Nielsen Forecasts Long Growth Pattern in U.S. Store Brands

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July 15, 2009

By Maureen Azzato

John J. Lewis

Have store brands reached the tipping point? There is no clear cut yes or no answer because the consumer and retail landscape continues to dramatically shift and change, according to John J. Lewis of The Nielsen Co.

While the "momentum of private brands is unalterable ... 80 percent of the business is still national brands," said Lewis, president and CEO, Nielsen Consumer, North America, for The Nielsen Co. "I don't mean to diminish the trend of private brands, but we have to fit these things together and start to talk about the entire landscape."

A little known trend over the past two-and-a-half years is that the share of private brands has increased by two percentage points, mostly at the expense of non-leading "other brands (everything but number-one brands)," Lewis said during a presentation at the recent Food Marketing Institute's Private Brands Summit in New York.

Nielsen logo image That growth is "enormous given the size of the business and given that many categories don't have big private brand development," Lewis said. "What might be a little less obvious to you is that the leading brands have also gained share (0.7 percentage points) during that time, which means that private brand growth has essentially come from the ‘all other brands' segment."

Indeed the recession has changed consumer perception and behavior, according to Nielsen data, although a majority of consumers (94 percent) are still in the "shopping game," according to Lewis. "Only 6 percent are in what we call panic mode -- they are all about saving and not spending money. But a full third of the population has not changed their shopping habits very much at all."

Of those consumers still in the "shopping game," 60 percent are value seekers who are changing the way they shop with some using more coupons and stocking up on discounted product, while others are switching to store brands and switching stores chasing deals.

"But if you are think of value as a monolithic concept, that would be a mistake," Lewis said. "Different segments are chasing value differently. There is no one answer or one approach. Consumers are very smart -sometimes they are way ahead of us, which is not the right place for us to be. They're thinking of all the substitutions to make lives better."

U.S. private brands represent 17 percent of total sales, according to Nielsen, and store brands on average are growing 13 percent globally on an annual basis. "We see no reason why there won't be a long growth pattern in private brands in the U.S ahead," Lewis forecasted.

The top three reasons people buy store brands center around quality, according to Nielsen research: they get better value for the money, the products meet or exceed customer expectation, and the retailer has a reputation for quality.

To continue harvesting the opportunity, Nielsen advises retailers to focus on the following:

• Build brand equity. "Your Brand equity is the key. The question is how are you defining the brand, managing the brand, measuring the brand, and continuing to go forward and building your brand," Lewis asked. "That's the most important holistic thing you could be doing. The rewards for that are huge. Beyond market share, it has significant implications for pricing and profitability."

• Don't overlook the value tier. Overall, 35 percent of store brand sales are in the value tier, but in grocery stores it is less than 20 percent. "There is a role for value products but they are overlooked a little bit in the grocery business," Lewis said.

• Focus on growth categories. Categories growing because of the recession include canned food, comfort food, meal preparation and ingredients; those on the decline are beverages, healthy products, utility, frozen and discretionary products.

• Optimize in-store programs. "Be strategic and consistent with brand marketing and promotion," Lewis said, maximizing use of circulars, couponing and in-store media. "A lot of you are looking at how to promote national brands and private brands together, which is good. The idea is to generate incrementality."

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