Deloitte to CPGs: Fight Aggressively to Regain Share Lost to Private Label

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August 3, 2010

Store brands have steadily gained share in three out of four categories over the past three years, and consumer packaged goods companies that want to regain lost ground must fight aggressively to win back customers, according to studies by Deloitte LLP.

Pat Conroy

“National brands that are relying on an improved economy to stop the onslaught of private labels could be in for a nasty surprise,” said Pat Conroy, vice chairman and U.S. Consumer Products Leader for Deloitte LLP. “To regain their competitive edge, national brands must demonstrate and deliver superior value to the consumer.”

Key CPG strategies he outlined include:

• Develop a brand that retailers can’t. Focus on brand attributes that are difficult for retailers to replicate such as exclusivity, product safety, social causes, innovation and sustainability.

• Create a “destination” brand. The leading brands are so strong that loyal consumers are willing to switch stores or make a special trip just to buy them. Such brands are difficult to replace with private label products, since many consumers are unwilling to accept a substitute. “It’s important to note that while many companies believe their offerings qualify as destination brands, our research shows fewer than 1 in 3 brands in most product categories are viewed as ‘must-have’ by those consumers who purchased the brand.” Conroy said.

• Make it hard for retailers to copy you. “Me-too” private label products that look similar to national brands encourage side-by-side comparisons at the store, often to the detriment of the national brand. Establish an aggressive cadence for product innovation, including frequently refreshed packaging and product obsolescence, which forces retailers and private label manufacturers to make continuous investments to keep up.

• Go direct to consumer. Use the Internet to establish direct relationships with consumers and increase your presence in the decision-making process. Build customer loyalty by offering existing customers direct replenishment through your website.

• Reduce reliance on price promotions. While price promotions remain an important marketing tool, if overused can steadily undermine your brand’s perceived value. Excessive promotions train consumers to wait for deals and shift the focus from product attributes to price – a shift that plays to the strengths of private label competitors.

• Think local. Just because your brand is nationally distributed and marketed doesn’t mean you can afford to ignore local market needs. Identify regional or local variations in tastes and preferences and use them to create new and unique products that can compete effectively against the localized offerings of private labels.

Interestingly, 80 percent of consumers surveyed by Deloitte believe that most store brands are produced by [CPG companies] and are essentially identical. Meanwhile less than half of CPG executives polled by Deloitte believe that consumers view store brands as manufactured by the national brands.

And most CPG executives (75 percent) and 90 percent of retail executives polled by Deloitte expect store brands market share to increase or increase significantly over the next two years.

Read These Related Articles:

• August Private Label Dollar Sales Up, CPG Down (Correction)
• Hispanic Shoppers More Likely to Switch to Private Label Brands
• Consumer Reports: Private Label Rivals National Brands
• Private Label Today is a Lesson in Branding
• Study: Regional Grocers Can Compete With Walmart

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