Nielsen: Store Brands Price Gap Leaves Dollars on the Table

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January 19, 2010

A Nielsen review of U.S. department-level price gaps between store brands and manufacturer brands shows that retailers may be hurting themselves in the long run - and missing out on collaboration opportunities with manufacturers to drive stronger category sales, according to Todd Hale, senior vice president of consumer and shopper insights for Nielsen.

Within food, drug and mass-merchandisers (including Walmart), Nielsen reports that the price gap between store brands and manufacturer brands is considerable -especially for non-edible departments such as health and beauty care and general merchandise where gaps ranged from 74 percent and 63 percent respectively.

Food departments have a smaller percentage gap - store brand prices in the deli department were 22 percent lower than branded and up to 50 percent lower in the dairy department. Since the same period in 2006, price gaps have widened in four out of seven departments -- deli, frozen foods, dry grocery, dairy, non-food, general merchandise, health and beauty.

While it is recognized that that department-level price gaps can be driven by differences in category mix, brand and/or size mix, these differences are significant and suggest that retailers are not maximizing category sales, according to Nielsen.

Consider this: an increase of just 1 cent in store brand prices translates into roughly $400 million dollars in sales across all departments measured by Nielsen. In departments and categories with extreme price gaps, the potential to enhance category sales can be significant, Hale said.

With the ongoing price compression in the industry causing declining category and same-store-sales, retailers would be wise to think about shifting focus on raising prices on some of their own brands, he added.

Meanwhile, in his Dos and Don'ts section, Hales said: Manufacturers who think that store brand success will fade when the economy improves are likely in for a rude awakening. Best-in-class retailers and manufacturers are those who collaborate on category and total store assortment, pricing, promotion, and advertising decisions."

Other suggestions to retailers include:

• Don't let price gaps get too large or risk declining category sales.
• Don't de-list high-penetration, high frequency or strong niche brands or risk driving shoppers to retailers who do carry them.
• Do promote store brands with brands where there is limited shopper overlap to drive category sales.
•  Do promote store brands along with non-competitive or complimentary branded offerings to build larger baskets.
• Do select credible suppliers and hold them to high standards.

Read These Related Articles:

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• PLMA Live: Nielsen V.P. Says Store Brands Will Remain Strong After the Recession
• Kmart Offers Michigan Unemployed Discounts on Store Brands
• Wal-Mart Edges Out Fry's in Tucson Store Brand Pricing Survey

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