When it came to producing sales gains for the country's retailers, store brands pulled their own weight in 2015. Across all major U.S. channels—which consists of total supermarkets, drugchains; the mass merchandiser channel, including Wal-Mart Stores; the club channel, and dollar stores—store brand sales grew by +2%, a performance that equaled that of national brands, which also rose by +2%.
Total annual sales reached $118.4 billion, an all- time record. That was an increase of $2.2 billion over the previous year. In just the past two years, annual sales of store brands have increased +5%, or $5.4 billion, in the combined channels. Store brand dollar share came in at 17.7%, also the highest mark ever; unit share was 21.1%.
Looking at individual channels, total sales of store brands in supermarkets were $62.5 billion, about even with the prior year. Over a two-year period, store brand sales are up +2%, or $1.1 billion. With unit share at 22.9%, nearly one of every four items sold in the country's supermarkets was a store brand. As for drug chains, store brand dollar sales rose nearly a percentage point last year to $8.4 billion.
Beyond these traditional channels there are additional billions in sales of store brand food and non-food consumables occurring in no-frills retailers, specialty chains and convenience stores that are not included in the figures.
Also not considered in the 2015 totals are store brand products sold by chains specializing in office supplies; hardware, tools and do-it-yourself; home improvement, home decor and domestic goods; consumer electronics, baby care, pet care, and healthy and beauty and personal care. These are just a few of the non-grocery retail channels that are marketing a growing variety of store brand lines and items.
Focus on Supermarkets
The top ten categories in supermarkets when it came to gains in store brand dollar volume were: Fresheners & Deodorizers; Fresh Eggs; Insecticides & Repellants; Candles, Incense & Accessories; Housewares & Appliances; Buckets, Bins & Bath Accessories; Fresh Meats, Coffee, Grooming Aids and Bottled Water. Of interest, in four of these winning categories store brands have single digit dollar shares, but in three the share is well above the average penetration in the channel: Fresh Eggs (64.8%), Fresh Meats (44.9%) and Bottled Water (27%).
The top ten categories in store brand unit volume gains were Buckets, Bins & Bath Accessories; Baby Food; Fresheners & Deodorizers; Feminine Hygiene; Candles, Incense & Accessories; Laundry Supplies; Bottled Water, Cookware, Coffee and Baby Needs. Bottled Water leads the list in overall store brand unit share at 31.1%, followed by Laundry Supplies, at 24.4%.
In overall store brand dollar sales, the top five categories in the supermarket channel were all in fresh and most have extremely high store brand shares: Milk ($6.1 billion in sales last year; 56% store brand dollar share), Cheese ($4.6 billion; 39%), Bread & Baked Goods ($4.2 billion; 28.8%), Fresh Produce ($4 billion; 21.6%) and Fresh Eggs ($3 billion; 64.8%).
In overall store brand unit sales, five of the top six were also in fresh and generally sported high store brand share: Milk (59.8% store brand unit share), Bread & Baked Goods (35%), Cheese (44.7%), Fresh Produce (21.1%) and Fresh Eggs (69.7%). These results are noteworthy as many industry analysts see fresh sections in the supermarket channel growing faster than other parts of the store over the next few years.
Focus on Drug Chains
The top ten categories in store brand dollar gains included six that already enjoy robust share: Watches & Time Pieces (67.5% share); Light Bulbs & Telephone Accessories (31.7%); Fresh Produce (26.8%), Grooming Aids (22.9%), Ice, Butter & Margarine (39.6%); Computer & Electronics Products; Packaged Meats, Buckets, Bins & Bath Accessories (48.3%) and Seasonal General Merchandise.
The top ten in unit gains were: Coffee, Fresh Produce, Prepared Foods (Dry Mixes), Packaged Meats, Ice, Cottage Cheese, Sour Cream & Toppings; Butter & Margarine; Buckets, Bins & Bath Accessories; Grooming Aids and Frozen Vegetables. Private label has double-digit unit shares in seven of these sections.
Store brands around the country
Nielsen tracks store brand dollar and unit shares in nineU.S. geographical regions. The most important factors driving the penetration of store brands in eachof the regions are the degree to which retailers develop and maintain their private label programs there and consequent consumer familiarity and satisfaction with their products.
As a result, there are some interesting differences in store brand shares among the regions. In the combined channels, the highest penetrationin dollar share isin the East South Central andMountain divisions, both at 19.4%. The lowest is the middle Atlantic at 16.4%. In 2015, the best performers were the West North Central and the West South Central; both were ahead by three tenths of a point in dollar share.
In units, the highest shares were also in the East South Central (22.7%) and Mountain divisions (22.6%); lowest was the Pacific at 19%. Last year, the best gain was recorded in the West South Central, up four tenths of a point in unit share.
In supermarkets, the highest penetration in dollar share was in the East South Central (22.8%) and Mountain (22.3%) divisions. In unit share, it was much the same. The East South Central led the nine sectors with a 26.6% store brand unit share, followed closely by the West South Central (25.7%) and Mountain regions (25.3%).
In drug chains it was a strong year for store brands throughout the country: seven of the eight geographical sectors saw increases in dollar share. The leading regions overall were New England (18.1%) and the West North Central (17.6%). The biggest gainer was the South Atlantic, up five tenths of a point while the Mountain, the only sector that fell, gave up only one-tenth. In store brand unit share, the West North Central (19%) and New England (18%) divisions again were in front of the pack.
Providing value to consumers
Store brands continue to represent outstanding value to the American shopper. Consumers could save an estimated $44 billion a year by buying store brand products over national brands, said a study by the National Bureau of Economic Research that looked into shoppers' behavior toward the products. "So why are some still choosing the national brand over the store brand?" asked the report. "Because ads are more likely to mislead the least informed buyers. The best informed shoppers were more likely to buy the store brand over the brand name options."
In its report, "The Future of Private Label Food," the Hartman Group said: "What millions of shoppers have discovered is that brand may not matter as much as they have traditionally felt, especially in value-added packaged-food categories. This could become a problem for legacy brands. Each private label performance segment has different constraints and growth levers, reflective of the cultural history of brand in the American food culture. We see that the ability ofretailers to move their portfolios upmarket; enhance quality and pricing, and leverage a strong banner halo will determine how prevalent private label becomes."
"Consumers continue to look for ways to save money," a 2015 report from McKinsey added. "While the number of consumers cutting back on spending has stabilized, Americans are still pinching pennies. Throughout the recession, consumers saved money by switching to store brands. Consumers are not returning to higher-priced options. Three-quarters say they do not intend to go back to purchasing brands. One-third no longer prefer the more expensive brand, having realized that the store brand offers better value for the money than expected and is of higher-than-expected quality."
Retailers are responding to store brands popularity
In response to consumer demand, retailers across the country are freshening and extending existing private label offerings and bringing to their shelves whole new lines of store brands to leverage evolving lifestyles and desirable product attributes and to stay competitive with the rival down the street and its own popular store brands. Chains know that private label products are a foundation for customer loyalty and strong profits.
"Everybody sells brands, people can buy them anywhere," explained Nielsen. "It becomes a price game. That's not a battle grocers can really win. Winning retailers will be those who step up their efforts to connect with and create demand for their private brand offerings across diverse and evolving population segments."
Many of the biggest retail winners of the past decade have positioned store brands as their linchpin strategy. Retail chief executives are unstinting in their praise for the role store brands plays in their chains' success. They understand that store brands build relationships with a variety of unique and profitable targeted customers. For example, consumers are enticed to trade up to premium or even super premium products while remaining a loyal customer of the chain's tried and trusted basic store brand line.
As store brands move into another phase of growth, powerful drivers of expansion will continue to be a good consumer experience with a product, which is often carried over to patronage of store brands in other categories; and positive word of mouth from fellow shoppers and the media with respect to quality, innovation, performance and value.
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