Lisa Rider, Vice President, Retail Marketing, U.S., The Nielsen Company
SUMMARY: Conspicuous consumption is giving way to a conscious consumerism that favors thrift and fosters an appreciation for value-priced store brands. The winning store brand formula combines two key factors: better perceived value for the money and products that meet or exceed expectations. Nielsen shares five best practices that define a successful store brand strategy and introduces the six consumer segments that shop them.
Bad economic times are providing a good financial impetus to store brands. The Private Label Manufacturers Association in the U.S. determined that shoppers can slash their grocery bill up to 30% by purchasing store brands. During the year ending February 2009, Nielsen reports that store brands in the U.S. posted $84.4 billion in sales, a nearly 10% annual increase attributable in large part to consumables like dairy, packaged meats, frozen foods, deli, dry grocery and alcoholic beverages. During the same period, store brands outperformed the national brands reported 2.3% increase, and corresponding total store results of a 3.5% uptick.
Not only are store brands posting impressive value and volume sales gains, they are doing so in categories that were traditionally resistant to private label goods. These include hair and skin care, baby food, diapers and baby care products, household cleaning chemicals, cough and cold, oral care, antacids, whole bean coffee and tea, cooking sauces and glazes, breath fresheners, carbonated beverages and feminine hygiene products.
There’s plenty of room for the American store brand trend to turn into a juggernaut, since the domestic 17% store brand share trails the uptake in western European counterparts like Switzerland (46%), the UK (44%), Germany (32%), Spain (29%), Belgium (28%), Austria (27%), Canada and France (26%). Given the interdependency of the global economic markets, the appetite for store brands may well be increasing across affected regions.
|Consumer perception of store brand quality continues to improve…|
A U.S. 2008 Nielsen store brand survey, designed to replicate a 2005 study, determined that consumer perception of store brand quality continues to improve. Once viewed as upstart offerings that sacrificed quality for price, store brands have gone mainstream and achieved parity on quality criteria.
Almost two-thirds of study respondents in the U.S. rated store brand quality equal to national brands, and more than 70% felt store brands were a good alternative to national brands. Perhaps the best testament to store brand gains is the fact that more than 90% of U.S. households said they feel comfortable serving store brands to guests.
Six shopper segments
To better understand, reach and target the store brand consumer, Nielsen divided shoppers into six discrete segments based on attitudes toward store brands and shopping behavior by store brand tier. The six segments include:
- Downscale Value Committed—patronize downscale retailers, are committed to the value tier retailers because of good quality/value relationship
- Downscale Value Price Driven—shop downscale retailers because price drives their purchases, but have negative quality/value perceptions
- Mainstream Loyals—looking for mid-tier or national brand equivalents at mainstream retailers
- Upscale Premium—shop upscale retailers, buy premium store brands that command a big part of their budget
- Low-Spend Potentials—despite positive store brand perceptions, spending levels are low compared with other segments
- Low-Spend Rejecters—bad quality perception of store brands matched by minimal spending
The largest segment (Low-Spend Potentials) captured 27.5% of all-outlet UPC-coded dollars, while the smallest segment (Upscale Premium) drove just 13.2% of dollars. In general, downscale shoppers purchased store brands as a matter of necessity versus choice. The same holds true for mainstream households, which tended to be older, male, retired and focused on stretching their budgets.
Path to success
The analysis confirmed what many suspected: store brands are fast becoming a viable retail strategy and potential point of meaningful differentiation in the marketplace. There are two pathways for retailers to grow store brand sales: one is to follow the path of Aldi and Save A Lot who limit their selection to mostly store brands, the other is to embark on Best in Class practices to building a strong brand portfolio.
Setting aside hard discounters, there are already a handful of recognized retailers where UPC-coded store brand sales account for almost 30% of dollar sales.
Five proven practices
What does it take to enter the fray and create a powerful store brand? There are five best practices employed by store brand leaders:
- Manage your portfolio. Determine where the store brand opportunity lies—in the value or opening price point tier; national brand equivalent tier; or premium and specialty tier—by evaluating shopper demographics and purchase patterns. Tier preferences differ by income, channel and geography. Don’t de-list high-penetration, high-frequency or strong niche brands that might divert shoppers to retailers who do carry them.
- Manage your brand equity. Brand share is directly related to brand equity. To build one is to build both. Premium tier and national brand equivalent products do the best job of nurturing brand equity by meeting or exceeding customer expectations.
- Market your brands vigorously. The most successful store brands also enjoy the most prominent positions on store web sites along with highly visible ad blocks in store circulars, across in-store marketing vehicles and other media.
- Get the pricing gap right. Avoid arbitrary rules like “all store brands will be offered at x% below national brands”. To do so leaves money on the table. Be aware that brand price elasticities vary by category and brand. Retailers should make sure that price gaps don’t get too large.
- Employ consumer packaged goods (CPG) best practices. Imitation is both the highest form of flattery and good business. Consider hiring classically-trained CPG marketers and follow their process, from leveraging consumer research to testing product concepts and packaging. Flank national brands with store offerings that fill gaps and respond to unmet consumer needs. Establish performance benchmarks and monitor the numbers.
|Manufacturers need to innovate in order to differentiate…|
Manufacturers need to innovate in order to differentiate. Build a point of difference in the hearts and minds of consumers and look to low-marketed categories where the shift to store brands is typically the strongest. “Me-too” products will lose out. Some best practices include:
- Work with retailers to combine name brands and store brands in joint promotions and displays.
- Test offering unique items to retailers that only they carry aligned to their shopper.
- Understand the role of the category leader for each retailer and how important store brands are to that mix.
- Provide top quality analytics—an area where retailers are growing in sophistication.
|Getting a good value is a universal consumer value…|
Getting a good value is a universal consumer value, with more than three-quarters of European shoppers in France, Italy, Great Britain, Span and Germany becoming increasingly sensitive to food prices. Nearly half or more of respondents to a Nielsen Consumer Confidence survey in Europe said they would switch to a cheaper grocery brand to save money.
In the big five European countries, shoppers stated they would actively look for promotions, purchase fewer indulgences such as alcohol, biscuits/cookies and chocolate, and gravitate toward store brand products where the delivered value was seen as equal to or exceeding the national brand. With the exception of booming China, more than 50% of Asian shoppers declared their food price sensitivity. This was particularly true for South Korean consumers who have been strongly affected by the global financial crisis.
Penny-pinching strategies proposed by Asians included buying just the essential products needed to stock the cupboard, saving soft drinks, chocolate and cookies as special occasion treats. Only one-third of Asian shoppers said they would switch to less expensive grocery brands, because they believe branded products are better for their family and represent a better value for the money.
Across geographies, channels and income brackets, the quality perception of store brands is a primary indicator of the consumer’s propensity to buy store brands. A store brand that delivers on its quality and value promise, fulfills the universal consumer financial need to save money as well as the universal consumer psychological need to nurture their family. Today’s store brands have started to deliver on both counts.