The practice of private labeling gets little respect with most traditional marketing professionals. But this market is on the rise and here to stay, as consumers become more comfortable with private label products and retailers are more motivated to build store brands.
I spoke recently with Todd Phillips, Vice President of Marketing of Lance Private Brands, a division of Snyders-Lance, Inc. His strong marketing background includes many years in classical CPG (consumer packaged goods) brand management roles at HJ Heinz and Lance, agency experience at Della Femina McNamee, Inc. and sales promotion roles with SmithKline Beecham. Todd shared his thoughts about the typical marketing person’s mindset around private label:
“Too many people in the CPG world have a misguided conception about private label and fight against it like it was the enemy. What they fail to recognize is that the retailer, their customer, is putting resources behind growing their own Private Brands as a means of positioning themselves against their retailer competitors. Instead of fighting against it, most CPG companies would do well to build strategies that complement the retailer’s brands in an effort to grow both sides of the business. In addition, CPG industry professionals need to recognize that the stigma of Private Brands no longer exists. Younger generations in the US have grown up with Private Brands, especially Millennials who are most developed against this segment and fill their shopping baskets with a large percentage of private brand products.”
Store Brand Is Big Business and Here to Stay
Private label is big business, with Mintel/IRI estimating that private label food sales alone were $55 billion in 2013.
Nielsen data from the March 4, 2014 webinar “How to Capitalize on Private Labels’ Untapped Potential” supports Phillips’ point. In a time of challenging growth for many CPG categories, store brand gained dollar share from 2009 to 2013 in all studied channels (including both edible and non edible categories). In supermarkets, store brand dollar share grew from 18.3% to 19.4%; in drug stores, store brand dollar share grew from 14.8% to 16.4%. Dollar share increases are also noted in convenience store (c-store) and value channels over the same time period. Unit share growth has also been on the rise, with the exception of supermarkets, where units have been flat.
The branding approach and strategy to private label varies considerably by retailer. For example, Costco focuses primarily on one brand (Kirkland), while other retailers have a portfolio of store brands, ranging from a small number to more than ten labels. Nielsen notes that Aldi and Safeway offer larger portfolios, with between 11-35 different store brand labels.
What Drives Store Brand Sales
According to Nielsen, approximately 20% of store brand buyers are the ‘top spenders,’ contributing to 43% of store brand sales: a 215 spending index. Not surprisingly, female head of households between 35-54 are the most important demographic within the top spender, with a skew to larger household sizes.
Another important segment for private label appears to be Millennials.
Mintel consumer research finds that Millennials are more likely to be high store brand users. Specifically, 63% of Millennials and post-Millennials are high store brand users, compared with 55% among Gen X, 49% among Baby Boomers and 41% among Swing Generation/World War II.
Strategic Focus on Private Label
Of course, the strategic balance between branded efforts and private label initiatives requires careful consideration for each company. ConAgra Foods stands out as one leading organization that has selected private label as a major growth strategy, demonstrating this commitment with the 2012 acquisition of RalCorp.
Other organizations may choose other strategic paths: focusing completely on private label, balancing both branded and private label, or continuing to focus exclusively on branded offerings. Regardless of the selected strategy, Phillips’ point remains that store brand is big business and the branded challenge is to provide a win-win with their retail customers—strategies that are more about driving overall growth than stealing private label share.