Retailers Scramble to Sharpen Value Image

February 20, 2015

Is a new private label strategy the cure for shopper savings fever?

Originally distributed in our Facts, Figures & the Future weekly, free e-newsletter. Click here to subscribe.

Six years past The Great Recession, value and affordability still remain high on millions of shoppers’ lists - especially for the “four in 10 financially challenged consumers...many still entrenched in conservative behaviors,” states a new IRi report, Private Label & National Brands: Dialing in on Core Shoppers.  

Corroborating this, the 2015 National Grocers Association-SupermarketGuru Consumer Survey Report released earlier this month shows that “low prices are very important” to 38.4 percent of American adults in their selection of a primary supermarket - and six in 10 (59.8 percent) say that “items on sale or money-saving specials are very important.” This same research study reveals that just a quarter of consumers (24.2 percent) grade supermarkets as “excellent” at keeping prices low, and about four in 10 (41.4 percent) say their primary food stores excel at deals. 

Sensitive to these perceptions and to widespread household budget pressures due to SNAP cutbacks and stagnant wages, retailers are trying new ways to shore up their value image. This is a challenge as meat prices rise in double digits and merchants decide how much of the cost hikes to absorb or pass along to shoppers.

According to IRi, “Some retailers are exploring the introduction of opening-price-point private label solutions. These no-frills products would target the most cost-conscious consumers...[to reinforce] their value message and stem the flow of dollars to value channels. But private label suppliers are apprehensive of the strategy, fearing it would negatively impact the strong quality perceptions they have worked so hard to achieve.”

They may have a point. More than 80 percent of consumers today feel that private labels “offer as good or better quality” as their national brand counterparts, adds IRi, citing a Mintel study in which “87 percent of consumers misidentified at least one private label food brand.”

There appears to be some friction between retailers and store-brand suppliers at the upper end too - where chains use upscale products exclusive to their stores to build loyalty and trips - suggests IRi when it states, “Some retailers such as Safeway (O Organics) have executed...well [but] the majority of retailers are perceived as giving insufficient merchandising and promotional support to their private brands.” Suppliers are also concerned that “niche efforts” may not “pay off,” the report adds.

While U.S. consumers spent $120 billion on private label in 2014, that 2.1 percent gain over 2013 was mostly due to price increases. PL unit sales slid while CPG unit sales were flat. At an industry level, reports IRi, “Private label accounts for 16.6 percent, and national brands account for 83.4 percent of total CPG spending.” In the grocery channel, the PL share is higher - 18.3 percent of dollar sales and 22.0 percent of unit sales, the IRi data show.

These figures represent a 0.1 percent unit gain in grocery stores in 2014. But it doesn’t play out evenly across the selling floor: While PL share in frozen foods rose 0.3 percentage points, it was down 0.6 in refrigerated, 0.2 in general food, and 0.1 in beverages. By contrast, the PL frozen foods share in mass/supercenters jumped 5.3 points in the same period, refrigerated and beverages each rose 1.8 points, and general food was up 1.2 points.

The consumer quest to stretch dollars has 25 percent buying brands on sale over their preferred brands and 23 percent selecting items based on loyalty card discounts, state IGD Retail figures cited by IRi. Shoppers also preplan their store trips and seek coupons; shop multiple stores, sometimes with friends to divide larger size, lower unit cost packages; use apps and mobile technology to maximize discounts; and limit their buys of discretionary items, says Facts, Figures & The Future (F3).