A fellow Nielsen associate recently sent me an article she had received from a client about how private label was receiving high acceptance among even affluent American households.  While I am a huge fan of the attitudinal insights from consumer survey data, I am also a huge fan of the behavioral insights from consumer panel data.  The best of both worlds is when we get to integrate both data types in our analytical work in the consumer packaged goods industry.  But turning back to the issue regarding private label development among more affluent households, if we examine annual private label buying over the four year period from 2004 through 2008 in the U.S., we find the following:

1.      The top two income brackets in our analysis (those with incomes of $70,000 to $99,999 and $100,000 +) demonstrated the biggest increase in private label dollar sales moving from 32.1% in 2004 to 35.0% in 2008.

2.      However, this growth is really a function of population growth, not an increase in demand.  That is, when we divide the percentage of dollar sales from affluent households by the percentage of household population they represent, we get an index of 102 in both 2004 and 2008.  In other words, the growth in dollar sales among these households was commensurate with their overall increase in population importance (growing from 31.5% of households in 2004 to 34.3% in 2008).  A variance of 2% in both years says these consumers buy private label in proportion to their population base and nothing has changed.

3.      Drilling down into more finite income groups, private label development (again, expressed as an index of sales over population importance) is lowest among the lowest and highest income groups and there has been minimal change over the past four years.   Private label sales development indices in 2008 ranged from a low of 88 for households with incomes of $20,000 or less to a high of 107 for households with incomes between $50,000 and $69,999.  With annual private label penetration near 100%, it is not surprising to see little variance across the income groups.  In other words, private label has somewhat universal appeal across all income groups, but households with incomes between $50,000 and $99,999 show the greatest positive variance from expected levels.

In other Nielsen Wire articles posted this year, we discussed how more affluent consumers are taking advantage of value retailers (club stores, supercenters and dollar stores) at a more rapid rate than other consumers and affluent consumer were also seeking out promotions at a greater and faster rate than other groups.  With brands driving most of the in-store promotions and accounting for almost 80% of unit sales in food, drug and mass-merchandisers (including Walmart), affluent consumers are speaking through their buying habits, and brands are still their preferred choice.  However, with the increased importance placed on price, value and promotion support, manufacturers must continue to innovate and drive a point of differentiation versus the increased innovation, focus and marketing support retailers are putting behind their private label initiatives.

For further information or to arrange a comprehensive presentation on consumer shopping patterns, please contact Todd Hale at todd.hale@nielsen.com or 859-905-4615.

For the past several months, we’ve seen sales for U.S. store brands grow at unprecedented rates with annual sales of $85.5 billion, up by $13.6 billion (+19%) vs. just two years ago. (Nielsen Grocery/Drug/Mass including Walmart). At first, this growth was driven by higher prices for milk and other commodities. Then the economy got even worse, and many just assumed that shoppers were switching from national brands to store brands to save money.

But what about the other factor we sometimes forget to mention? Could it be that retailers are making significant improvements in the quality of their own store brands? Is it possible that some National Brand Equivalents (NBEs) have really become every bit as good as the national brands? Note: Several years ago, I coined the acronym, “AAGATNB” (Almost As Good As the National Brand), but it never really caught on the way I hoped.

I recently had the opportunity to visit the East View Innovation Center in Eden Prairie, Minnesota, where the folks at SUPERVALU develop brands like Culinary Circle and Wild Harvest. I had been hearing a lot about this state-of-the-art facility with its sensory labs, test kitchens, mock-up store, and army of Daymon associates fully integrated into the organization. Needless to say, I jumped at the opportunity to check it out for myself.

It was clear from the start that the facility itself is just part of the story. SUPERVALU has assembled a dream team of experienced product development specialists from across the industry. Many of the top managers moved to Minnesota from out of state, betting their careers on the success of the “Our Own Brands” program. Every person I talked to that day seemed convinced that they were working on something special. One even commented, “I didn’t come here for the weather.”

The Our Own Brands program at SUPERVALU is an unmistakable source of pride for those working in the East View Innovation Center. When I began discussing recent trends in private label, I was politely corrected by Group VP, Mike Witynski: “This isn’t about labels. We’re building brands here.” He was right. Nowhere did I get the sense that this was simply about making cheap substitutes for national brands. A sense of pride seemed to permeate the building. While touring one of the test kitchens, one associate described a recent blind comparison with a popular national brand: “They’d kill to have our taste test scores!”

I was also impressed by how they view their competition. Many store brands target CPG category leaders. SUPERVALU, however, has broadened its competition to restaurants with several premium “restaurant-quality” products. I was lucky enough to sample some Culinary Circle frozen desserts that could rival the best ice cream parlors. The trick will be getting shoppers to try these products. Although higher price points may present sales challenges, the quality and exclusivity of brands like Culinary Circle have the potential of becoming destination products for consumers who can appreciate the difference.

National brands need to be on their toes. There are no clear signs that shoppers will turn away from store brands as the economy improves. Retailers like SUPERVALU and others are poised to succeed with their own premium brands as consumers continue to adjust their mix of needs between quality, value and convenience. SUPERVALU has set aggressive growth targets for its Own Brands program with an unblinking eye on the consumer. This consumer focus is something new for most store brands. Understanding the shopping experience from a consumer perspective isn’t just for CPG manufacturers anymore.

Sales of store brands, or private label products, began to spike in 2007 just as we were seeing the first signs of an economic downturn. At first, these private label sales were driven by higher commodity prices, but volume growth began to catch up with dollar growth in mid-2008. As the economy continues to struggle, more and more consumers are replacing their branded products with private label equivalents. Store brands are up 10% to $84.4 billion in annual sales across categories reported by The Nielsen Company. Talking to Consumer Packaged Goods marketing professionals across the country, there is a consensus that these private label switchers won’t be coming back when the economy improves – at least not without some incentive.

Winning back these shoppers will not be easy for branded manufacturers.  Although many will be tempted to cut back on new product development, now is the time to innovate.

What To Expect From Name Brands

• More products with new health and wellness claims like “now with more calcium,” or “no trans fats.”
• New package designs with claims like “re-sealable” or “renewable.”
• New package sizes and shapes that will make it more difficult for store brands to copy.
• Innovative new flavor profiles with more line extensions.
• New advertising in new places to get the message across to consumers.

Retailers aren’t just sitting back waiting for new brands to copy; over the past several years, we’ve seen store brands evolve from inexpensive national brand alternatives to exclusive destinations that allow retailers to differentiate themselves. Many store brands achieve premium pricing while strengthening retail banner equity with more upscale offerings. Retailers are investing in their own brands more than ever as their efforts are paying off. The battle between national brands and store brands is about to get interesting.