Private Label vs. Brands: Can’t We All Just Get Along?

Private Label vs. Brands: Can’t We All Just Get Along?

The private-label sector in the U.S. experienced a sizeable growth spike during the recent recession, and that upward trend continued through 2011. As global economic conditions improved in the years that followed, however, share growth among store brands flattened. So where do things stand today, and how can private labels and brands both succeed in a crowded marketplace?

How Does the Private-Label Sector Look Today?

The private-label sector did well beyond 2008 and 2009. The sector saw both dollar sales and unit sales growth in both 2010 and 2011. But since then, private brand growth has been fairly flat. Brands have simply out-promoted them. They’ve done a better job of innovating and connecting with shoppers who mattered. Most retailers haven’t done the same level of rigorous analytics around their brands as brands have. This is part of the reason brands are so much bigger in terms of the marketplace. It’s important for retailers to consider what kind of a product they want to match the shopper demand that they have.

Private label is winning in some areas, however. For example, private-label gains in paper products outpace those for the total market. Private-label share of paper products increased from 26% of dollar sales in 2010 to 29.6% in the 52-week period ending July 5, 2014. This represents a 3.6% gain in share, while private-label dollar share across the store only increased by 1 share point. All segments within paper products posted gains.

Private Label Percentage of Segment

  52 WEEKS ENDING 07/10/10 52 WEEKS ENDING 07/09/11 52 WEEKS ENDING 07/07/12 52 WEEKS ENDING 07/06/13 52 WEEKS ENDING 07/05/14
TOTAL PAPER PRODUCTS 26 26.5 27.5 28.7 29.6
DISPOSABLE PLATES/CUPS 44.2 46.6 47.9 49.4 50.6
FACIAL TISSUE 20.7 20.5 21.6 22.1 23.3
PAPER NAPKINS 41.6 42.7 43.2 42.8 43.8
PAPER TOWELS 26.7 26.9 27.5 27.6 27.8
REMAINING PAPER PRODUCTS 34.6 34.7 35.7 36.4 37.7
TOILET TISSUE 15.6 15.9 16.9 19.1 19.8
Grand Total          
Private label share across all Nielsen-measured categories 16.5 17 17.3 17.4 17.5
Source: Nielsen

Setting the Pace in Private Label

Early this year, Nielsen researched best of breed retailers and found that the top 10 had the highest share of private-label brands throughout their stores. Eight were grocers and two were non-grocers. In looking through the ways in which the retailers were succeeding, Nielsen found that there were few similarities. All of the retailers were promoting their items differently, and they were applying different analytics. There was also no consistency around whether their store brand products included a private-label product name, or even how many private brands they carried. Additionally, they attracted different types of shoppers.

Based on the array of approaches, strategies and methods, it’s clear that best of breed retailers win by using a combination of organizational focus and operational excellence. Retailers win by ensuring that they offer the right product at the right price in order to deliver the right margin across the store in their given categories. Ultimately, they must understand their shoppers’ demand for products and categories in private and national brand areas.

What Can Brands Do to Compete With Private Label?

First, brands must recognize that private brands are a mainstay. Retailers are making themselves and their bottom lines stronger by connecting with shoppers. So, rather than treating private brands as the enemy, manufacturers must adopt a collaborative mindset and help retailers win with both private brands and brands across the total store.

Manufacturers would benefit by considering joint promotion opportunities. For example, if one group of consumers prefers a brand in a category while a different group prefers private label, consider promoting them both in the same week. Manufacturers could create integrated shelf sets to help retailers lay out their store shelves. Finally, manufacturers should look for areas where private label doesn’t have a presence and discuss placement options with retailers in  categories where they don’t already have a private-label presence.

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