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Store Brands Drive Differentiation and Profit

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June 13, 2009

By Maureen Azzato

Supervalue Harvest Organic imageGone are the days when one store satisfied all family and household needs. Today, shoppers are less loyal to the stores they shop in and many shop in several different formats to satisfy their varied and fickle needs.    

Grocery retailers understand this trend full well.  In fact, 74 percent of them feel consumers will be even less store loyal in 2009 than they were in 2008, according to a Food Marketing Institute study titled “The Food Retailing Industry Speaks 2009.”

The survey found that retailers are heavily focused on boosting customer service and the quality of their store brands to build customer loyalty –– and profit –– since retail gross margins are higher on store-branded products (35 percent) versus comparable nationally advertised brands (25.9 percent).

“As competition increases, store brands have become more important than ever in providing retailers a unique point of difference and the ability to drive overall shopper satisfaction, store loyalty and profitability, “ according to the report.

And store brands are the rule, not the exception: nearly all grocers (97.5 percent) carry store brands, with 75.9 percent carrying multiple tiers of products, up from 64.6 percent in 2008, according to the FMI report.

A Demographic Shift
One of the fastest growing segments are organics with 71.1 percent of supermarket respondents offering store brand organic products, up from 59.5 percent in 2008 and only 46 percent in 2007.

“Premium private-brand shoppers are less price sensitive and instead seek a quality they feel good about,” according o the FMI report. “Middle-income shoppers tend to make up the value tier. They can be extremely loyal because of their quest for quality and are least likely to switch (back) to national brands.”

Store brands' share of total supermarket stock keeping units (SKUs) has increased accordingly over the past several years, topping 9.7 percent in 2009, with sales representing an average of 14.3 percent of total grocery store sales volume. According to the FMI study, several grocery chains are setting store brand sales goals as high as 20 percent of overall revenue.

The recession certainly has increased consumer purchase of store brands, since they can be 20 to 30 percent cheaper than national brand counterparts. But trend watchers also are seeing a demographic shift. It is not only lower-income and middle-income households buying store brands –– more affluent households are embracing them, too, particularly the premium tier.

Product quality and packaging is driving repeat purchases and brand switching, according to a 2009 study conducted by GfK Custom Research North America on behalf of the Private Label Manufacturers Association. In fact, 77 percent of consumers across all income strata said store brands are as good, if not better, than national brands.

While 75 percent of shoppers said current economic conditions are playing a big role in their purchase decisions, PLMA expects that consumer behavior will not change dramatically as the economy improves.

"The outstanding 2008 results also can be attributed to a strong foundation of consumer acceptance and patronage of private label products that predates the current economic situation," said Dane Twining, public relations director of PLMA, which in mid-June is releasing its annual yearbook with detailed store brand data and trends.


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