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Store Brand Growth: The Trend Continues Store brands continue to grow in sales and volume in the U.S. market, extending a trend that was accelerated by the recession but begun years earlier. Nearly 1 out of 4 products bought in U.S. supermarkets last year was a store brand and market share rose to all-time record highs of 18.7% dollar share and 23.7% unit share. In fact, store brands accounted for almost 90% of all new revenue in the channel. In drug stores the results were equally positive with records set for private label dollar share at 14.1% and unit share at 16.3%. Private label was responsible for more than half of all sales gains. Among all retail outlets -- which combine point-of-sale data for supermarkets, drug stores and mass merchandisers -- there were similar advances with all-time highs posted in dollar share at 17%, and unit share at 21.8%. Store brands contributed 63% of additional dollar revenue. Private label’s track record predates the recession and projects beyond it as well. Over the past five years, annual private label sales have increased by 34% to $55.5 billion in supermarkets and by 45% to $6.1 billion in drug stores. Over a three year period, private label sales have increased by 14% to $86.4 billion in all retail outlets, according to PLMA’s 2010 Private Label Yearbook, which is based on data from The Nielsen Company. Booz & Company agrees: “The shift to private label started before the recession, but has accelerated and shows no immediate signs of slowing down. Many consumers are having a good experience with private label and would need a reason to switch back to brands. There is significant room for the shift to continue; as a result, the medium-term outlook for private label is for it to continue to take share." While the official numbers are compelling enough, the most accurate figure for all private label food and non-food grocery sales in the U.S. is actually well north of $86.4 billion. There is an estimated $15 to $20 billion in private label sales in channels that are not traditionally counted, such as in warehouse clubs, limited assortment/box stores, convenience stores and dollar stores, producing a grand total that almost certainly exceeds $100 billion. A major factor in private label expansion is product innovation, particularly in the area of health claims. Says Nielsen: “U.S. retailers continue to make progress in offering store brand products with claims relevant to shoppers looking for healthier choices. Store brands flexed their marketing muscle in the health claims arena putting impressive growth numbers in emerging areas.” What are store brand products? For many shoppers, store brands have come to represent better selection, value and savings. Simply put, they are products that stores put their own names or brands on. They may also be called private label, house brands, own brands or retailer brands, but they all have one thing in common – they are manufactured and brought to market in much the same way as the familiar national brands they sit next to on store shelves. They are available in just about every food and non food category: fresh, frozen and refrigerated food, canned and dry foods, snacks, ethnic specialties, pet foods, health and beauty care, over-the-counter drugs, cosmetics, household and laundry products, lawn and garden chemicals, paints, hardware, auto aftercare, stationery and house wares, among other sections of the store. Retail chains of all sizes across the country develop and market store brands in various ways. They may create a line around a particular feature of the products – such as Safeway’s O Organics and Eating Right offerings, or Kroger’s Private Selection and Albertsons Wild Harvest organic lines. In other cases, nearly all of the store brand items in a chain carry the same name – such as Costco’s Kirkland or Wal-Mart’s Great Value. When it comes to product quality, most consumers see virtually no difference between private label and familiar national brands. In a 2010 GfK study for PLMA almost half the respondents said they had recently switched to the store’s brand in categories where they had previously only bought a national brand. Nearly all of the shoppers who did switch were pleased with their decision: 97% compared store brands favorably to their previous national brand choice. Awareness of store brands is also rising. Half of all shoppers said they are more aware of the products now than they were a year ago. The Hartman Group says store brands are giving national brands a run for their money: “In many instances, shoppers no longer can distinguish between national and private label brands. What’s most interesting is not so much the fact that it’s happening, but that people don’t really care that they don’t know the difference. The importance of branding and the badge value of brands in the past is quickly giving way to a greater emphasis on the product and the overall experience controlled by the retailer.” Consumer Reports gave a ringing endorsement to store brands quality and value. In a study, “It Pays to Buy Store Brands,” it said if concern about taste has kept consumers from trying store brand foods, they should hesitate no more. In blind tests, professional tasters compared a leading national brand with a store brand in 29 categories. The store brand tasted equally good or better than the national brand in 23 categories. Store brand products encompass all merchandise sold under a retail store's private label. That label can be the store's own name or a brand name created exclusively by the retailer for that store. In some cases, a store may belong to a wholesale buying group that owns labels which are available to the members of the group. These wholesaler-owned labels are referred to as controlled labels. What are the advantages of store brands? For the consumer, store brands represent choice and the opportunity to regularly purchase quality food and non-food products at considerable savings compared to buying national brands, without relying on coupons or promotional pricing. Store brands are made of the same or comparable ingredients as the national brands and because the store's name or symbol is on the package, the consumer is assured that the product is manufactured to the store's quality standards and specifications. Shoppers’ pocketbooks were the principal beneficiary of store brands in 2009. PLMA calculates from Nielsen data that consumers who reached for the store brand of their favorite grocery products rather than the national brand in all U.S. outlets garnered an estimated $31.7 billion in savings. The difference is the so-called "marketing tax," which consists of advertising and promotional costs incurred by national brand makers that are passed on to consumers in the form of higher prices at the shelf. Major national brand companies spent $18 billion last year on measured media, not including online marketing costs. Leading national brand companies spend about 25 cents of every dollar on marketing to build brand equity. A store brand manufacturer does not have these costs. But it buys the same high quality ingredients and runs the same state of the art manufacturing line. There is not much else that isn’t exactly what the national brand has. As a result, a private label product can be delivered to market for significantly less. Store brands are important to retailers, too. Retailers use store brands to increase business as well as to win the loyalty of their customers. They give retailers a way to differentiate themselves from the competition. Store brands enhance the retailer's image and strengthen its relationship with consumers. Retailers know that consumers can buy a national brand anywhere, but they can only buy their store brand at their stores. Who makes store brands? Manufacturers of store brand products fall into four main classifications: · Large national brand manufacturers that utilize their expertise and excess plant capacity · Small, quality manufacturers who specialize in particular product lines and concentrate · Major retailers and wholesalers that own their own manufacturing facilities and provide · Regional brand manufacturers that produce private label products for specific markets A unique organization for unique industry The store brand business is unique. It has its own needs and objectives. That's why there is a trade association that serves this industry exclusively. The Private Label Manufacturers Association, founded in 1979, represents more than 3,000 companies around the world and offers trade shows; education, training and information programs; online and print publications, market research data, regular video reports on business issues, and a range of marketing-oriented services that are specifically designed for executives in the store brand industry. For more information, please contact PLMA at (212) 972-3131.
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So what exactly are store brands? Chances are they are already in most consumers’ homes; surveys consistently reveal that nearly every shopper buys the products with some regularity. They are likely in the refrigerator, pantry, medicine cabinet, even in the basement and garage.