Dearth of CPG Innovation Helps Fuel Private Label Growth

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October 26, 2010

While seemingly counter intuitive, consumers in the post recession are spending money on larger ticket item such as iPads and other technology tools and accessories, but cutting back on household staples and foods, at least national branded ones.

Consumer have increasingly turned to private label products in grocery stores and will likely continue to do so because CPG companies are no innovating, according to an Advertising Age report.

"Only four in 10 CPG companies are investing more in product research than they were 10 years ago," said Pat Conroy, vice chairman and U.S. consumer products leader at Deloitte. "They've lived on product extensions as opposed to developing truly innovative products."

The problem is that CPG companies are not developing products that deliver status or make peoples lives more convenient or meaningful. "You could argue that electronics are delivering that, exactly, today," said Stef Gans, CEO of consultancy EffectiveBrands. "They're closely linked to status. They're making your life easier."

And, without question, private label is reaping the benefits of CPG sluggishness. Research by Sanford C. Bernstein last year revealed that 77 percent of consumers said their experience with "less expensive" brands was as good or better as with more expensive ones, in line with recent Deloitte findings.

Overall satisfaction with CPG brands is declining, according to the American Customer Satisfaction Index (ACSI) from Michigan's Ross School of Business released last week. Consumer satisfaction with personal care and household cleaning products fell two points to 83 after three years at 85.

Meanwhile, consumer satisfaction in the technology category is up. Earlier this year ACSI noted gains in consumer satisfaction for personal computers, (up three points to a high of 78), wireless phone service, (up 3 points to a high of 72) and subscription TV (up 4 points to a 10-year high of 66).

According to Ralph Blessing, executive vice president of strategic innovation for GfK, said some consumer are displaying a “save to spend” mentality.

Editor's Note: Chart courtesy of Advertising Age; data source is Symphony IRI Group.

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