Private Label Will Wane as Economy Improves

Economists draw on a wide range of consumer-confidence ratings and economic indicators for trends forecasting. Another metric they might consider is sales of private-label foods.

Bad times are good news for private label, as the Great Recession confirmed. Private label and store brands gained an average of 2.6 percent in supermarket dollar volume from 2009 through 2012, according to the Private Label Manufacturers Association (PLMA), outpacing the 0.9 percent average growth for national brands. But as the economy recovers, penny-pinching ways are cast aside, and that will mean smoother sailing for branded foods.

The shift can be seen in scanner data from U.S. multi-outlet retailers for the 52 weeks ending July 14. According to IRI, a Chicago-based market research firm (@iriworldwide), total store private label unit sales were flat, while overall unit sales increased 0.43 percent. Private label products accounted for 20.5 percent of stores sales and 17.3 percent of dollar volume.

PLMA has been touting private label growth since the 1980s, when the fashionable look for those products was a white box with black stenciled lettering. They've come a long way since, and generic packaging has given way to store brands with promotional muscle behind them. "Many retailers have put a lot of energy into brands that stand on their own," suggests Janet Eden-Harris, chief marketing officer at Market Force Information, a Boulder, Colo., research house that bills itself as a "customer intelligence solutions company." Eden-Harris cites the example of "O" brand organics from Safeway.

And why not goose sales with promotional dollars? The margins certainly can support it: a Food Marketing Institute study concluded that store brands generate an average margin of 35 percent for retailers, compared to 25.9 percent for national brands. And in select categories, shoppers looking to save a few bucks are more likely to grab a private-label package, particularly when it’s a commodity item.

The dairy case is private label's most fertile ground. While consumers flocked to the thrifty alternatives during the dark days of the Recession, their enthusiasm is starting to wane. In a June survey of 6,600 consumers, Market Force found 5 percent never buy private-label dairy products, slightly higher than in its 2011 survey.

I think many people understand milk is a standardized product and there's no difference other than price from one HDPE jog to the next, though Eden-Harris isn't buying that explanation. She thinks it has more to do with perishability: yogurt and chocolate milk is here today, gone tomorrow in most refrigerators, so "if I don't like it, I'm not overly committed," she says. Cereal and cleaning products tend to linger, and private label doesn't do as well in those categories. Almost one third (29%) never stray from branded cereals. The recession gave a boost to Malt-O-Meal, the major domo in private label cereal, but a recovering economy does not bode well for the company. Price increases drive cereal's growth: from 2006 to 2010, unit sales barely budged, with cumulative growth of 0.2 percent.

Perceptions matter, and retailers are wise to invest in snazzier packaging and promotions to boost their store brands. But where real differences in quality exist, private label doesn't stand a chance. "Taste and quality were the top reasons given by consumers for never purchasing private label," says Eden-Harris. Three in 10 shoppers avoid private label cereal like the plague, and one in five skip past the private label snacks, with taste the reason for the majority of them.