While Canada has been a private label hot spot in the past, PL market share has dropped there for six consecutive years. Here’s why, and what U.S. retailers can learn from the Canadian private label experience.
Although private label can be found in every household in Canada, private label market share has remained relatively static over the past year as national brands have met Canadians’ thirst for value by driving more sales through feature pricing, according to The Rise of the Value-Conscious Shopper, a Nielsen global private label report.
Private label’s dollar share in Canada stood at 18.1 percent across all categories in 2010, according to the Canadian Private Label Review, another Nielsen publication. That’s down slightly from 18.4 percent in 2009, and represents the sixth consecutive year market share for private label has fallen in the Great White North.
Does the Canadian experience mean that North American consumers will only buy so much private label and no more? And do market share declines there bode ill for U.S. private label retailers?
Not exactly, say veteran Canadian food retailing experts. Canada’s private label slide has more to do with retailers not treating their private label offerings as brands than it does with reaching a shopper saturation point. Quite simply, what happened in Canada is that private label brand support dropped and consumers shopped elsewhere.
This year, though, Canadian retailers are charging back, rolling out new store formats that emphasize private label, introducing a wide range of new private label products and even repositioning their private label to better connect with consumers and the changing demographic trends in Canada.
“I don’t think there’s anything pressing to say that this trend will continue,” said Jeff Doucette, principal for Alberta-based retail consulting firm, Sales Is Not Simple, regarding PL sales declines in Canada. “I think what was happening was many retailers, outside of Loblaw, were consolidating their private label brands and probably creating a bit of brand confusion with the shoppers in the stores.”
In 2010, Stellarton, Nova Scotia-based food retailer Sobeys, launched Freshco, a hard discount format which some say took some inspiration from Tesco’s Fresh & Easy chain. In addition to the Freshco brand line, the stores also carry selected varieties of the Compliments and Sensations by Compliments private label product lines, as well as Sobeys value private label brand, Signal.
Not too long after Target announced its plans to enter the Canadian market, taking over leases for up to 220 former Zellers stores owned by retailer Hudson’s Bay Co., Loblaw announced plans to open 20 stand-alone Joe Fresh stores in Canada. The stores feature private label apparel for men and women, a kids collection, intimates and sleepwear, swimwear, sunglasses, jewelry and beauty and bath products.
Expect to see more retailers rolling our alternative formats in an attempt to sell more private label, according to John Torella, global retail consultant with Toronto-based J.C. Williams Group. “Retailers are recognizing that it’s not a mass market anymore and that you really have to have special formats targeted to very specific segments. We’re in a very micro-merchandising, micro-marketing environment.”
New PL Products
The largest national food retail store in Canada, Loblaw, No. 6 in our exclusive PLBuyer Top 30 Private Label Retailers ranking(See PLBuyer, September 2010) saw private label sales of $8.2 billion, or 26 percent of total grocery sales, in 2010, down slightly from 2009, according to the Canadian Retailer Year in Review from Sales is Not Simple, an Alberta-based retail consulting firm.
In 2010, Loblaw launched 1,200 new private label products, including 14 President’s Choice Ice Cream Shop flavors, Angus sliders mini beef burgers, sparkling fruit juice and bite-size mini tarts. It also redesigned packaging on a further 300 products. The company had such success last year with down-sized private label offerings that it decided to stick to the mini theme. Some of the new President’s Choice brand mini products for 2011 include fully cooked fire-roasted sweet Italian mini pork sausages, Smokin’ Stampede brisket sliders and Blue Menu Angus sliders. Other products include a S’mores kit, coconut cream pie, spicy tzatziki yogurt dip, peanut butter-filled pretzels, The Decadent ice cream sandwiches, and yes, five new ice cream flavors.
“Our customers response to our line of President’s Choice Ice Cream Shop Flavours has been nothing short of phenomenal,” said Allan Lindsay, vice president of marketing at Loblaw Companies Ltd. “So much so, we’ve had to double production for some of the most requested flavors.”
Sobeys, Canada’s second largest food retailer and No. 11 on our Top 30 list, revamped its private brand portfolio last year. The company conducted consumer research and found out that customers were misinterpreting the positioning of its three-tiered private label products. Sobeys private label program had taken a good, better, best approach and had the Compliments brand appearing on all three tiers.
After seeing the results of its consumer research, however, it decided to rebrand its economy line as Signal, to keep Compliments as its national brand equivalent and add Sensations by Compliments as its “affordable indulgence line.”
A spring 2010 consumer trends poll for Sobeys by Harris/Decima revealed that Canadians are increasingly choosing private label products in fresh categories such as dairy, fresh produce, fresh meat and fresh baked goods, so to meet consumer demands, the company last summer launched products in several fresh categories, including fresh salad kits, a variety of fresh Pesto flavors and sundried tomato and basil goat cheese, all under its Sensations by Compliments label. Just in time for summer 2011, Sobeys has introduced two new items in its Sensations by Compliments line: Korean-style beef burgers and Angus beef sliders.
The third major player in Canada’s retail food sector, Metro, is looking to tap into the growing health and wellness demands of consumers by launching its Irresistibles Gluten Free product line this May. Metro’s gluten-free line is said to be the only Canadian private label gluten-free line and includes no fewer than 24 products.
On the drug side of the Canadian shopping aisle, Shoppers Drug Mart also is showing its commitment to private labels. In the summer of 2010, the retailer launched Etival Laboratoire, an exclusive dermatological skin care line said to be uniquely tailored to address the skin care needs of all age groups and skin types. The retailer, in 2010, also launched an exclusive bath line called Bath Retreat and introduced new sun care products under its Life Brand.
The other major Canadian drugstore player, Jean Coutu, also has been expanding its private label offerings with the rollout of two exclusives in beauty: StudioMakeup and The Balm. The retailer also launched an Eco Nature line of feminine hygiene products under its Personnelle brand and a co-branded Personnelle-Shrek line of diapers and training pants. In 2012, it plans to introduce several new private and exclusive label products as well.
Private label represents big business in Canada
, bringing in nearly $11.4 billion of revenue, according to The Rise of the Value-Conscious Shopper, a Nielsen global private label report released this March. Private label performance varies by category.
In Canada, private label outperforms national brands only in produce and health and beauty.
“In both produce and HBC, I don’t believe that consumers feel there is a decided difference in quality,” said James Fraser, partner with Toronto-based design and branding agency Hunter Straker. “They can be a smart shopper by saving on those items where quality is equal or better and they spend more on those items (outside of produce and HBC) where PL definitely has a halo of inferior quality or performance. It’s all part of the consumer practice of trading down so that they can afford to trade up.”
Every household in Canada buys private label, with an average spend of $844. Heavier spenders tend to be concentrated among younger households with kids and also with higher than average incomes.
Private label share is strongest in the Maritime provinces
’s East Coast and in Western Canada
, but losing share.
While private label is the most developed in the grocery channel, it is gaining share within the drug, warehouse and mass merchandiser channels for typical grocery categories.
Look to see continued Canadian private label growth in the health and beauty aid category due to underdevelopment, according to the Nielsen report.
The private label household in Canada
is becoming smaller, older (boomer), adult only with higher incomes, according to Nielsen.
With this shift comes a unique set of needs: smaller sizes, health & wellness, premium and adult preferences.
Lessons to Learn
“The problem with private label in Canada and, in fact, throughout North America, is that many big players in the retail industry are digressing back to programs that look and feel more like the generic, systematic programs that were prevalent years ago,” said Patrick Rodmell, president and CEO of Watt International, a Toronto-based integrated retail agency. “The gap between the quality perception of private label and national brands is widening. I think this trend will reverse only when retailers start investing in their private brands as opposed to only looking to take costs out.”
“I believe we are just entering into a tougher economic climate and consumers increasingly are going to be trading up and down depending on the category they’re shopping in,” said Doug Stephens, president of Retail Prophet, a Toronto-based retail consulting group. “The mid-tier offerings will continue to take a beating. I believe we’ll see a renewed level of growth in both private label and luxury offerings.”
What’s important for U.S. retailers to take away from all this is that the private label market share declined in Canada when retailer focus was taken away from marketing private label as brands.
“I think that Loblaw over the past couple of years has gotten really caught in managing its supply chain and reorganizing, while Metro was caught up in a merger and Sobeys in a merger and rebranding,” said Doucette. “The private label business needs to still be a main part of your competitive steering wheel as you go through any change. When you take your foot off of the gas like some of them have in the past couple of years, you see the results.
“Like any national brand company, the pipeline needs to continually be full of new innovations, ideas and fresh packaging and you need to continue to push and find that real, star product that will allow you to stand out from all of your competitors.”
Therein lies the major lesson U.S. retailers can learn from their Canadian cousins. Growing private label sales requires a brand commitment that includes being innovative with new products, being well-positioned and being supportive with marketing and other brand necessities.