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Nielsen: The Next Store Brand Frontier is Product and Packaging Innovation

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December 9, 2009

By Maureen Azzato

Lisa Rider of Nielsen The next frontier for store brands is products and packaging innovation, especially focused on categories that national brand manufacturers spend the least amount of time and effort marketing against, according to Lisa Rider, V.P. Retail Marketing U.S. for The Nielsen Company

Store brands clearly benefit in categories that get less marketing support from national brand manufacturer, according to Nielsen data. Share of private label sales grows dramatically in categories that Nielsen classifies as “low- and medium-marketed” categories, Rider said during a presentation at the Private Label Manufacturers Association annual trade show.

For example, in the high-marketed range private label share of items is 9.7 percent, while share of dollar sales is 9.1 percent. In “medium-marketed” categories store brand item share jumps to 13.5 percent and dollar share nearly doubles to 19.6 percent. Low-marketed categories yield even more dramatic results with a 33.9 percent share of sales with an 8 percent share of items. Private label profits in low-marketed categories are also the highest, Rider said.

High low marketing slideConversely, innovation directly benefits from manufacturer marketing support, with the most innovation in share of dollar sales and share of items the healthiest in “high marketed” categories, Rider added.

For the first time in 2008, retailers dropped or “delisted” more products than they added, meaning that “retailers are finally understanding that less is more and are beginning to simplify their selection,” Rider said. “The industry really is not very good at delisting.”

Retailers today are more focused on SKU rationalization, however, most use a very outdated approach. “Many retailers are still using the ‘market coverage’ approach,” Rider said. “The problem with this approach is that it doesn’t address the interactions that exist among items.” A better method is to evaluate the incremental impact of products rather than relying so heavily at rate of sales, she added.

sku rationalization slideLike their European counterparts, U.S. retailers are also “developing more layers,” Rider said, adding that most grocers have at least two tiers in their store brand offer. Tiering is not as prevalent in chain drug stores, dollar stores and mass merchandisers, she said.

This past year, U.S. retailers’ store brand development focused on health and beauty care, baby care, general merchandise and healthy foods for kids. Most retailers also grew assortment and expanded mostly in the premium and specialty tiers, Rider said. But interestingly, the economy and value tiers yielded the most dramatic sales growth, she added.

Other trends Rider identified:

• Package copying is out! In fact, product innovation and packaging is next frontier. “Retailers will need to not only keep up, but potentially surpass national brand manufacturer product and packaging innovation,” Rider said.

• Cost-saving initiatives will shape innovation as retailers seek to lower store brand manufacturing costs and reduce in-store efficiencies.

• Store-brand-dominant formats –– such as Aldi, Fresh & Easy, Save a Lot, Food 4 Less, and Food Basics –– are growing and expected to continue gaining share.

• Effective packaging boosts performance. ICA Sweden re-launched its organic line with “a more modern, playful, fresher look” in March 2008, which won the Swedish Design Award for best packaging. Better still, sales of the organic line subsequently increased by more than 50 percent year-over year.

• European shoppers are looking for value (price, promotions, pack size and performance) and values (ethics, sustainability, origin and heritage), a trend likely to continue gaining momentum in the U.S. as well.


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