Private Label Brands, Part One: Business Overview
by RDBA Executive Director Annette Maggi, MS, RDN, LD, FAND
During my tenure in the retail space, it has been fascinating to watch the growth of ALDI and Trader Joes – two grocers who focus almost exclusively on private label brands. I also worked at Target during the time when owned brands began to eclipse from “national brand equivalent” to brands in their own right, offering differentiation and quality to the shopper. Today, private label brands are a mainstay in the industry, offering grocers a beneficial profit market and providing retail dietitian nutritionists an opportunity to align with corporate goals around owned brands sales.
According to Nielsen’s 2014 report The State of Private Label around the World, price is the primary driver for consumer purchases of private label products. In fact, 70% of study participants globally indicate they purchase private label to save money. But the appeal goes beyond price, with 62% saying they feel like a smarter shopper when they purchase private label and focus on the value and quality these products provide. Private label purchases are highest in commodity-driven, frequent purchase categories like paper products, aspirin, milk, bread and eggs. In these categories, consumers perceive little difference amongst the brands and are highly price sensitive in their buying patterns.
According to the report The 2013 American National Pantry by Deloitte, many grocery shoppers believe owned and national brands are essentially the same, and a whopping 80% believe that private label products are manufactured by the same company as the national brands.
With owned brand dollar shares at 17.5% in the U.S. and 18.4% in Canada, North American is ahead of the global shares of 16.5%. In grocery, Nielsen indicates private label brands' unit and dollar shares are at 23.4% and 19.4%, respectively. However, sales have remained relatively flat since the recession has ended, creating an opportunity for retailers to rethink their marketing and merchandising strategies on owned and national brands.
There are many advantages for retailers in offering owned brands including price control, bringing customers back to their stores for products they can’t find anywhere else, and control over production, marketing, distribution and profits. According to Phil Lempert, SupermarketGuru and CEO of RDBA, “The reason private brands are so important to food retailers, and that we have seen a huge increase in the quality and breath of offerings, is that once a shopper is satisfied with that private brand the only place they can buy is that particular banner. In addition, because there is no advertising to support specific products, the margins on these products tend to be higher than similar offerings from national brands.”
It’s clear that owned brands are a core element of the retail business, and to this end, must be considered in healthy living programs, events and promotions. In part two of this article series, tips and ideas for promoting private label foods will be featured.