USDA Reports Private Label Growth and Savings

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January 10, 2012

The government agency notes store brands yield big savings, increased market share and growing promotional activity.

The growth in private label has not escaped the notice of the U.S. Department of Agriculture, which estimates store brands yield average savings of 23 percent while retail participation in the category continues to grow.

“One of the most striking changes in U.S. food retailing over the past two decades has been the rise of private labels, also known as store brands,” said John Volpe in the economic research report, The Relationship Between National Brand and Private Label Food Products. “Retailers have expanded private label product offerings across the supermarket, and private labels have increased in popularity, as measured by both dollar sales and shares within product categories.”

The report also looks at the promotional interaction between private label and national brands, and the potential benefits to shoppers through lower prices and expanded product selection. It tracked activity in 2009 and 2010, both during and after the economic recession, during which time store brands increased market share by 2 percent in dollar terms to $55.5 billion in 2009.

The USDA found that on average private label products are priced about 23 percent lower than national brands, both with and without promotions. This price gap is smaller than found in previous analyses using older data, suggesting that these items may have become more comparable in price and quality over time, according to USDA.

Other findings include:

• National brand/private label promotional interaction was strongest among processed, storable products, but much weaker for produce, fresh meat, and seafood;
• In general, as market concentration increased within an area, the intensity of national brand/private label promotional interaction also increased within stores; and
• Promotional activity for national brands changed very little during the recession, while private label promotional activity increased.

The agency found that proximity to supercenters had an effect on private label promotional activity and pricing, as supermarkets focused more on every day low pricing to best compete with supercenters.

Store brands are more likely to be promotionally priced than national brands, according to the report, especially those positioned as national brand alternatives. But retailers are rolling out more sophisticated private label offerings positioned as differentiators that drive brand and store loyalty, reducing the savings to consumers but growing overall market share of private label.

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