Nielsen business leaders share their perspective on store brand performance and trends around the world. Participants in the store brands roundtable included:
Mitch Barns—President, Greater China
Christophe Cambournac—President, Consumer Asia Pacific, India, Middle East and Africa
Patrick Dodd—President, Consumer Europe
Arturo García Castro—President, Consumer Latin America
John Lewis—President, Consumer North America
During past recessions, store brands exhibited fast growth versus branded offerings. Is this same pattern occurring in your region? What factors do you see driving store brand trends?
Store brand growth differs dramatically by region, and sometimes by country within region. In the five major European markets (UK, Germany, France, Spain and Italy), store brands are more established and holding their own, taking between 25-33% of value sales from February 2008-2009. While leading brands are holding steady in terms of market share, expect higher margin store brand goods to garner more shelf space from retailers hungry for returns.
|“To protect prime facings, manufacturers will need to put forward their most creative in-store marketing levers and tools. While some real estate prices are dropping, retail “shelf space” will continue to come at a premium.” Patrick Dodd, President, Consumer Europe|
In the U.S., store brands are gaining ground as consumers seek to stretch budgets in tight economic times, and retailers support profitable store brand initiatives. Every demographic segment is looking for deals by moving to store brands or shopping value channels. Recognizing that its store brand programs were under-developed relative to other retailers, powerhouse Walmart will be bringing its marketing muscle to store brands, actively promoting its Great Value label.
In more developed Asia Pacific markets such as Australia, store brands enjoy a 25% share of sales. Conversely, other countries in the region with limited modern trade offer fewer store brands. Store brands follow Western retailers as they enter a market and local retailers are quick to follow suit with their own store brand lines. Thailand is a great example, where Carrefour recently launched an ad campaign exclusively featuring store brands.
The store brand uptake in Latin America is accelerating thanks to constantly improving quality, expansion into additional categories, store formats focusing on store brands, wider assortment, active promotion, advertising support, favorable store images, better store brand management and overall value delivered to the consumer. That rate of uptake varies by country, with a low 1% market share to a high 8% share in more developed markets. In Colombia, store brands grew 125% faster than manufacturer brands (27.3% store brand growth vs. 11.8% manufacturer growth from 2007 to 2008). In Chile, store brand growth outperformed overall product basket (26% vs. 14.6%). Some nations like Brazil and Venezuela lagged with a more passive trend.
Moving east, China registered flat store brand growth during the last two years, with non-edible products enjoying higher acceptance than edibles. Private label is currently not a significant segment for most consumer goods categories as there are a number of brands already occupying the low-price tier. One constraint on growth is the fact that store brands don’t enjoy a clear price advantage in China and consumers lack confidence in the quality and safety of store brand goods. In the future, however, the store brand segment is expected to grow, driven by the ongoing, incredible growth of the modern trade and the continued emergence of major regional or national retail chains.
Are there particular retailers who are doing exceptionally well with store brands? What do you think are the keys to their success?
Standout countries in Europe include Switzerland, which is dominated by Migros and the Co-op, and the United Kingdom, where store brands account for almost half of all sales. In this region, early store brand success came as a result of “good, better, best” tiers. These were then supplemented by other sub-brands with focused positioning such as kids, organic, healthy and fair trade, which helped develop retailer reach within a category and enhanced their Store Equity Index—especially when the banner name transferred to the brand name as in Tesco Finest or Sainsbury’s Taste the Difference. Not only are store brand goods not cheap alternatives, but store brands often drive category innovation and top-end store brand offerings can actually be more expensive than manufacturer brands.
Notables in Asia Pacific include Tesco in Malaysia leveraging its U.K. success factors, FairPrice in Singapore as a trusted brand, and in Australia, Woolworth is doing well with its strong category coverage and good quality products, and Aldi is gaining strong momentum through clear and successful positioning.
Latin American store brand market leaders include Carrefour-Dia, Casino, CENCOSUD (Jumbo), HEB, Soriana and Walmart. In China, Watsons dominates because it allocates resources to areas such as promotion and shelf display along with proven store brand innovations such as their Bird’s Nest Facial Mask. In Hong Kong, food supermarkets are finding success by marketing their store brands in key stable categories.
|“Store brand programs are beginning to exhibit a higher degree of sophistication, with two-tier offerings (value and premium), improved packaging and more substantial advertising budgets.” Arturo Garcia Castro, President, Consumer Latin America|
In the U.S., product guarantees helped establish store brand goods at parity with national brands on the quality criteria. Kroger stands as a store brand market leader, with roughly one-third of units sold being store brands. Safeway is a standout with its O Organic and Eating Right lines—a presence so strong the company is looking to license its store brand offerings to other retailers. Fully 80% of Aldi sales comprise store brands. At Save-A-Lot, store brands account for 70% of sales. Costco—another strong store brand banner—has ventured into expensive categories like wine and in certain categories like nuts, only offers private label.
There is some speculation that store brands will see continued growth when we exit the current economic downturn. Do you agree? If so, how should brand manufacturers respond?
The experts agree that store brands will maintain momentum. Since one of the common key performance metrics for head office buyers is Percentage of Profit on Return—and store brands are the easiest way to score off the charts on that measure—the outlook is very good for store brand growth. Another plus in the store brand column is the ability to build customer loyalty to the store banner and the brand.
|“Store brands offer diversity, good quality and more affordable prices for consumers. Crisis or not, this is quite an appealing equation.” Christophe Cambournac, President, Consumer Asia Pacific India, Middle East & Africa|
The economic recession is affecting all parts of the world with likely long-lasting residual effects. As consumers continue to change all aspects of their spending, store brand growth will continue along with other value shopping strategies. In China, the development and growth of the modern trade will likely play a more important role than the economy with regard to store brand development as it has not slowed during the downturn and it is expected to continue long after the downturn is over.
To compete, brand manufacturers must develop true innovations with clear points of differentiation and competitive advantage. It will be imperative to segment consumers and build niche-specific strategies to engage them, such as more diverse assortments or smaller sizes. In Argentina and Brazil, manufacturers are supporting existing value/price brand portfolios with some success. By providing more assistance at point-of-sale and supporting loyalty programs, manufacturers can elicit retailer collaboration.
What kind of levers such as advertising, assortment, promotion and pricing can manufacturers pull to win in a down economy?
A crisis is actually a good time to gain competitive advantage. Overall activity slows, so maintaining investment levels represents a share win. Other ways to manage during down times include controlling the range and cutting the tail by de-listing unprofitable SKUs, bumping up support of promising and successful products; maximizing the visibility of price promotions; downsizing to meet affordability issues, segmenting consumers and offering relevant propositions such as value vs. premium, health and wellness and ethical sourcing.
|“The number one lever in this economy is innovation.” John Lewis, President, Consumer North America|
Innovations that focus on increased value, convenience and utility gain prominence during recessions. On a cautionary note, trade promotions will erode consumer willingness to pay a premium price, reducing brand profitability and sacrificing long-term health for short term gains.
The continued proliferation of media enables tighter targeting and more efficient outreach. Manufacturers should embrace social media and new technologies, ensuring that the distribution of advertising across the “three screens” (TV, Mobile, Internet) is split correctly.
What are some of the most significant changes you’re seeing in consumer behavior and will they endure after the recession?
In recessionary times, consumers exhibit a bunker mentality, staying close to the safety of hearth and home. Savings rates are up, and there is a corresponding shift from want-based to need-based consumption. It is a classic case of inventory reduction and cash management. This creates new and interesting opportunities for manufacturers to engage differently with consumers. Think of it as value growth versus volume growth.
|“Consumers are paying greater attention to price promotion and switching to value channels. After the recession, however, convenience will supersede dollar savings.” Mitch Barns, President, Greater China|
Three types of consumers surface in economic downturns, based on their loyalty levels: 1) those who spend money on preferred brands, 2) those who look at different places for a cheaper price on their preferred brands, and 3) those who switch brands for the best price.
In post-recessionary times, there will be increasing concern around sustainability, and manufacturers will be scrutinized for their carbon footprints and earth-friendly practices. The challenge at retail will be getting real growth. Commodity prices are coming down, and more consumers will have store brand products as their preferred choice or part of a broader set of brand preferences.