoppers a way to help the planet while saving money.
10. Keep Innovating – Be a moving target.  Make your brand difficult to copy.  Give shoppers a reason to spend a little more on your brand.  Whether it’s packaging, labeling, health claims, or new flavors, use your brand equity and category expertise to push the category forward.

For the flip side… check out Five Ways To Build Store Brands in the latest issue of Consumer Insight.

2008 was a stellar year for store brands in the U.S., with both dollar and unit growth outpacing branded offerings across consumer packaged goods (CPG) categories. Store brand dollar sales within food, drug and mass merchandisers grew 10.2% for the year, while branded dollar sales grew by just 2.6%. Although the gap in unit sales was not as wide, indicative of how store brand dollar growth resulted from inflationary pricing across a number of commodity-based categories, store brand units grew 2.6% for the year, but branded units were off 2.2%. And what should be keeping many branded marketers and sales execs up at night is how store brand unit sales performance was better in the last quarter of 2008 and even better in the last period of the year. This is a pattern which has continued for the first quarter of 2009 and should continue throughout 2009 as our economy continues to struggle with high unemployment and a tough housing market.

Client questions we are frequently being asked these days concern the current and future performance of store brands. The most prominent questions are:

1. Does this growth rate reflect what we typically experience in a recessionary period?
2. Will store brand growth slow once the economy improves or are we entering a new era of store brand development in the U.S.?

Store brand growth during 2008 is very similar to the gap in sales growth during the 2001 recession. However, with the additional efforts retailers are making to improve store brand packaging, quality and on-shelf presence, we do see store brands being better positioned for growth when the economy improves than they were at the end of previous economic downturns. What may be even more indicative of future performance is the marketing brains and muscle many retailers are putting behind their store brand go-to-market efforts. So consumers forced or enticed to purchase store brands during this recessionary period may be more likely to add store brands to their preferred set of brand choices on a go-forward basis—particularly given how complete and absolute loyalty to a brand is a rarity, usually coming from a small percentage of infrequent brand and category buyers. Most households trade off across a select number of brands depending on their propensities toward flavor, form or size mix and/or the importance they place on promotions and price specials over brand choice.

Now more than ever, marketing to the average consumer or shopper will yield little benefit, as understanding the extremes provide real insights for action. With that in mind, we created a store brand segmentation scheme among our Nielsen Homescan consumer panel. The scheme used actual brand and store brand buying behavior; actual behavior regarding retail channel and retailer shopping preferences; and consumer attitudes towards store brands to identify six unique store brand segments. Understanding which of the segments are drivers of store brand share growth, and the attitudes of those consumers, can help predict the degree of longer-term impact (at a macro and individual category and brand level) and should weigh heavily into plans for how both manufacturers and retailers should plan future growth.

The above graphic lists the six store brand segments our modeling efforts identified. The first two segments, downscale value committed and downscale price committed, are very similar in terms of the volume they devote to store brands; the type of store brand offerings they purchase; the retail channels and retailers they shop; and their demographics. However, they are very different attitudinally in terms of how high they rate store brand quality versus branded products. For example, 80% and 77%, respectively, of the downscale-value-committed consumers agree or agree strongly with the statements that store brands are a good alternative to name brands and store brands offer extreme value. This compares to response levels of 67% and 63% for the downscale-price-committed segment. The biggest difference between these segments is how 64% of the value-committed segment stated a willingness to pay more for store brands, while only 5% of the price-committed segment made this claim.

While grocers might see these two groups as important to their store brand business, these two segments make fewer trips to the grocery channel. They are extremely frequent shoppers to limited assortment deep discount grocers like Aldi and Save-A-Lot. Also, these two groups are big fans of supercenters, as 37% of their total outlet sales are allocated to that channel. These segments devote about 80% of their store brand purchases to low-end or value tier store brands and because of their low income skew, they may have no choice but to spend disproportionately on lower-priced products.

The third segment, mainstream loyals, is the most important segment when it comes to shopping and store brand spending within traditional U.S. grocers. Almost half (45%) of their all-outlet dollar spending is allocated to the grocery channel, and across most categories we see the highest relative levels of annual store brand household penetration and dollar buying rates (versus brands) among this group. Almost three-fourths of their store brand volume is in the mid-tier segment. They hold high regard for store brands and are more likely to be a little older and also from mid- and low-income households.

Consumer in the fourth segment, upscale premium, spend over half (53%) of their store brand dollars on premium tier store brands, are more likely to shop upscale retailers and are big fans of the warehouse club channel. Not surprisingly, this segment has attractive demographics, as they tend to be larger, more affluent households. Our research shows how retailers like Costco, with their Kirkland Signature brand, can yield strong store brand buying behaviors among these consumers.

The last two segments we labeled low spend potentials and low spend rejecters. These two groups don’t spend a lot on store brands, but they do have attractive demographics, shopping habits and spending levels across a number of retail channels. The low spend potentials have very high regard for store brands from an attitudinal perspective, while the low spend rejecters have very negative attitudes toward store brands. Both groups spend a disproportionate amount of store brand dollars on mid-tier store brands. Retailers should look to entice the low spend potentials with trial programs and with premium-tier store brands and ignore the rejecter group. Manufacturers should continue to innovate to win the lion’s share of spending from both groups and do all they can to understand who these households are, where they shop, their brand preferences and what media vehicles can be used to reach them.

Brand marketers, don’t panic; brand offerings still drive 83% of CPG dollar sales and 79% of CPG unit sales. But now is not the time to sit on the sidelines and think your brands will not be impacted by store brand initiatives. Be proactive in defense of your shelf space and collaborate with your retail partners on how to maximize both branded and store brand assortment in your categories.

Retailers should not get too far out over their skis with store brands; new product innovation is a space owned by manufacturers. Don’t drive your shoppers to shop a competitor because you de-listed a brand or branded item with a strong niche connection to an important contingent of your shoppers.

For further information or to arrange a comprehensive presentation on consumer shopping patterns, please contact Todd Hale.