Wait a minute. The words “premium” and “private label” together in the product description? You read it right.
During the past decade, sales of private label products across all categories have experienced a steady upward trend thanks to ramped-up efforts in quality and marketing. Of course, the languishing US economy also plays a key role in the popularity of private label (also referred to as “store brand” or “no name”) foods.
While a lower price might be what initially catches the eye, shoppers are making repeat purchases because they like what they find: quality and taste often rivaling those of the national brands they normally purchase, but at a value price. But will shoppers who turned their backs on national brands during the recession remain loyal to store brands once they find more money in their pockets again?
The short answer? Yes. At least, that is according to data included in an annual consumer research report commissioned by the Private Label Manufacturers Association. The study polled nearly 800 primary household grocery shoppers about their attitudes and behavior toward private label products.
In 2009, 91% of consumers surveyed said they would continue buying store brands after the recession ended. In the latest report, published in February 2010, 97% of shoppers who switched from a national-brand product to a store-brand product said they were happy with their choice and found that the store brand compared favorably with the national brand in the same category. Of those shoppers, 49% said the comparison was “very favorable” — a 26% increase from June 2009. But despite these encouraging statistics, private label manufacturers and retailers cannot breathe easy. The sector enjoyed strong growth in 2008 and 2010, but sales appeared to level off, indicating that there was still quite a bit of customer courting to be done.
Yet if private label manufacturers and retailers are concerned, they are not showing it. When asked if he thought consumers would revert back to national brands post-recession, Rex Parrott, president and COO, Wyandot, Inc., Marion, OH, responded, “We believe it is highly unlikely. Retailers want successful private labels to build profit and to provide differentiation from other retailers. The European model shows long-term consumer interest in private label.”
Publix Super Markets, Lakeland, FL, understands the importance of gaining the loyalty of recession converts before the economy re-energizes. For the past four years, the company has held the Publix Brand Challenge, during which it encourages customers to purchase select national brands and receive the Publix private label counterpart free. “We believe in our products so much that we are willing to put them to the test, side by side with the national brands,” explained Maria Brous, Publix’s director of media and community relations. “The customer wins. They purchase the product they originally intended to, get an item equal or greater quality free and have an opportunity to convert to the private label brand for long-term savings.”
Todd Moro, vice-president of sales, Legacy Bakehouse, Waukesha, WI, agreed. “Consumers are savvy,” he said. “The more they decide to buy store brands, the greater the chance that store brands will no longer be perceived as inferior. The industry recognizes this and has to be opportunistic.”
If the adage “history repeats itself” holds true, the private label sector should be in the pink. In previous recessionary times, private label has always retained a certain portion of the new consumers in the post-recession period, noted Kathie Canning, editorial director, Progressive Grocer’s Store Brands magazine, Deerfield, IL. “I think that reality, combined with all the new product development and ‘brand building’ retailers currently are engaged in, will ensure continued growth for store brands in the years to come.”
Brand building is a new area for many retailers. In the past, retailers played the role of distributer. Today, they are looking at their store-brand products through a marketing lens. “Retailers are becoming more shopper-centric,” Ms. Canning explained. “They are doing more research to understand who their key shoppers are — and what those shoppers want and need. In turn, these retailers are starting to treat their store brands as real brands, which means they are putting some marketing behind them.”
To compete with national brands in today’s market, having the lowest price is no longer enough to entice the consumer. When purchasing private label baked goods and snack foods, consumers have come to expect national-brand quality at a store-brand price. “Traditionally, price was the main driver for private label products,” said David N. MacPhail, general manager and senior vice-president, marketing and sales, Pineridge Bakery, Toronto, ON. “Now, consumers are interested in overall value, not just price. Many private label products, in terms of quality, rival branded products. If consumers do not perceive a difference in quality between the two after trying them, the price-value combination wins.”
In addition to quality, consumers are also seeking variety, in both products and prices. Store brands typically use a 3-tier system: value, national-brand-equivalent (NBE) and premium. The value-tier product lines offer just the basics, while NBE lines are the most common private label brands. NBE products are designed to meet or exceed the quality of their national-brand counterparts. Premium store-brand products compete against specialty, gourmet and upper-end products.
The premium tier is a major focus area for many retailers today as a differentiator, Ms. Canning explained. “These upscale items are priced higher than NBE store-brand products but still lower than many national-brand premium items and often have no national-brand counterpart,” she said. Montvale, NJ-based The Great Atlantic & Pacific Tea Co.’s (A&P) Food Emporium Trading Company brand and Minneapolis, MN-based Target’s Archer Farms brand are just two examples of premium store brands.
Despite the increased opportunities for profit that the tiered system holds, some manufacturers prefer to target one tier and offer variety within a single style of product. Rocky Mountain Pies, Salt Lake City, UT, which supplies pies to in-store bakeries nationwide, focuses on the premium category. Its Total Pie Program provides variety to retailers with a size range vs. a quality range. “My private label products are not a less expensive option for my customer base,” said Mark (Par) Grandinetti, the company’s president. “Consumers want to indulge, and competition is fierce. If consumers have a good experience with our pies, they will buy them again. To that end, the lattice on our pies is hand-laid, and our meringue is hand-peaked.”
Quality products, ramped up marketing efforts and a focus on the consumer will keep private label baked goods and snack foods in the public eye, even as the economy shows signs of gaining traction. “Consumers are more confident and educated about the selections that are available, and they recognize that store brands can equal or surpass the quality of the national brands,” Mr. Moro said. “People who normally wouldn’t have purchased a store brand are doing so now because they have been forced to tighten their budgets. This is an opportunity for store brands to display their strength. Store brands have become relevant.”
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