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The Truth About Brands: Introduction But, there are signs suggesting that many US retailers have not fully optimized their private label programs: just 20% of categories drive 80% of private label sales, and loyalty (share of category spending among private label category buyers) is below 50% in over 2/3 of categories. Private label has been extended into some categories in which opportunity is very limited, due in large part to heavy brand-building activity by national brand manufacturers. Examples include toothpaste, where innovation is high and salty snacks, where brand equity is particularly strong. How should retailers select categories for private label development? How can retailers and manufacturers collaborate to ensure that both private label and manufacturer brands are effectively positioned to maximize total category profitability? What should manufacturers do to ensure that their brands are differentiated from private label? To address these questions, Information Resources, Inc. (IRI) and Boston Consulting Group (BCG) partnered in conducting an extensive study of the forces driving and inhibiting private label growth across over 270 product categories within three primary CPG channels: supermarkets, drugstores, and mass merchandisers (excluding Wal-Mart). Data Sources
Key Findings Summary
Key Findings U.S. Private Label Growth Despite a tough economy over the past several years, we have not seen the sharp private label gains that may have been expected….Why? We believe the growth of value retailers (supercenters, dollar stores, club stores) who offer national brands at low prices, has been a major inhibitor to private label growth. Rapid store expansion has resulted in much greater accessibility of these formats to an ever-increasing consumer base. Even with further value retailer expansion, however, private label will continue to grow share, perhaps at a slightly accelerated rate. Given the fact that a handful of top-performing U.S. retailers have achieved share levels in the low 20’s, and many European countries have maintained share above this level, it is not likely that U.S. dollar share will peak at 15%.
Factors favoring continued U.S. share growth include:
Category Opportunity Over the past five years, private label has extended into a broader range of categories; however, private label performance across many of these categories has been weak. Further, private label is losing share in many top categories, such as milk, ice cream and popcorn. As illustrated in the chart below, private label performance and opportunity vary tremendously across categories. A regression analysis revealed four key factors that influence private label success: Factors Inhibiting Private Label Success
When evaluating a category for private label entry, development, or exit, retailers should explore these criteria. For manufacturers seeking to differentiate their brands from private label, effective innovation, extension and advertising are critical.
Private Label Consumer All consumers are private label shoppers to some extent. In fact, in several “staple” categories, such as milk, bread, eggs, and cheese, household penetration is above 75%. Beyond the staples, however, there is a relatively small proportion of the population who are heavy private label buyers. Just 20% of the population are private label “loyalists”, who skew white and low income. These consumers allocate a high percentage of their spending to private label across the store. While this is clearly an important segment, for many retailers, private label loyalists are not among their top shoppers. Retailers do have an opportunity to expand beyond this core consumer segment via targeted private label lines. For instance, a recent IRI case study analysis of six retailers offering premium private label lines found that in these instances, the premium lines were highly successful in reaching higher income groups. Other retailers, including several European companies, have had success with lines targeting niche segments, such as natural/organic and children. Category Management Private label is often treated –by retailers as well as branded manufacturers –as a separate entity, rather than an integral component of a category. However, our research has shown that private label is highly interrelated with all other category brands, and how it is positionedvis-à-visother brands heavily impacts total category performance. For instance, a recent IRI source of volume analysis across five categories (bottled juice, gastrointestinal tablets, frozen seafood, natural cheese and toilet tissue) revealed that private label sourced volume from and to most of the top ten brands within each category. An IRI price gap analysis found that optimal price gap between private label and manufacturer brands varies significantly across categories depending upon category price elasticity. In an inelastic category, for instance, shrinking the price gap would result in a major category profit increase for a retailer, while the same action in an elastic category would result in a significant category profit decline.
Implications for Retailers
Implications for Manufacturers
Implications for Retailers & Manufacturers
How to Learn More Full Study Findings IRI Products and Services Consumer Network®: IRI’s consumer panel-based tracking system, consisting of over 70,000 US households and covering all major CPG channels, including supermarkets, drugstores, mass merchandisers, supercenters, dollar stores, club stores, and others Market Structure Analysis: Leverages IRI Consumer Network®panel data to identify the hierarchy of consumers’ decision-making process within a category Shopping Basket Analysis: Leverages purchase data collected via IRI’s Consumer Network®panel to identify the categories and brands in the shopping baskets of specific consumer segments, including high expenditure households AttitudeLink®: Links attitudinal survey responses among IRI’s Consumer Network® and RxPulse panelists with actual purchase behavior IRI Insights on…Private Label: A comprehensive report on consumer private label attitudes and purchase behavior Times & Trends: Supermarket Private Label: An annual review of private label sales trends across categories within the supermarket channel
About IRI The Company supplies CPG and pharmaceutical manufacturers, retailers, and brokers with information and analysis critical to their sales, marketing, andsupply chain operations. IRI provides services designed to deliver value through an enhanced understanding of the consumer to a majority of the Fortune 500 companies in the CPG industry. More information is available at www.infores.com.
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