Food Processors Find Public Growth for Private Label

The price differential is still there, augmented by higher quality and healthier formulations.

By Diane Toops, News & Trends Editor

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Consumer Reports gave a ringing endorsement to store brands quality and value. A Sept. 8, 2010 report, "It Pays to Buy Store Brands," said if concern about taste has kept consumers from trying store brand foods, they should hesitate no more. In blind tests, professional tasters compared a leading national brand with a store brand in 29 categories. The store brand tasted "equally good or better" than the national brand in 23 categories.

As for value, filling a shopping cart with store brands saves an average of 30 percent, so if a consumer spends $100 a week on groceries, those savings add up to more than $1,500 a year.

Yet some shoppers are still reluctant to try store-brand products. The top reasons, according to same Consumer Reports story, were: "I prefer name brands," "The name brand tastes better," and "I don't know if store brands are as high in quality." Respondents 18-39-years-old were particularly likely to question the quality of store brands.

Bottom line
Retailers rack in bigger profits on their store brands, and they pass the savings on to consumers.

A new study conducted by PLMA of comparative prices on a wide range of everyday supermarket purchases revealed that on average shoppers can save 33 percent off their weekly grocery bill by purchasing store brands rather than national brands, a great incentive to be sure.

Tracking 40 essential household items and pantry staples at a conventional supermarket, the study indicates that consumers who choose the store brands on the list rather than the national brand could save $42.30 on average on their total market basket. When buying the national brands the 40-item purchase totaled $127.03 on average over six separate trips, while the store's brands totaled $84.73. Cost savings on food items ranged as high as 46.8 percent on carbonated beverages to 40 percent on pasta sauce.

But even if shoppers aren't buying store brands, just having those products in the store is likely saving them money, according to a study from Arizona State University, reports the Tampa Tribune.

"When grocery stores offer these competitive store-brand products, it forces the brand-name companies to lower the wholesale prices they charge the grocery stores," Timothy Richards, the W. P. Carey School of Business professor who headed the study, said in a statement. Aside from offering customers discount prices, stores are using their private labels to distinguish themselves from the competition, counting on higher-quality prvate label products to bring back customers, the Arizona State study concluded.

"Many stores also offer good, better and best labels, like a super-premium brand, to help cater to a wider variety of consumers," Richards said in the statement. "All store brands offer the grocery chain a higher profit margin than the brand-name products."

One of the reasons store brands are growing in popularity is their focus on healthier-for-you. Healthy store brand initiatives include Safeway's O Organics and Eating Right offerings, Kroger's Private Selection and Albertsons Wild Harvest organic lines.

Bentonville, Ark.-based Walmart is pushing the envelope even further. Building on First Lady Michelle Obama's Let's Move campaign to make healthy choices more convenient and affordable for families, the nation's largest grocer unveiled a comprehensive effort to provide its customers with healthier and more affordable food choices – and its own brand is a huge part of that effort. Promising to reformulate thousands of everyday packaged food items by 2015 by reducing sodium 25 percent, added sugars by 10 percent and by removing all remaining industrially produced trans fats, the retailer is working with suppliers to improve the nutritional quality of national food brands and its Great Value store brand in key product categories.

Brands battle back
What do national brands need to do to drive consumer purchase over private label competitors? A recent report, The Battle for Brands in a World of Private Labels, by Pat Conroy, vice chairman and Deloitte's consumer products practice leader in the U.S., includes these suggestions:

  • Be a brand that the retailer cannot be – Leadership in exclusivity, product safety, social causes, innovation and sustainability can help build distinctive advantages that translate into competitive advantages over retailers and other brands.
  • Be irreplaceable – Consumer product companies can learn from retailers like Trader Joe's, which appeals to both value-seeking and health-conscious consumers with a unique product portfolio, some 80 percent of which comprise private labels and, in some cases, destination brands in their own right.
  • Shed homogeneity – National brands can deliver personalized customer experiences to compete against uniform store brands. For example, Mars Inc. offers M&M chocolate candies with personalized colors, text and logos.
  • Create a retailer-specific product portfolio – As retailers develop multi-tiered product portfolios tailored to their consumers, national brands can develop a retailer-specific strategy to compete against low-end, mid-range and premium products, which could include manufacturing private label goods.
  • Leave retailers bricked and mortared – While physical or multi-channel retailers may be preferred, consumer product companies should look to establish a stronger online presence and direct-to-consumer initiatives, providing consumers – who are turning to online/digital tools when shopping – several research and purchasing channels.
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