Wake Up Call

March 12, 2018

Food Dive | March 12, 2018 – If there is a resounding message from Daymon’s “Private Brand Intelligence Report 2018,” it is that store brands are as popular among consumers as they have ever been. However, there is clearly a case of the haves and have-nots regarding the success of retailers’ store brands programs. Daymon estimates that in-store and online sales of private brands from traditional grocers, deep discounters, mass merchandisers, convenience stores and other retailers increased 4 percent in 2017, eight times more than national brand sales. Private brands contributed an estimated $50 billion in margin to retailers’ sales in 2017, an increase of $2 billion since 2016.

The haves, which Daymon calls best-in-class retailers innovating on many facets of store brands, are flourishing and achieving an average of 32 percent in private brand share of total dollar sales. But when the have-nots — retailers content with simply offering national brand equivalent and lesser store brands— are added to the equation, the industry average of private brand share of total dollars sinks to 17 percent.

Jim Holbrook, Daymon’s CEO, says private brands have entered a renaissance period and that Daymon’s survey of more than 2,000 consumers reveals how much store brands have gained favor with them in the past few years. According to Daymon:

  • 85 percent of consumers say they trust private brands at least
    as much as national brands.
  • 84 percent of consumers say the quality of private brands is at
    least as good as national brands.
  • 81 percent of consumers buy private brands on every or almost
    every shopping trip.
  • 61 percent of consumers say they purchase more private
    brands than two years ago.
  • 61 percent of consumers say private brand quality has improved in
    the last few years.
  • 53 percent of consumers say they shop at a store speci cally for its
    private brands.

But not all retailers are experiencing a renaissance in private brands. Holbrook says that on average private brands account for about 15 percent of shelf space. But the retailers deemed best in class — based on consumer perception of private brands, shopper loyalty, breadth of store brand assortment and other factors —have almost double the penetration rate compared to the retailers lacking the designation.

“The best-in-class retailers have figured out something that [other retailers] haven’t figured out,” Holbrook tells Store Brands. “It comes back to differentiation.”

Retailers need to build categories based on their offering of private brands and then fill in the gaps with brand-name products, not the other way around, Holbrook explains. The best-in-class retailers, of which there are about a dozen, are doing this but other retailers are not.

“The retailers that want to hang on to the emulation products and the national brand equivalents will not only fall further behind, they will go out of business,” Holbrook says. “This really is a defining moment. We believe that you can evaluate a retailer’s overall health just by looking at its private
brands. If it has a weak private brand offering, [that retailer is] in trouble.”

Store brands have become and should become vital to a retailer’s overall health for three reasons, Holbrook says.

First, national brands are cutting back on trade spending and innovation. “When national brands are providing fewer resources to the retailer, then the retailer has to find [those resources] somewhere else and private brands are the answer,” Holbrook says.

Second, consumers are becoming less loyal to national brands, Holbrook notes. Today’s consumers don’t want to purchase what their parents purchased, and they are buying more niche brands. “Consumers are buying things they aren’t suppose to be buying,” Holbrook says. “They want
better solutions.”

Third, retailers can make twice the margins of private brands than they can with national brands, Holbrook stresses. Retailers can also give their customers the products they want through better use of analytics and marketing.

“So why shouldn’t they create and curate their offerings?” Holbrook says. “Also, private label manufacturers have gotten better. They are smarter and more innovative.”

The resurgence of private brands is not a fad, Holbrook contends. The fact that consumers are embracing private brands in an upbeat economy — not just in dour financial times as in previous eras — is evidence that store brands are being viewed for their quality, innovation and exclusivity, not just their low prices.

Holbrook references the statistic that 61 percent of consumers say they purchase more private brands than two years ago, which he says reinforces the notion that consumers are becoming less loyal to national brands.

“I think people are looking to be disloyal,” Holbrook adds. “The national brands aren’t doing themselves any favors by cutting back on research and development and advertising to help keep their margins up. So it opens the door for private label — niche brands, specialty brands and local brands — to be more innovative and appealing.”

Holbrook understands that retailers must make a substantial investment in their private brands programs to keep them relevant, and he knows there is risk.

Consider the retailer that offers a national brand equivalent as its highest tier and is making a good margin on selling those products, Holbrook says. And now that retailer is being told it will have to invest in new product formulas, packaging and on other fronts to take its private brand program to another level to stay competitive.

“It’s a daunting task,” Holbrook says.

But it’s a task that requires deep consideration from the retailers that are not adapting to the changing dynamics of private brands.

“Our intent is to provide a bit of a wakeup call,” Holbrook says of the report, “and to get retailers to realize that the status quo just isn’t that great.”

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