IRI Times & Trends Report
The following snapshot of consumer trends shaping the retail business is taken from the special report, "Private Label 2009-Game-Changing Economy Taking Private Label to New Heights," issued in September 2009 by Information Resources, located in Chicago, IL. For more information, visit www.infores.com.
Consumer rituals have changed drastically over the past couple years, largely in response to adverse economic conditions.
The economic unrest is beginning to show signs of easing, but consumers remain steadfastly in savings mode. Deal-seeking behavior is high. Consumers are shopping across channels, redeeming coupons, adhering to pre-made shopping lists, and delaying or eliminating “non-essential” purchases. While tactics vary, the goal is the same: consumers want to save money on CPG purchases.
At the crux of many savings strategies is private label packaged goods products. For years U.S. retailers have been honing their private label arsenal in the name of differentiation. The timing of these efforts has been meticulous. Private label has been elevated to a whole new level.
Many private label brands are now viewed as similar, perhaps even superior, to brand named CPG products. Examples include Target’s Archer Farms, Safeway’s O Organics and Supervalu’s Wild Harvest. The list goes on.
Retailers continue to invest heavily in their brands. Innovation is increasing and promotional support is growing.
Economic recovery will likely be a long and arduous process. And, indications are that recession-induced ritual changes will remain long after the recession has officially ended.
For retail brands, it is time to shine. And for national brands, it is time to step-up competitive efforts. Both are happening already. Competition for share of CPG spending is intense.
PL Share Trends
Private label plays in integral role in retailers’ differentiation strategies. As such, over the past several years, retailers have invested heavily to build the strength and relevance of their brand.
Packaging has been improved from generic black-and-white labels to colorful packages imparting a sense of quality and prestige. Ingredients have been enhanced, with store brands now regularly keying in on critical trends, such as organic ingredients, added vitamins and nutrients, new technologies (e.g. fast-melt, anti-aging, etc) and more. And, store brands are being featured in an increasingly prominent manner across promotional platforms.
In the midst of these stepped-up private label development efforts, economic turmoil hit the U.S. economy. The housing market crashed, unemployment levels rose, fuel prices soared and consumers became increasingly concerned about their fiscal well-being.
The United States has now officially been in recession for more than a year. Consumers are intently focused on saving money, but are also still fixated on quality and convenience. For many, store brand CPG products are answering this call quite nicely.
“The private label phenomenon will continue to be a bright spot for innovative retailers that invest in providing a high-quality, convenient, affordable alternative to shoppers. It is also a call to manufacturers to …ensure that all product development, merchandising, pricing and related strategies are closely tied to a well articulated, shopper-centric strategy,” says Thom Blishock, IRI consulting & innovation president
Private label CPG products now represent just over 17% of CPG spending, and more than one-fifth of CPG products purchased through retail outlets. For some retailers, though, store brands hold much higher share of sales. For example, in the first quarter of 2009, private label represented 35% of Kroger unit sales, according to the Wall Street Journal, and 25% of Spartan Stores unit sales, according to Supermarket News.
Some indicators point to an economic brightening, but questions remain about how long it will take to fully emerge from this recession. One thing is for sure, though. Private label gains made during the recession will long outlive the downturn.
Channel Share
Private label share of spending varies across retail channels, and remains highest in the grocery channel.
Despite its dominant private label share position the grocery channel remains keenly focused on continuing to drive share gains, and results to date have been positive. The grocery channel gained one and one half private label dollar share points over the past year, representing 0.7 points in unit share gains.
And new promotional programs abound in the grocery channel. For example, Lowes Foods has a new “e-Offers” coupon program, a Web-based program which allows Lowes Foods Rewards card holders to download coupon offers to their card for automatic redemption at the time of purchase, according to Supermarket News.
Fresh & Easy is working to drive trial of private label options with weekly demos of store-brand products. The retailer collects tester feedback online, drawing comments with the promise that some testers’ feedback will appear on the homepage ticker.
Dollar stores and drug stores are capturing an increased share of CPG spending as consumers seek low-cost meal and healthcare solutions. These overall share gains are translating to increased share of private label sales. Drug stores and dollar stores captured 0.6 and 0.4 private label unit share points, respectively, over the past year.
PL Discount by Department
Store brands offer shoppers considerable savings over national brands. Discounts average 31.1%, slightly more versus last year’s average of 30.3%. The rate of savings varies markedly at the department level.
As private label innovation increasingly expands beyond “me-too” products, the cost of store brand research and development has the potential to rise significantly. This may erode some of the savings offered by private store brands, and/or retailer margin on these items.
The private label price gap has shrunk across some departments, including center store and healthcare.
Savvy retailers will creatively leverage innovation from across CPG, and perhaps beyond, to offer consumers truly unique products that reinforce differentiation, yet still provide savings over national brand offerings without eroding margin.
Consumer product goods retailers seeking to grow private label share should continually identify and assess private label opportunities and threats, continually refine private label development strategies, and measure and monitor actual versus planned impact of private label-related initiatives.
