The writing is on the wall … or the cash register tape. Sales of branded food and beverage products were up less than 1 percent last year. In contrast, sales of store brands (aka private label, house brand, own brand, retailer brand or the passé moniker generic) products grew about 1.7 percent in the year ended May 14. Unit market share for private label in U.S. supermarkets is now 23.5 percent, according to The Nielsen Co.
Retail sales of store-branded products hit $88.5 billion (including Walmart) for 2010, according to the Private Label Manufacturers Association (PLMA), citing Nielsen data. That's 19.1 percent of the $352 billion in food and beverage sales in the Nielsen database.
If you add private label sales in channels and retail chains that do not report to Nielsen – including warehouse clubs (Costco, Sam's, BJ's) limited-assortment stores (Whole Foods, Aldi, Trader Joe's), convenience stores, dollar stores and other specialty retailers – the figure probably exceeds $100 billion, according to PLMA.
Major retailers — such as Walmart, Whole Foods, Kroger, Aldi, Costco, Safeway, Loblaw, Target, Supervalu, Publix and Ahold — offer full lines of store brand products, including canned goods, frozen foods, bakery items, cereal and snacks. These retailers have the advantage of lower marketing costs, and they also control shelf space for their store brands. While usually – though not always – being cheaper, store brands also drive up the ultimate marketing costs for their national brand competitors, who must spend even more promotion to maintain their leading position and value.
Ironically, store brands are in large part produced by large national brand manufacturers. H.J. Heinz Co. and ConAgra Foods use their expertise and excess plant capacity to supply store brands. Ralcorp Holdings Inc. (at last report still being pursued by ConAgra for its private label prowess) is overwhelmingly dedicated to private label, although it bought the Post cereal business from Kraft Foods in 2008.
TreeHouse Foods, our reigning Processor of the Year, is a $1.8 billion behemoth entirely devoted to the category. The product development philosophy behind the company is to be a "fast follower" first, then an innovator.
"Brand-level quality is fine, but we think of it as the starting point," Terry Bleecker, senior director of R&D at Bay Valley Foods, TreeHouse's primary operating unit, told us last December. "Then we ask, 'How can we do it better?' We look at every step in the creation of a new product and determine where we can improve the process to meet the goal of delivering a superior experience to the consumer."
Other providers include smaller manufacturers that specialize in particular product lines and concentrate on producing store brands almost exclusively; major retailers and wholesalers with their own manufacturing facilities; and regional brand manufacturers that produce private label products for specific markets.
In September last year, Planet Retail predicted private-label sales at the top 30 grocers will increase 40 percent to $209 billion by 2014, accounting for 24.1 percent of total grocery sales. Topping Planet Retail's private label report is Walmart, whose private-label grocery business is larger than Kroger's and Costco's private-label sales combined.
Consumer perceptions changing
Past perception by consumers of lower quality products has changed. Wisely, store brands have updated their packaging and rolled out premium lines (particularly healthier product options) to appeal to shoppers who seem increasingly willing to try these products because of better variety and lower prices.
It's a successful strategy for store brands borne out by a recent Gallup poll, which found that almost nine out of 10 consumers rated premium store brand products equal in quality or better than national brands.
It's no surprise store brands give national brands a run for their money, according to the Hartman Group (www.hartman-group.com), Bellevue, Wash. "In many instances, shoppers no longer can distinguish between national and private label brands," said a recent Hartman report. "What's most interesting is not so much the fact that it's happening, but that people don't really care that they don't know the difference. The importance of branding and the badge value of brands in the past are giving way to a greater emphasis on the product and the overall experience controlled by the retailer."