Store Brands, Future-Perfect Sense
by Peter Berlinski, Editor-in-Chief

If the predictions coming out of the recent PLMA Trade Show hold true, good times are ahead for store brand marketers. At the Retail Trends breakfast session, McKinsey & Co. executives Kari Alldredge and Matt Spanjers suggested that within the next 10 years there could well be a seismic shift in the marketplace resulting in $55 billion in annual sales going from national brands to private label. For this to happen, they note that the bulk of retailers (with a 16% PL penetration rate) within the food, drug and mass channels of trade must adopt the successful store brand strategies of the large, high-performance retailers that have an average store brand dollar share of 22%.

If retailers do go after the value at stake, it is possible that store brands dollar share could climb to 24% by 2016, according to the McKinsey study, “New World of Brands: The Next Wave of Private Label.” This 8–point gain in PL’s penetration rate would result in an annual sales gain of $55 billion for store brands.

It is interesting to note that the McKinsey report singles out the store brand success of the UK retailer, Tesco, which in a four-year period during the 1990s increased its own label share from 21% to 34%.

We estimate that Tesco’s store brand penetration in the UK is now about 45% It is also worth noting that Tesco’s new USA venture, Fresh & Easy Neighborhood Market, is reported by industry sources to be achieving a 75% penetration rate for store brand sales while the number of store brand skus account for approximately 50% of the total product mix.

CSR: The New Business Buzz Word

Just as we have adopted CPR as an emergency procedure to save countless lives in the past decade, we will need to adopt CSR: Corporate Social Responsibility to secure the brand health of our businesses in the decade ahead.

In terms of store brands, CSR–also known as sustainability practices–encompasses such product attributes and practices as organic and natural, healthy and wellness, fair trade, packaging waste reduction and recycling, climate change and carbon footprint.

Information Resources, Inc. recently surveyed 22,000 U.S. shoppers on their attitudes toward sustainability. About 50% of the consumers surveyed said they consider one of the following factors when making a product purchase decision: organic, eco-friendly produced and packaged, and fair treatment of employees.

In addition, 20% of those surveyed were reported by IRI to be “sustainability driven.” This translated into shoppers requiring at least two factors relating to how green, organic, or ethically manufactured a product is.

Says IRI chief marketing officer, Andrew Salzman, of the findings: “Our survey indicates that consumers are focused more and more on the social and environmental impact of their consumer packaged goods purchases.” He notes that this is resulting in “a viable and growing U.S. market for sustainable products and packaging with the potential to mirror well-developed markets in Europe and Japan.”

Indeed, those retailers that incorporate sustainable attributes and features into their store brand products will achieve a competitive advantage in the consumer marketplace in the decade ahead.