Retailer brands threaten national competition
By Stephanie Hildebrandt
September 12, 2011, Beverage Industry
Sam’s Club offered a private-label seasonal juice drink, Member’s Mark Blackberry Flavored Lemonade from concentrate.
We’ve heard of blind taste tests between competitive products. Oftentimes, consumers can’t tell the difference between a national brand and its private-label equivalent. However, in recent years, retailers have taken it to a whole new level. These days, consumers might find it difficult to pick out a private label product on-shelf because of the way it’s packaged and marketed.
Retailers are getting more sophisticated, says Richard Haffner, head of beverages global research at Euromonitor International, Chicago. Private label has been prevalent in Canada and Europe for a long time. Until the Millennium, the United States’ private label sector was lagging behind, he explains.
“[Canada and Europe] oftentimes had different tiers to their private label,” Haffner says. “There was an economy and then a more premium type of product. I think in the U.S., you’re beginning to see that with a lot of retailers.”
The recession might have boosted the private label sector, but its rebound won’t cause the end of its success, according to The Nielsen Co., New York.
According to “Private Label Manufacturers Association’s (PLMA) 2011 Private Label Yearbook,” prepared by Nielsen, annual private label sales increased 39 percent in supermarkets and 97 percent in drug stores during the past decade. Last year, private label sales grew nearly 2 percent in total outlets, comprised of U.S. supermarkets, drug stores and mass merchandisers, including Walmart. Overall, sales were $88.5 billion for the year, which Nielsen says is an all-time high. That does not include channels such as warehouse clubs, limited assortment stores, convenience stores and dollar stores, which would add an estimated $15 to $20 billion in private label sales for the year, the research firm states.
According to the report, there was evidence of extreme efforts by national brand marketers in 2010 to recapture some of the market share they lost to private label brands in recent years. In supermarkets, for instance, national brands were down 0.1 percent in year-to-year dollar sales, while unit sales were up 1 percent. To keep unit sales up, national brands employed promotional spending and short-term price cuts, even if it meant digging into dollar sales, the report notes.
“In the recent downturn, brands have had to work harder and have had more promotions, so the trend [toward private label] has been interrupted and even reversed in some markets,” says Richard Hall, founder and chairman of Zenith International, Bath, U.K.
Although private label sales are still strong, they’re not seeing the double-digit increases from 10 years ago.
“Since the end of 2008, store brand share growth across food, drug and mass [merchandise] has been fairly flat as brands stepped up their promotional support and innovation efforts and some retailers took on a ‘build it and they would come’ strategy,” said Todd Hale, senior vice president of consumer and shopper insights at Nielsen in the company’s blog. “Today, national brands still command 78 percent of [consumer product good] unit sales.”
But private label brands do have the potential to innovate and grow, Euromonitor’s Haffner says.
“Private label in the U.S. tends to be more ‘me too’ products and not really getting a lot of innovation there,” he says. “They’re creating marketing departments and trying to market their trademarks in their stores a lot more. I do think that as retailers gain in sophistication in the future and become more marketers, you might start to see some innovation.”
Currently, some of the strongest private label beverage categories are bottled water, powdered beverage concentrates and 100 percent juice, Haffner says. Bottled water and 100 percent juice are commodity-based categories, so the price of the product becomes more important, he says. Powdered beverage concentrates is a category that’s sold on value.
According to SymphonyIRI Group, Chicago, in the 52 weeks ending July 10, in supermarkets, drug stores, mass merchandisers, club stores, gas and convenience stores, excluding Walmart, U.S. dollar sales for national branded bottled water products totaled $4.9 billion, while private label bottled water dollar sales totaled nearly $1.3 billion. Using the same qualifications, national branded bottled juices totaled $3.8 billion, while private label totaled $666.6 million.
Store brand stigma
Consumers aren’t necessarily purchasing private-label products only for the value aspect anymore. According to market research companies, private label’s reputation has changed.
Consumers used to view private label brands as those geared toward people on tight budgets who are unable to afford “the best,” Nielsen’s Hale said in his blog. “Nielsen research shows that three-quarters of consumers believe store brands are a good alternative to name brands, and two out of three agree that quality is also on par.”
“Private label brands are overcoming the stigma once associated with ‘generic’ products,” said Fiona O’Donnell, senior analyst at Mintel, Chicago, in a statement. “Even though the recession has ended and consumers may be in a better position financially to return to name brands, it’s likely that many will continue to buy store brand staples that are of equal quality.”
In fact, 44 percent of grocery shoppers believe store brand products are of better quality today than they were five years ago, according to Mintel research. Thirty-nine percent of respondents who identify themselves as the primary grocery shopper of their household say they would recommend a store brand product. Thirty-four percent say they don’t believe they’re giving anything up, such as flavor or prestige, by using store brands. Furthermore, only 19 percent believe it’s worth paying more for national brand products.
However, in the beverage industry, these statistics change depending on the category. For instance, in the soft drinks category, national brands have worked to build brand equity, keeping many consumers from even considering private label soft drinks.
“When you go over to carbonates, I believe Coke and Pepsi have done a very good job over the years of establishing their brands and what people expect from it, and private label’s not as strong in carbonates,” Euromonitor’s Haffner says.
But that doesn’t mean private label beverages can’t adapt. Although many retailers are competing with national brands, some are offering unique and innovative varieties. Save-A-Lot, Earth City, Mo., recently introduced a soft drink called Mountain Holler Red Howl, which is a citrus-flavored beverage with a taste of cherry.
Additionally, Safeway, Pleasanton, Calif., launched a line of Refreshe flavored waters in Raspberry Acai, Pomegranate Acai Blueberry, Cranberry Raspberry and Strawberry and Kiwi varieties. The waters are calorie-, sodium- and caffeine-free and enhanced with vitamins B3, B5 and B12.
Bentonville, Ark.-based Sam’s Club offered a seasonal juice drink, Member’s Mark Blackberry Flavored Lemonade from concentrate. This summer, the club store sold two 96-ounce bottles for $4.48, according to Mintel’s Global New Products Database.
Last year, Austin-based Whole Foods Market stores introduced the first private label refrigerated organic almond milk under its 365 Organic Everyday Value brand, the company says.
“For those seeking organic quality at everyday low prices, we are introducing value twin packs to pass on even more savings to our shoppers,” said Chris Slick, senior global coordinator for exclusive and store brands for Whole Foods Market, in a statement.
Some of the strong private label brands are the upper-tier store brands where retailers are offering a quality product for a good price, Haffner says. He notes that private label products are getting more competitive in the ready-to-drink tea segment.
“[The RTD tea segment] has grown a lot, so it’s becoming a much larger segment [that is] able to attract the attention of private label,” he says.
For the 52 weeks ending July 10, national brands of canned and bottled tea totaled nearly $1.3 billion while private label brands of canned and bottled tea totaled $34.5 million, according to SymphonyIRI Group, in supermarkets, drug stores, mass merchandisers, club stores, gas and convenience stores, excluding Walmart.
“Lower pricing has been the single biggest driver [for private label beverages],” says Zenith International’s Hall. “Other factors have been improving quality, quick response innovation and intelligent segmentation. The latest steps have been in the expansion of in-house brands.”
This summer, Fresh & Easy, El Segundo, Calif., introduced a line of private label coffee in multiple varieties.
“[The introduction of the new line] makes private label look like national brands by offering a wide range of items,” said Jonathon Asher, senior vice president of Perception Research Services, in a June 2011 article on Beverage Industry’s sister publication PL Buyer’s website, privatelabelbuyer.com.
The coffee line consists of Donut Shop coffee, a Fair Trade blend, whole bean blends and trial size blends in a variety of flavors, including Cinnamon and Hazelnut, the article states.
Earlier this year, Deerfield, Ill.-based Walgreens stores launched the private label beer brand Big Flats 1901, supplied by the Winery Exchange. Comparable in taste and quality to the top-selling national brand beers, Big Flats 1901 is available in cans in six-packs for $2.99 and 24-packs for $11.49, the company says. The beer is made with six-row barley malt, corn grits, hops from Yakima Valley and bottom fermenting yeast, it adds. This summer, the brand expanded with a Light variety, also retailing for $2.99 a six-pack.
“As far as trends in [private label] beer, we are experiencing explosive growth in the private label beer portfolio, most significantly in craft beer and premium domestic cans,” says Jennifer Verdon, public relations and marketing coordinator at the Winery Exchange. “Some of our established brands, like Tap Room 21 with Kroger, are now standalone brands in the eyes of the consumer. This brand was launched in 2007 and has seen tremendous growth. For some of our new programs including Buck Range with Supervalu and Barrel Trolley with Harris Teeter, we are delivering to an underserved market and see customers eager to accept these private label brands.”
Barrel Trolley craft beer retails for $7.99 a six-pack and is available in Amber Ale, Pale Ale and Belgian White varieties.
“Consumers are initially drawn to our price points and innovative packaging designs,” she says. “It is the superior quality that keeps them coming back for more.”
Crunching the numbers
A pricing study conducted by PLMA discovered that consumers can save more than 35 percent, on average, off of their grocery bills by opting for the retailer’s brands. The study looked at a range of basic food and non-food items that an average family might put on its summer shopping lists and compared store brands versus national brands. Consumers can save as much as 50 percent on cola, according to the study. The typical national brand unit price for cola is $1.58 while the typical store brand unit price is $0.79, it adds.
According to the “PLMA 2011 Private Label Yearbook,” shoppers who reached for the store brand version of their favorite products rather than the national brand in all U.S. outlets enjoyed an estimated $28 billion in savings in 2010.
In total outlets, including U.S. supermarkets, drug stores and mass merchandisers, including Walmart, annual private label sales have increased by $4.5 billion, or 5 percent, during a three-year period, Nielsen’s report states. Retail sales were $84 billion in 2008 and $88.5 billion in 2010. Similarly, the annual store brand units have increased by $1.5 billion, or 4 percent, from $38.6 billion in 2008 to $40.1 billion in 2010, it adds.
When comparing 2010 to 2009, however, there was less activity. Sales of store brands in total outlets were up $1.5 billion, or
1.8 percent, in 2010 compared to 2009. Private label dollar share rose by 0.4 points to 17.4 percent and unit share stayed flat at 21.8 percent.
Although the economic downturn opened the door for private label, Euromonitor’s Haffner doesn’t expect it to falter as the economy recovers.
“Private label’s a high-quality product and the quality of it has improved over the years,” Haffner explains. “As people may have gone to the product because of price, they found that there isn’t that much of a quality difference from the branded players. So I don’t expect they’ll decline much as the economy improves.” BI
Thursday, September 15, 2011 at 5:38PM 
