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Six private label trends to watch in 2012

March 28, 2012
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Where will the private label action be in 2012? What factors will impact how much private label you sell and to whom? PLBuyer consulted with industry experts and looked in its editors’ collective crystal ball to put together the following predictions and trends you need to know if you want to grow your private label sales and profits in 2012.

Expect new approaches to branding, private label tiering and picking target markets

Where will the private label action be in 2012? What factors will impact how much private label you sell and to whom?
PLBuyer consulted with industry experts and looked in its editors’ collective crystal ball to put together the following predictions and trends you need to know if you want to grow your private label sales and profits in 2012.
American shoppers remain wary about the economy and its doubtful that will change next year, when presidential elections will focus attention even more acutely on problems across the U.S. business and consumer landscapes. Many Americans remain frightened and they’re responding by cutting spending, especially on their food shopping trips.
And while that may be bad news for consumers’ peace of mind, it should spell continued positive sales for private label in 2012.
“In the past 10 years, private label has experienced tremendous growth, and today it occupies an all-time high in dollar share and shopping cart. If the economy doesn’t improve in 2012, then the market should inherently remain strong for private label brands,” explains Steve Beckman, vice president of Baltimore, Md.-based marketing firm Vertis Communications.
“The economy will continue to struggle, and this will continue to present on opportunity for private label to gain share as consumers look to save money,” agrees Kishan Madamala, CEO of the Palo Alto, Calif.-based online men’s retailer Maxton Men and former strategist for “Quality is still important though and private label should not be seen as disposable.”
That means messages that stress quality and value should get shoppers to continue putting private label into their shopping carts in 2012.
Creating good, better, best tiers of private label offerings has become business orthodoxy for U.S. food retailers but expect that approach to come under new scrutiny in 2012. Already, some industry watchers are saying the three-tiered approach is passé (see story, page tk).
“Consumers buy products for different reasons. It isn’t always about price…the same consumer will often buy products from different tiers in the same shopping trip,” explains Beckman.
A successful private label program isn’t one that assumes it needs only a three-tiered approach, he contends. “It’s about understanding which consumer segments want to buy from a value, everyday or premium line, and what they want to get out of their experience with each,” Beckman elaborates. “By treating these tiers independently, and focusing the branding around the reasons why people buy what they buy, retailers can give their customers brands they can own.”
And while 2012 won’t go down in retailing history as the year tiering died, it could very well be the year it changes dramatically.
 “Retailers need to become more strategic about tiering,” explains Scott McLennan, director of store brands at the Canton, Mass.-based quality assurance company UL-STR. “If a retailer has a strong brand image in a category, they need to make sure that any product being tiered up or down reflects the brand and is needed by customers. Each tier should have a key point or points of difference that meet quality standards across all tiers.”
Recession weary consumers today want value but they also want treats. That could lead some to try a two-pronged private label strategy, shying away from mid-range products much as some retail giants, such as Procter & Gamble, plan to do in response to the shrinking of America’s middle class.
“We expect to see companies looking into sourcing to find ultra value offerings. [And then] to offset their margins, we expect them to identify categories where people are willing to spend extra money and where they can develop premium private label brands that are competitive, or even more competitive, than the national brand equivalent,” says George Young, founding partner of the Beachwood, Ohio-based consulting firm Kalypso.
Walk down the aisles of any food retailer and you will see more and more products targeted to specific consumer tastes or dietary niches. Private label will continue looking for profitable niches to serve in 2012.
“The consumer is becoming increasingly sensitive and you will start to see more products pop up that cater to those demands,” says Neil Stern, senior partner with the Chicago, Ill.-based research firm McMillan Doolittle LLP.”
“The next big niche will be a higher demand for ingredient purity in products. This will follow the dietary trend as consumers want to be able to identify what is in their products,” he predicts.
Natural and organics, niches that have attracted a variety of private labels in the past, face challenges in the new year, however.
“There is no guarantee that the natural and organic category will continue to grow. They do seem to have been overdone and this could have possibly stretched the price-value relationship,” explains Jeff Edelman, director of retail and consumer advisory services for the Bloomington, Minn.-based accounting and consulting firm McGladrey & Pullen LLP.
Not everyone agrees. “The natural and organic category will continue to grow, as will the concept of local sourcing.  Local sourcing is a huge opportunity for private label companies to explore and take advantage of. I predict that companies will begin to evaluate opportunities to develop premium pseudo and real local-sourced products,” says Young.
The practice of using private label design systems across all products within a label is one that retailers like Publix successfully have done in the past but, increasingly, experts think the system approach is about to come in for a re-examination.
“The concept of using the same logo, font and image style on every product on the shelf is a bit of an archaic approach to building a private label system,” argues Beckman.  “However, many retailers still manage their brands this way, and do so successfully. The thought behind this is often that customers will recognize the brand and will be able to find it anywhere in the store; and that the brand will be relatively easier to manage.
 “[But] if finding the brand is the key to driving sales, why not make the packaging bright pink? Customers will find it, but they will not necessarily buy it,” says Beckman.
Rather than continuing to roll out system designs, “in the longer term, there will be a reassessment of what is needed to truly maximize sales at retailers. Choice optimization will be the result and it will likely impact overall approaches to private label,” explains Ben DiSanti, senior vice president of planning and perspectives at the Dallas, Texas-based retail marketing agency TPN Inc.
A store banner is a representation of the retailer and its brand promise, agree experts. But what happens when a retailer decides to put its brand name on its products? Expect this trend of recent days to also come under scrutiny in the new year.
Putting a store’s name on a private label line is “a good idea if the banner has both a strong reputation/recognition and the branding strategy fits. A banner name can become a brand in itself and should be positioned that way,” says MacLennan.
“Banner names make a lot of sense for national brand equivalent products, and having the store’s name in the shopper’s pantry is always a good thing. But for value-level brands where top quality is not always evident, using the store name carries greater risk,” cautions Jeff Weidauer, vice president of marketing and strategy for Little Rock, Ark.-based Vestcom, a marketing consulting firm. “Conversely, premium tier labels may not be able to effectively carry a premium message with the store’s name on them.”
Rather than simply copy the store banner-PL naming approach in 2012, expect savvy retailers to re-evaluate when the approach makes sense and when they need to deviate from it.
The old business maxim of follow the money will lead private label retailers to Gen Y in 2012.
 “The indicator I like to watch is the rise of Generation Y as the primary grocery shopper. As a whole, Gen Y has a very positive view of the economy and has a high degree of consumer confidence - and I’ve seen reports that show them representing up to $200 billion in spending power. Even though they lost the most in the economic downturn, these consumers didn’t stop spending. Also consider that they’re driving trends for Baby Boomers [their parents], which still represent more than 50 percent of consumer spending. So, Gen Y is essentially beginning to lead the spending for two generations,” says Beckman.
Beyond Gen Y, retailers also should be looking beyond traditional female shoppers to their husbands, boyfriends, children and dads.
“I think we will see more men and children as influencers, with more responsible ways of targeting children emerging,” agrees Young.
So call 2012 the year of re-examination. As the country re-examines who it wants to be president by holding a national election, private label retailers will be re-examining some long-held beliefs such as tiering, banner branding and which market segments to target most heavily.

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