Why Private Label Will Have to Work Harder to Stick

Articles
May 12, 2010

Why Private Label Will Have to Work Harder to Stick

If private-label share advances spurred by the recession and documented by so many studies will stick, it will be because people actually like the product quality and innovation.

If private-label share advances spurred by the recession and documented by so many studies will stick, it will be because people actually like the product quality and innovation. Some retailers get it—they’ve either recruited CPG talent or they’ve pushed name brands hard to make and market store brands in certain categories as the price to retain their own shelf space.

The Lempert Report admires the growth pace of private labels the past few years: Nielsen data show they accounted for 17.3% of U.S. dollar sales and 21.9% of unit sales in March 2010, a rise from 15.2% in dollar sales and 20.0% in unit sales from 2007. Yet advances won’t continue uninterrupted unless retailers play all elements correctly—pricing, packaging, messaging, newness and more. They haven’t done this consistently in past years, so the path to higher margin percentages may not be smooth in coming years.

Brands, after all, aren’t static. And consumers won’t want to compromise when they can once more afford to buy name brands.  Yet they will absolutely buy private labels if they feel doing so is not a compromise.  Costco is targeting a 37% share of dollar sales for its Kirkland Signature label before long, and it couldn’t plan for that impressive take if it wasn’t up to snuff.

Costco, Target and Trader Joe’s are exemplary merchants of private label—appealing to many younger and moneyed consumers who recognize the values inherent in these products. Now comes a new Nielsen report showing that Gen X and Gen Y women opt for store brands more than older consumers—by a 50% to 41% margin over Boomers. Nielsen data also reveal that affluent six-figure households turned to PL in a big way once Q4 2008 shook their personal fiscal foundations as well. 

The Lempert Report says this PL shift has legs because younger consumers have many strong earnings years ahead and represent considerable lifetime value for retailers and the proprietary brands they sell. Younger consumers will be buying store brands for many years to come, as long as retailers hold up their end.  In our view, these younger generations aren’t buying PL primarily because of low cost; they are simply loyal to the PL brands they enjoy using, and they think of them as equal choices at the shelf. 

As long as marketers don’t muck it up, younger consumers will reward innovative, quality private labels with loyalty and longevity. And there will be a new brand-PL balance in stores as a result.