Nielsen and NPD Offer Opposing Views About Private Label Prospects
May 8, 2012
Nielsen and the NPD Group have issued reports tracking recent growth and projecting future sales opportunities for private label, however their data and views are conflicting. NPD contends private label is in decline, while Nielsen says it is poised for growth if innovation continues.
“Well before the start of the recession consumers were turning more toward private label food and beverage products and expressing high levels of satisfaction with the products,” said NPD industry analyst Darren Seifer. The report “The Evolution of Private Label — Does Brand Name Really Matter,” shows private label’s share of household was 18 percent in 2000. That percentage has steadily risen each year since then, reaching 27 percent in 2011.
But will shoppers return to buying national brands as the economy continues to recover? In 2009, 34 percent of adults said they intended to purchase more private label versus the prior year, but that has dropped to less than a quarter of adults in 2012. Seifer posits that value options are no longer the driving force behind private label purchasing.
“Adults are also giving private label food products lower satisfaction scores,” he said. “When asked whether private label foods met their needs, 32 percent of adults purchasing private label told NPD the products did an excellent job of meeting their needs in 2009. That dipped to 24 percent in 2012.”
According to NPD, not all categories are treated equally by consumers. “While we are seeing more private label dishes being served, consumers’ loyalty to private label is still strongest in categories that are mostly used as ingredients,” said Seifer. Flour and butter top the list of most shopped private label categories. “On the flip side, categories where we notice a stronger loyalty to [national] brands are very likely to display the brand to the user. Examples of these categories are frozen dinners/entrees, yogurt and carbonated soft drinks.”
Private label, however, has made strides over the past few years in terms of quality. “Two-thirds of adults say store brands’ quality is much better today than it was five years ago. The question is, however, if food inflation slows and at the same time the economy improves, will consumers return to the name brands they know and trust? That could become a reality if retailers do not respond to declining satisfaction and if name brand manufacturers continue their loyalty tactics,” Seifer said.
Innovation Key to Growth
Meanwhile, Nielsen analyst Todd Hale asked: “Are store brands a flash in the pan or the real deal?” in a recent webinar the research company hosted. Private label growth has been fairly flat over the last three years, as the recession ended and the economy eased into recovery, Hale said, but noted that strong retailers are driving brand development and innovation.
Retailers such as Wegmans, H.E.B. and Costco are leading the way in private label development and should set an example for the industry in how to drive private label penetration. These leaders have tiered programs – good, better, best – promote private label heavily beyond just price promotions, and exhibit a strong commitment to building their brands, according to Hale.
Indeed, store brands sales may have been flat in the past three years, said Hale, but sales are up 24 percent since 1997. The best-in-class retailers demonstrate a very deep understanding of shopper demands and have expanded well beyond non-core categories to develop premium offerings. These retailers are looking to concept testing, package design, category management and analytics to build private label programs. "It really takes an investment in insights to succeed in today's world," Hales said.
Best-in-class examples create a road map for how to growing private label, Hale said, noting that private brands can prevail if retailers focus more on innovation rather than simply developing lower priced alternatives to national brands. Dedication to brand building, innovation in product development, connecting with consumers beyond a value message with a focus on quality are part of recipe for store brands growth, he said.
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