There is no doubt that U.S. store brands benefited greatly from the Great Recession of 2008-2009. The quality of today’s store brand offerings coupled with more value-conscious consumers looking to stretch their dollars ignited a sales boom. In the U.S., private label sales increased 1.8 share points from the end of 2007 to the end of 2008 to reach a 22.3 percent market share.

The reputation of store brands today continues to improve. Nielsen research shows that three-quarters of consumers believe store brands are a good alternative to name brands and two out of three agree that quality is also on par. And fewer consumers view store brands as those geared towards people on tight budgets who are unable to afford “the best”.

But since the end of 2008, store brand share growth across food, drug and mass has been fairly flat as brands stepped-up their promotion support and innovation efforts and some retailers took on a “build it and they would come” strategy. Today, national brands still command 78 percent of CPG unit sales.

Store brands may have reached a new share plateau, but long-term growth will be fueled by both consumers’ interest in value and retailers’ focus to drive margin and build banner equity. Retailers need to manage their store brands like manufacturers do – by investing in research to identify the best new products for roll-out combined with the most effective marketing/merchandising support to build awareness, generate trial and repeat purchasing to yield sustainable and profitable volume levels.

Strategies to Grow Store Brands:

• Expand the variety. Half of consumers said they are willing to buy more store brands if there is greater variety. Do your homework to assess opportunities among your core shoppers. Don’t introduce new lines or items at the expense of high penetration and/or high frequency brands, which can drive your shoppers to competitive retailers.
• Keep prices affordable. The majority of consumers are not willing to pay more for store brands. The same is true for brands, but an assessment of price level and price gaps between your store brands and brands can yield stronger sales and profits.
• Invest in quality. Value is important, but quality goes hand-in-hand. Consumers dissatisfied with quality will buy less. Store brands don’t need to be just about low prices; a tiered store brand approach can allow you to build sales among diverse shoppers.
• Build strong brand equity. About 40 percent of consumers claim to only trust store brands from retailers they have confidence in. Enhance your shopper connection with a strong store brand program.
• Connect with younger consumers. Younger generations are strongly committed to store brands and low prices. Not only do they view them as good alternatives to name brands, but almost half (42%) said that some store brands are higher quality. These shoppers are also more engaged in online information seeking, so look for opportunities to connect with them via digital communication vehicles.
• Reach older consumers. The “Greatest Generation” leads the way in believing store brands are “extremely good value for money”. This group is a prime segment for trial programs. Leverage in-store sampling programs, money-back guarantees, and communications through your paper circulars.
• Appeal to lower-income consumers. Necessitated by a need to stretch dollars further, lower-income consumers have a stronger commitment to store brands. These shoppers are also less inclined to believe that store brands should always include a retailer’s name on store brand products. Have some fun naming your store brand items.
• Understand Hispanic consumers. Hispanics place great importance on getting the best price and say they will buy more store brands provided there is more variety available. Based on population projections, Hispanic households will represent the single biggest growth opportunity for years to come; now is the time to make an investment to understand how your store brands connect with Hispanics.
• Broaden appeal for African American and Asian consumers. African American and Asian consumers are very committed to brands, so look for opportunities to co-promote the right combination of branded and store brand items and be careful not to invade a branded space with a store brand offering and turn away shoppers.

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.

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.

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.

Part 4 of 5 on Healthy Eating Trends and Myths

Tom Pirovano, Director of Industry Insights

U.S. retailers continue to make progress in offering store brand products with health claims relevant to shoppers looking for healthier food choices. Store brands flexed their marketing muscle in the health claims arena putting impressive growth numbers on the leader board in emerging, albeit smaller, trend areas such as genetically modified organism (GMO) free, gluten free and absence of a specific fat. Store brands now comprise almost 40% of products with preservative claims, one-fourth of organic product sales, and nearly one-fifth of all products with natural and fat claims in food/drug/mass merchandise retailers.

Supermarkets have been quick to launch certified organic products with their own store brands. And in the natural food channel, research from SPINS shows that the natural food consumer will migrate to items that deliver natural product benefits and full flavor under a familiar retail banner.

The success of Topco’s Full Circle line encompassing more than 1,000 products in 90 categories, the 300 “O” Organics products and 200 Eating Right items speak to the potential of retailer brands throughout the store. More categories are soon to follow, based on the recent announcement that Sam’s Club plans on launching a private label Rue 33 premium French vodka, likely inspired by the success of rival Costco’s Kirkland label of vodka, scotch, tequila, wines and beer.

Conversely, store brand development lags with respect to the products with newer claims such as high fructose corn syrup free, with many retailers adopting a wait-and-see attitude to determine if a claim has “legs” or is merely the latest blip on the consumer trend screen.

Healthy Eating Trends

• Part 1: Commitment Trumps the Economic Pinch
• Part 2: Organic Enthusiasts Remain Loyal
• Part 3: Eating Healthy Doesn’t Have To Cost More
• Part 4: Store Brands Expand Healthy Offerings
• Part 5: Healthy Eating Index Debuts

Todd Hale, SVP Consumer & Shopper Insights, The Nielsen Company

With insights from Adam Murphy, North American Shopper Practice Leader

SUMMARY: Store brands continue to outperform brands in most categories in the U.S. Retailers’ focus on cutting prices (for both brands and store brands) and increasing store brand assortment is positively impacting unit sales, but negatively impacting dollar sales. The most successful retailers are the ones who are collaborating with manufacturer partners to complement current pricing strategies with a strong commitment to other shopper needs and building a stronger platform for long-term success.

U.S.-based store brands are benefiting big time from the current economic downturn. As consumers continue to turn to better prices and value, retailers have clearly stepped up their game by enhancing their brands overall product quality and by adding strong marketing muscle behind store brand initiatives. But a Nielsen review of U.S. department-level price gaps between store brands and manufacturer brands shows that retailers may be hurting themselves in the long run—and missing out on opportunities to collaborate with manufacturer partners to drive stronger category sales.

Within food, drug and mass-merchandisers (including Walmart), Nielsen reports that the price gap between store brands and manufacturer brands is considerable—especially for non-edible departments such as health & beauty and general merchandise where gaps ranged from 74% and 63% respectively. Food departments have a smaller percentage gap—store brand prices in the deli department were 22% lower than branded and up to 50% lower in the dairy department. Since the same period in 2006, price gaps have widened in four of seven departments (deli, frozen foods, dry grocery, dairy, non-food, general merchandise, health & beauty).

Closing the Gap
Are retailers losing category dollars because of aggressive store brand pricing or greater focus on store brand versus brands? While it is recognized that that department-level price gaps can be driven by differences in category mix, brand and/or size mix (an examination of gaps on an individual category-by-category and product-by-product basis is recommended), these differences are significant and suggest that retailers are not maximizing category sales.

Consider this: an increase of just one cent in store brand prices translates to roughly $400 million dollars in sales across all departments measured by Nielsen. In departments and categories with extreme price gaps, the potential to enhance category sales can be significant. With the ongoing price compression in the industry causing declining category and same-store-sales, retailers would be wise to think about shifting focus on raising prices on some of their own brands.

Prices Alone Not Enough
Prices alone are not the key to shopper’s hearts. Price is top of mind for all retailers right now, but Nielsen’s annual Shopper Trends study reports that strong shopper relationships are built on at least four other factors that are equally important to driving commitment. When the purse-strings relax as the economy improves, those other factors will separate the strongest grocery retailers even further from the pack. Shopper Trends is an annual survey of Shopper Equity for the top retailers in the grocery channel*, conducted across more than 55 countries globally. The U.S. shopper survey included feedback from over 29,000 American shoppers across all 48 contiguous states.

The survey found that the most successful retailers are the ones who are complementing current pricing strategies with a strong commitment to other shopper needs and building a stronger platform for long-term success. The five over-arching areas that the study identified contributing relatively equally to shoppers’ emotive equity in the U.S. are:

1. Store accessibility
2. Store format and wide selection
3. Pricing and value for money
4. Stocking quality products
5. Efficiency and loyalty program

The importance of these other factors also explains why every shopper is not doing their weekly grocery stock-up in a discount chain, despite the pressure of a recession. Consumers still want to have a pleasant experience and there is tremendous value in making that process convenient and easy for them.

Do’s and Don’ts
Manufacturers who think that store brand success will fade when the economy improves are likely in for a rude awakening. Best-in-class retailers and manufacturers are those who collaborate on category and total store assortment, pricing, promotion, and advertising decisions.

Retailers:

• Don’t let price gaps get too large or risk declining category sales.
• Don’t de-list high-penetration, high-frequency or strong niche brands or risk driving shoppers to retailers who do carry them.
• Do promote store brands with brands where there is limited shopper overlap to drive category sales.
• Do promote store brands along with non-competitive or complimentary branded offerings to build larger baskets.
• Do select credible suppliers and hold them to high standards.

Manufacturers:

• Do branded versus store brand pricing analytics and show retail partners which branded offerings make good promotional partners.
• Do proactive assortment analytics to demonstrate why your brands align well with store brand assortment.
• Do take a collaborative approach to how you assess branded versus store brand risks and opportunities – retailer focus has never been greater.
• Do explore options for using excess capacity for store brand production.

*Retailer equity scores from the 2009 Shopper Trends study are available. Contact your Nielsen representative for details.

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.