Private label growth has stalled according to the SymphonyIRI Group's MarketPulse survey, "Reversal of Fortune: National Brands Pick Up Gains on Private Label."
Nearly half (47%) of consumers buy more private label today than they did before the economic downturn began, while one-in-three U.S. shoppers is actively seeking out store brands in an effort to save money, reads the report.
However, national brands are growing share despite innovative new private-label offerings. This is largely due to branded products becoming more competitive while being able to better highlight their value and benefits compared to private label. So, is private label going away?
Pros of private label
Not anytime soon. Private label has a strong presence in retail, offering retailers a higher margin than branded products while allowing retailers to market products under their store's name. Private label has improved dramatically in quality and retailers are working hard to make it less confusing to consumers.
Private label represents only 14.4% of CPG dollar sales (17.1% of unit sales). Private label shares are greater in some categories primarily due to a lack of innovation by national brands. Most consumers cherry-pick private label across different categories.
Pros of branded products
Branded products offer the promise of consistent quality each and every purchase. Brands attract consumers through their national ad campaigns and promotions. For this reason, branded products drive customer traffic into stores. In contrast, consumers typically choose private label brands while at the shelf.
Branded products allow retailers to compete head-to-head throughout the market. For example, a consumer compares the price for a 12 ounce loaf of Udi's between three different retailers. They perceive one store to have better overall pricing as a result.
Because private label is not consistent across all retailers, consumers don't trust it to the same degree that they trust branded products. This is due to different retailers using different suppliers. For example, private label peanut butter is inconsistent in quality and taste from one retailer to the next. One store's peanut butter may be rich and creamy while another may look and taste like Play Dough.
National brands have a stronger presence in mainstream retail compared to natural. This is largely due to the push for natural retailers to adopt private label offerings. The problem with that strategy is it doesn't allow natural retailers to compete with mainstream retailers. Natural retailers should use every competitive opportunity to invite shoppers to try more of their products and turn them into loyal customers.
The bottom line
Private label should be viewed as a low-cost alternative to branded items and never as a business building solution.
Consider this: Walmart discontinued most national brands to expand its private label. The company quickly learned that previously loyal customers stopped shopping. Walmart added branded items back on the shelves to correct this. This was an expensive lesson for Walmart and a failed experiment that should not be tested in the natural channel.