Are Retailers Short-Changing National Grocery Brands?
By Tom Ryan, RetailWire
A study from Acosta finds that shoppers overwhelmingly prefer national brands and that pushes toward private labels might be undermining their effectiveness.
Overall, shoppers agreed that “name brands are better than store brands” in 41 of 53 categories, including pet food, beauty & personal care, carbonated soft drinks, coffee and chocolate.
Name and store brands were found to be “about the same” in 12 out of 53. These were most likely in the perimeter (dairy, produce, fresh meat, bakery, etc.) as well as paper products and bottled water.
For no category did respondents believe that store brands are better than name brands.
Generally, the more personal, innovative and differentiated the category, the more likely a shopper is to choose a national brand over a private label brand.
The top three reasons consumers gave for purchasing national brands while grocery shopping included:
- “National brand products are higher quality in taste and/or performance.”
- “I can get better deals on national brands (through sales/coupons).”
- “I trust national brand products more.”
Cost savings was the primary driver of private label brands, and purchases are often viewed as a compromise, the study found.
An accompanying study of over 100 retailers found:
- Retailers need to sell 20 percent more to make up for the trade down from a national brand to a lower-priced private brand to keep revenue steady.
- Fifty-nine percent of private brand items are priced lower than they need to be.
- Over the past four years, private brands have grown assortment, but their strength per item has been diminishing.
Finally, national brands can help grocers offset the challenges presented from the rapid growth of limited-assortment value chains. The biggest drivers to the value channel were found to be best everyday prices (49 percent), better value for their money (47 percent) and cost savings/help within a budget (45 percent). Private brands came in at 23 percent and better-quality products, 17 percent.
John Clevenger, managing director and SVP at Acosta, said in a statement, “A clear takeaway for retailers is that they should understand the different roles national and private brands play.”
Can private label expansion work against the positioning of national brands and overall category growth in the food channel? What advice would you have for building the optimal mix of national and private brands?
Comments from the RetailWire BrainTrust:
I don’t agree with this at all. The study is very narrow and is based on what people say rather than what they do.
First, our own data (and that of others that I have seen), based on actual consumer behavior suggests that consumers have become more receptive to private label brands over the past five years. They are buying more for a variety of reasons.
Second, not all private label is equal. Whole Foods’ 365 label is highly regarded and is more trusted than most national brands across a variety of attributes. Target’s Archer Farms is well respected and, since the rebrand, its Market Pantry brand is seen as very credible.
Third, even within retailers there are different levels of private label to cater to the good/better/best spectrum. How does the study account for that?
Fourth, national brands don’t defend against value chains because national brands are doing more with outlets like dollar stores, and dollar stores themselves trade heavily off their own brands. If supermarkets want to capture more dollar store customers, they need to emphasize their own value tier.
Finally, if national brands are so popular, how come almost every large CPG firm is struggling?
Neil Saunders, Managing Director, GlobalData
There are so many factors that go into the decision making process — price, trust, quality, convenience. National brands with big marketing budgets can better leverage these so the results are unsurprising. Online reviews, word of mouth and private labels increasing education efforts on quality comparisons will help shift mindset but it is still a long way off.
Jennifer McDermott, Consumer Advocate, finder.com
While this study included some very useful information, it was done from a retailer and brand perspective. Shoppers don’t think about private label vs national brands. They are all brands. Many retailers have very valuable brands they created and curate (Trader Joe’s, Kroger, Total Wine, Whole Foods). Now to the strangest finding from the study — lower revenue from private label. The lower revenue from own-brands does not matter to most retailers as they are margin-accretive overall.
Michael La Kier, Principal, What Brands Want, LLC
While private label growth may stunt revenue, it may improve profits. The right mix is what provides the best profits, tempered by customer satisfaction. Both are researchable.
Dr. Stephen Needel, Managing Partner, Advanced Simulations
Another dynamic to this conversation is how an increased focus on private labels will continue to erode the traditional retailer-CPG relationship and the accompanying trade dollars that have always gone with that relationship. As retailers continue to compete against the CPGs who have always supported those retailers, and as e-commerce tools become more available and economical for CPGs to sell direct to their consumers, how does the newly fragile retailer-CPG relationship play out?
Jon Polin, Cofounder and President, StorePower
What you’re seeing is that it’s not so easy to do private label right. Just ask specialty retail, they’ve been at it for 40 years. You can’t expect to put your detergent right next to Tide’s without having a substantial organization behind that product: you need product development, marketing, R&D, product extension, sales teams, plan-o-grams, constant testing — and that’s just to start! These are not part-time jobs, by the way. And to boot, it takes time! Do we think Tide got to where they are in consumers’ minds overnight?
Besides, I don’t think food retailers have a choice. No matter what they sell in terms of national brands, they’ll get undercut eventually by Amazon. Whether it’s purely on price or by free Prime shipping or superior promotions and product tie-in. SO — stick to it, devote more time and quality people to it, and private label will work. It HAS to.
Lee Peterson, EVP Brand, Strategy & Design, WD Partners
Differentiated assortments are critical in this era of endless choice. Private labels give retailers the opportunity to define their own products to drive unique assortment. Given the successful track records of private labels from Costco, Whole Foods, Trader Joe’s and many others, I strongly endorse private label as a significant portion of any category lineup.
Dave Bruno, Marketing Director, Aptos
Retailers should strive to create programs that serve a customer need. There’s not a one size that fits all strategy here. Loblaws’ PC brand stands out as one that emphasizes quality and story vs. price. Costco also does a nice job with their brand. Whatever the case, a retailer’s private label positioning should be clear to the shopper to help them understand the value and how it fits into their shopping experience.
Sterling Hawkins, Co-founder, CART (Center for Advancing Retail & Technology)
Private label is more profitable, but national brands have spent a lot of money building the category. The key to retailer success is to mix in private labels for the value conscious while keeping the brand selection that the loyal customers want in their basket. Remember, if there is one missing item in the basket, the consumer will go someplace else and not make two trips.
Kenneth Leung, Retail and Customer Experience Expert