The popularity of private label products for consumers, and also retailers selling those products, has been much talked about in this poor economy notes The Food Institute this week.
The popularity of private label products for consumers, and also retailers selling those products, has been much talked about in this poor economy notes The Food Institute this week. More recently however, there have been a number of developments tracked by the association’s weekly Food Institute Report however.
The 2,468-unit Kroger supermarket chain plans to pass along price increases by brand-name food manufacturers to consumers, expressing confidence that its private label products will keep its sales strong. Kroger CEO David Dillon, who spoke during the company’s 2010 Investor Conference, stated food makers run the risk of losing market share to private label items if they do not absorb rising input costs. “I don’t see [rising manufacturers’ prices] as a problem for us. It is a problem for them,” noted Mr. Dillon. “Each national vendor must make a choice.”
Now consider how things have changed over the past five years as Food Institute researchers found the following comments from an Oct. 1, 2005 Cornell University lecture by Business Development Director at Nestle USA, John Cannon:
“I never had in my 25 years of selling …never once had a retailer leverage their private label to ask for extra from me or anything else. …We have segmented our products and differentiated our products that we don't compete for the same customer. Toll House Morsels is not competing for the private label consumer. We know we are competing for people that want to buy the very best. Stouffers consumers don’t also buy private label. If they buy Stouffers, they are buying Stouffers. You know the people that buy Nesquick are people that hey, I want really good chocolate milk. I am going to buy Nesquick. They are not the same consumer that buys private label. So we're not really competing for the same consumers. We have segmented those consumers.”
Obviously things have changed a lot in the past five years with private label unit share reaching 23.7% in 2009, up from 20.6% from five years earlier according to data from the Private Label Manufacturers Association reported by The Food Institute.
Kroger Co. is also interested in acquisitions and approached private label manufacturers, but some potential targets want too much for their assets, according to executives. The company would like to buy a plant that produces private label goods; the retailer made a couple of unsuccessful offers.
Meanwhile, The Food Institute reports that about 77% of CPG executives and 90% of retail executives believe market share of store brands will increase or increase significantly in the U.S. by 2012, according to Deloitte's The Battle for Brands in a World of Private Labels study. The study found that there is some disconnect between what executives think consumers believe and what consumers actually believe. For instance, fewer than 20% of executives thought that consumers viewed store brands as likely to be manufactured by the traditional national brands. However, about 80% of consumers are of the opinion that most store brands are manufactured by national brands. Meanwhile, CPG companies looking to attract the consumer turning to store brands should: shed homogeneity; be irreplaceable; make me-too strategies an onerous path; and stop reckless promotions. “To compete in this new ‘store branded’ world, CPG companies must increase their direct-to-consumer efforts while simultaneously developing a product portfolio that reflects each retailer’s unique consumer base,” stated Pat Conroy, vice chairman and Deloitte’s U.S. consumer products practice leader.
And you may want to participate in an upcoming webinar Private Label: Consumer Perceptions & Intentions sponsored by The Food Institute later this month, featuring research from the NPD Group and commentary by Brian Sharoff, President of the Private Label Manufacturers Association. It will delve into the world of Private Label and explore perceptions, usage patterns and intentions as it navigates marketers and manufacturers alike through the complexities of understanding this increasingly popular market segment. Whether Private Label offers you an opportunity or a threat, this presentation is not to be missed!