Perceptions about private label are overwhelmingly favorable—almost three-quarters of global respondents (71 percent) say store-brand quality has improved over time, according to a new study by Nielsen, a leading global provider of information and insights into what consumers watch and buy. Price is a primary driver of purchase intent among 70 percent of global respondents, but quality is important, too. Two-thirds (67 percent) believe private labels offer extremely good value for money.
The Nielsen Global Survey of Private Label polled more than 30,000 Internet respondents in 60 countries to understand how consumer perceptions about private label quality, value, assortment and packaging translate into sales around the world.
While opinions are positive, private label development varies greatly around the world. Store-brand value share is at or above 15 percent in the developed regions of Europe, North America and the Pacific. In developing regions, it is below 10 percent in most countries in the study. In fact, private-label share is 5 percent or less in markets such as China, India and Brazil. There does, however, appear to be a ceiling for growth. Even in the most developed European store-brand markets, private-label share has remained around 45 percent for the past 10 years.
"Private label is most developed in Europe, particularly in Western markets where sales account for roughly $1 of every $3 spent in the consumer packaged goods market," said Jean-Jacques Vandenheede, director of retail industry insight, Nielsen Europe. "Share of basket for even the heaviest private-label buyers hits a tipping point around 50 percent because brands have the growth advantage. Commitment to innovation, analytics and marketing are effective strategies for maintaining and growing share. Successful store brands are ones that invest in brand management activities like their manufacturers peers and they build brand equity by providing value, standard and premium offerings for consumers at all price points."
Around the world, private label sales and shares are strongest in commodity-driven, high-purchase categories and those where consumers perceive little differentiation, such as paper products, milk and some medications and remedies like aspirin. But the definition of a commodity varies greatly from country to country. In developed markets like the U.S., Europe and Australia, this includes products such as milk, bread and eggs. In India, however, commodities include products that are distinctly local, such as ghee, rice and atta flour used to make bread.
While some commonalities exist, the categories where private-label market shares are strongest can vary dramatically by country. Even in the most developed European markets, big differences exist in private label and brand performance for each category. For example, annual sales of private label baby-care products in the U.K. increased 16.4 percent between the 12 months ending August 2013 and the same period in 2014, but the opposite was true in Germany where private label baby-care sales decreased 7.3 percent. Likewise, annual sales of private label alcoholic beverages increased 13.2 percent in Italy, but the category declined 4.1 percent in the U.K.
"Private label growth is partially driven by what's available on store shelves, as it's an offer-driven market," said Vandenheede. "But it's a misconception to believe that increasing the breadth of private-label assortment will automatically drive sales. Retailers must pursue the right selection, not just a bigger selection. Delisting decisions that replace high-penetration, high-frequency niche brands with private-label products can drive shoppers to the competition. Private label growth requires a market-by-market approach that is tailored to consumer needs in each country."
State of private label around the world
In Europe, Switzerland has the highest private label share of 45 percent, followed closely by the U.K. and Spain at 41 percent each. Private level is less developed in eastern and central Europe where share varies greatly, from a high of 24 percent in Poland to a low of 5 percent in Ukraine.
Private labels have become an essential staple in consumers' shopping baskets and perceptions are overwhelmingly positive in the region. Seventy percent of European respondents believe store brands are a good alternative to name brands and 69 percent believe they offer good value for the money. Only one-third (33 percent) believe private label is not suitable when quality matters.
In North America, private-label share is 17.5 percent in the U.S. and 18.4 percent in Canada, which is just above the global average of 16.5 percent. The social stigma of store brands has virtually disappeared in the region, as the majority of shoppers are pleased with private label products, calling them a good alternative to name brands (75 percent of Americans, 73 percent of Canadians), a good value (74 percent of Americans, 66 percent of Canadians) and at parity with national brands on quality (67 percent of Americans, 61 percent of Canadians).
"Since the recession ended, private-label dollar share in the U.S. increased only 1.3 percentage points between 2009 and 2013 as brands stepped up both promotional activity and innovation efforts to protect share positions and to drive growth," said Todd Hale, consultant and former senior vice president , consumer and shopper insights, Nielsen U.S. "To drive increased private-label growth, retailer focus and commitment is critical. Best of breed retailers win by ensuring they offer the right product at the right price to deliver the right margin across the store in their given categories. Ultimately, retailers must understand shoppers' demand for both private and national brand products and categories."
In the Pacific, private-label value share is 21 percent in Australia, with store-brand growth (6.6 percent) outpacing total retail growth (2.4 percent) for the year ending May 2014. In New Zealand, private label value share is 13 percent.
"Australians are increasingly aware of prices, which is no longer a differentiator, but an expectation," said Caroline Burgess, associate director, client service, Nielsen Australia. "Retailers have traditionally focused on 'me-too' offerings rather than creating a point of difference with their brands. This is changing as more retailers have taken on the role of brand creator, providing reassurance, personality and something unique in the products they offer. The premium tier is particularly valuable as it allows retailers to offer items that don't exist anywhere else. This increases their brand's differentiation and appeal and drives store loyalty."
In Asia, private label has been available for the last quarter century, but growth has been slow. Value share is highest in Singapore (8.1 percent), Hong Kong (5.1 percent), India (4.5 percent) and Taiwan (3.1 percent) and lowest in China (1.3 percent), Thailand (0.8 percent) and Indonesia (0.6 percent).
Asia-Pacific has the highest percentage of respondents (58 percent) who believe name brands are worth the extra price—10 percent higher than the global average, 20 percent higher than North America and 26 percent higher than Europe. Nearly six-in-10 respondents in Indonesia (59 percent), the Philippines (58 percent) and Thailand (56 percent) believe they risk wasting money when they try new brands. Instead, shoppers prefer to buy the trusted brand advertised on TV every week, especially now that it is increasingly offered at a discounted price.
"Asian shoppers are strongly brand loyal, and retailers have not invested enough in private-label marketing programs to persuade shoppers to trust its quality," said Peter Gale, managing director of retailer services, Nielsen Asia-Pacific and Middle East. "Many Asian retailers have virtually copied and pasted the European model without dedicating the groundwork necessary to build loyalty. Just launching new private-label products is not going to drive significant growth unless retailers address the fundamental issue of shopper demand properly."
In Latin America, private label share grew steadily between 2010 and 2014, increasing in all of the countries measured. The biggest growth occurred in Chile and Colombia, which increased 2.9 percentage points in the four-year time period to value shares of 15 percent and 10.3 percent, respectively. Private-label is less developed in Argentina (8.7 percent), Mexico (7.6 percent), Brazil (5 percent) and Venezuela (3 percent).
Seventy-one percent of Latin American respondents say they would buy more store brands if a larger variety of products were available (vs. 59 percent globally), and 78 percent like it when a retailer's private-label offerings include lowest-priced/value items, national brand equivalents and premium products (vs. 69 percent globally).
"Diversification of product lines and expansion beyond the value tier will create additional opportunities in Latin America," said Enrique Penella, vice president of retail, Nielsen Latin America. "Private label creates price competition and encourages national brands to innovate to maintain share. National brands of questionable quality in the lowest price tier will feel the biggest impact."
In the Middle East, private label development is still in its infancy, representing 1 percent or less of annual dollar sales. Conversely, private label represents 18 percent of dollar sales in South Africa. National brands are familiar and provide an assurance of quality; as a result, they generate significant loyalty. Indeed, 57 percent of Africa/Middle East respondents say they're loyal to name-brand products, compared to 50 percent globally. Poor quality perceptions and strong brand loyalty can pose significant barriers to private label growth.
"Brands will continue to dominate in Africa/Middle East for the near future," said Onur Yuksel, retail services leader for Nielsen Middle East, North Africa and Pakistan. "Private label growth is heavily dependent on the spread of modern trade, which has relatively low penetration throughout the region and is primarily available in urban areas only. Future development will be largely dependent on how retailers monitor the performance of new launches and use that information to develop the right products at the right price."