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May 10, 2011
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Is the New Consumer Still Out There?

While many consumers turned to private label during the economic downturn, it’s up to retailers to keep them coming back for more.
 
No matter who you ask or which research study you read, widespread consensus surfaces that constraint and resourcefulness are the new norms in grocery shopping. Given the still less-than-robust economy, a tight consumer credit market and sluggish consumer confidence, Americans have changed the way they shop.



Is the New Consumer Still Out There?

While many consumers turned to private label during the economic downturn, it’s up to retailers to keep them coming back for more.
 
No matter who you ask or which research study you read, widespread consensus surfaces that constraint and resourcefulness are the new norms in grocery shopping. Given the still less-than-robust economy, a tight consumer credit market and sluggish consumer confidence, Americans have changed the way they shop.

Moreover, most agree that these new behaviors are here to stay. The so-called new consumer-one who is slower to spend and always looking for ways to make $2 buy what $4 once did-is still out there. And that’s definitely good news for private label, industry experts agree. But to continue appealing to that new consumer, private label retailers need to pinpoint what sets their products apart and communicate that to consumers. Winning out over national brands also requires grocer private labels to compete on the brand image stage as well. Maintaining visual quality, color integrity and overall messaging consistency throughout private label packaging is critical to developing consumer loyalty.

More than half of 27,000 consumers surveyed online by The Nielsen Company for its Rise of the Value Conscious-Shopper, private label report in March 2011, say they purchased more private label brands during the economic downturn, and more importantly, fully 91 percent said they will continue to do so when the economy improves.

Has the consumer changed? In a sense, yes, says Nick Hodson, partner with San Francisco-based consulting firm Booz & Company. “They tried some new things and decided that some of those behaviors were actually unpunished. There was no downside to them, only upside. It was cheaper and so having tried it, they decide they’re going to keep doing it.”

“Today’s private brand shoppers aren’t necessarily just low-income families, many are well-educated and understand the value they receive when purchasing private label. Retailers need to educate and build loyal customers for their brands as they do for the store,” says Bill Bradshaw, vice president of Fort Worth, Texas-based Buxton Research.

Building brand and store loyalty may prove challenging for retailers. Grocery shoppers today are not store loyal. In fact, about 63 percent of adults shop for perishable groceries at two or more different stores on average, within a two-week period, according to Grocery Shopping in the New Economy: New Insights Into Changing Consumer Attitudes Toward Grocery Shopping, an Oct. 2010 study by Vertis Communications. Approximately 73 percent shop at two or more different stores for non-perishable groceries.

“Customers, especially when it comes to groceries, are more willing to shop multiple stores,” says Janet Tonner, director of research and analytics at Vertis, a Baltimore, Md.-based marketing communications firm. “The change in the economy has changed consumers’ expectations of retailers. I think whereas before we saw an offer of having everyday low prices was well-received, that today that has dropped almost in half and consumers expect more. There’s expectations of ‘I’ve got tough times and if you want my business you need to make it valuable to me or I’ll shop somewhere else.’”

Private label has the opportunity to continue to experience growth even as the economy starts to pick up, but it depends on the manufacturer and the retailer, says Bradshaw. “Private brands are at another plateau in their evolution. The key to move it forward in growth is to take advantage of the partnerships between manufacturers and retailers and promote private brands as a national brand. With today’s available data, social media and target marketing, a large amount of funds aren’t needed to market like a brand.”

“We actually saw private label lose half of a share point in 2010,” says Susan Viamari, editor of SymphonyIRI’s Chicago-based research publication Times & Trends. “What’s happening is private label growth is continuing in some areas and it’s sort of leveled off in others. Not to say that private label isn’t important; we all know that it is. Some people are going to go back to buying national brands and some people won’t.”

In order for retailers to hold onto their market share gains and continue growing, private label marketers need to continue to focus on developing their private label programs.

“In the past year or two during the course of the recession, we’ve seen the national brand marketers really step up their game,” says Viamari. “Their pricing strategies have become much more aggressive and promotional activity is extremely high. The reality is that in two-thirds of categories, private label receives below average merchandizing support. This is opportunity lost for private label marketers. Today is really a time when they need to prominently showcase their products across all of their platforms and give them favorable placement and support within the store.”

Other things that retailers can do to reach out to the new consumer include:
 
• Use customer purchasing behavior from loyalty card information and match that to household data in your trade areas
• Encourage customers to try your PL products and offer a money-back guarantee
• Offer more than just a good value when it comes to your PL products
 
Will the United States ever see the private label penetration commonly seen in Europe? (For more on this topic, see this issue’s cover story, page 16)

National brands will not let that happen, says Bradshaw. “There will be significant growth in private label, but to reach levels of 40 percent, there would have to be major negative changes in the national brand industry.”

“Private label products in the U.S. are just not as good and haven’t been marketed as effectively as they are in Europe,” says Hodson. “Private label goods at European retailers such as Tesco are considered by everybody to be completely acceptable. I think retailers in the U.S. have been kind of pulling on the private label string, but rather ineffectively for quite some time. Fundamentally, I don’t think there’s anything special about U.S. consumers that says they won’t buy private label, but I think it’s about making the right products available to them.”

Consumer attitudes and behavior have shifted dramatically, so retailers need to shift their strategies to match.

In order to keep your private brands competitive, you should pinpoint the unique, less obvious benefits of your products and communicate them to consumers. Today’s grocery shoppers want better value and they’re willing to work to find it. It’s up to private label marketers to find new ways to deliver it. PLB
 

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