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Holiday Brand Massacre or Private Label’s Big Price Move?

Private label excelled in 2013, but ends the year with a whimper.

Overall, private label had an excellent year. Over the 52-week rolling period, private label share of revenue is up over the prior period, and most of that was achieved by raising prices without losing substantial share in unit sales. Private label brands ended the year with a very respectable 102.4 on the Index.

However, that number is down over the prior period’s Index number of 103.6, and that was driven substantially by the results of the current 4-week period, the one ending December 29, 2013. The Index for the 4-week period ended at 90.3, the lowest it’s been since we started tracking in February.

 

What Happened?

First, it’s important to place the current period in a year-over-year context. In 2012, the last five 4-week periods of the year saw a widened price differential. In the period ending early October, the average unit price differential between private label and national brands widened to its largest since July—the fourth-widest gap of the year. The resultant price gap led to a significant increase in share of unit sales—a momentum that was maintained for the next two periods as private label narrowed the price gap and saw share of unit sales rise.

In 2013, retailers took a different approach with their private label brands. Instead of dropping prices in the period ending October 6, 2013, they kept the price difference relatively narrow, at 18.5 percent lower than national brands. Contrast that with the 19.8 percent difference in the same period in 2012.

But then retailers widened the price gap against national brands in the next period, ending November 3, 2013, and steadily narrowed the gap up until the latest period, ending December 29, 2013. Consumers appeared to be with them through most of this activity, especially in the period ending December 1, 2013—the second-busiest sales period for many private label in many categories, as well as overall for total store.

And then the crash came. Share of unit sales, which had been trending upward since the beginning of the year, took one of its steepest drops in the period ending December 29, 2013 after one of its steepest increases. Private label brands lost on share of revenue and on share of units sold—but not on the price differential. Prices increased 1.1 percent over the comparable 2012 4-week period, but share of unit sales declined by 1.8 percent. Bakery, Edible, and General Merchandise took the biggest hits, reporting Index numbers between 67 and 80, the lowest or next-lowest index numbers since we began tracking the Index.

For Bakery, it was all negative—a widening of the price gap between private label and national brands, and a decline in share of units sold, culminating in a decline in share of revenue for the period. For Edible, the story was the same: a larger price gap vs. last year, along with a decline in share of units sold, yielding a decline in share of revenue. For General Merchandise, however, retailers still managed to narrow the price gap even though share of revenue fell. And for every other category, retailers were able to narrow the price difference against national brands.

It appears that even through the big revenue-driving holiday periods, retailers are determined to play the long game when it comes to private label brands: a steady increase in prices at the expense of a short-term hit to unit sales and/or share of revenue. To me, this demonstrates retailers’ growing confidence in the quality of private label offerings—that discounts at the right time can shift demand in private label’s favor, demand that can ultimately weather bringing private label prices closer to national brand price parity.

 

52-Week Rolling Data

• Private label share of revenue was up very slightly, to 17.5 percent in the current period. Revenue was up 1.7 percent for national brands, but was up 2.0 percent for private label brands, contributing to the higher Index number.

• Overall, prices increased by 1.3 percent vs. the same period last year, but private label made up a greater share of the increase—private label prices increased by 1.8 percent vs. 1.2 percent for national brands. Private label prices were 18.7 percent lower than national brands. In 2012, private label prices were 19.2 percent lower than national brands during the comparable 52-week period.

• Private label units sold were up 0.2 percent vs. the same period last year, while national brand unit sales rose 0.5 percent.

Net impact: Both private label and national brands raised prices during the period, but private label brands were able to capture a greater relative price increase than national brands. Private label share of units did not fall as a result, helped along by the continued price gap between national brands and private label. Share of revenue for private label grew slightly, resulting in an index of 102.4 in the period ending December 29, 2013 vs. 103.9 in the period ending December 1, 2013.

• Both private label and national brands did well over the last full period of the year, increasing revenue in every category. In the cases of Bakery, Frozen, Non-Edible, Deli and General Merchandise, private label revenue increases outstripped those overall in their respective categories. Deli enjoyed double-digit private label growth, growing 10.7 percent in revenue over the comparable 52-week period from 2012.

• Unit sales saw were more uneven. Bakery, Frozen, Non-Edible and General Merchandise saw private label unit sales rise, while overall category unit sales fell. Edible, Dairy and HBC saw private label unit sales fall, while overall category unit sales grew.

• Prices tell a more-positive story: Private label brands increased prices in every category except General Merchandise (which decreased by $0.01). And except in the case of Bakery, Edible and Frozen, private label price increases outstripped or equaled the price increases brought by national brands. Deli was the biggest mover on price, where private label increased average unit price by $0.21 over the comparable 52-week period from 2012.

 

4-Week Data

• The 4-week data is much less positive than the 52-week rolling data. In the prior 4-week period, the Index reached 102.4. In the current period, the Index hit 90.3, the lowest it’s been since we began tracking. Private label share of revenue declined from 17.7 percent in the year-ago period to 17.5 percent in the current period.

• Private label unit sales drove the Index’s dive, falling 1.8 percent over the year-ago period, while national brand unit sales held flat.

• Private label prices were 18.7 percent lower than national brands during the 4-week period, a slight improvement over the -19.1 percent price differential in 2012. This time around, price increases for private label were not offset by increases in units sold.

• Private label brands appeared to give back almost all of the gains of the prior periods—every category showed declining revenues against last year except for Non-Edible and Deli. In the case of Bakery, Edible and Dairy, national brand revenue improved, while private label revenue declined. In the case of Frozen, HBC and General Merchandise, both national brand and private label revenue fell, though in the unique case of Frozen, the national brand revenue decline was greater than private label.

• Unit sales saw a similar give-back. Private label unit sales fell in every category except Deli. And in the case of Bakery, Edible and Dairy, private label unit sales fell while national brand unit sales rose.

• Prices tell a different story: Private label brands increased prices in every category except Edible (which decreased by $0.01). And except in the case of Bakery and Edible, private label price increases outstripped or equaled the price increases brought by national brands.


About Our Partners

About IRI
IRI (www.iriworldwide.com) is a leader in delivering powerful market and shopper information, predictive analysis and the foresight that leads to action. We go beyond the data to ignite extraordinary growth for our clients in the CPG, retail and over-the-counter healthcare industries by pinpointing what matters and illuminating how it can impact their businesses across sales and marketing.

About Retail Systems Research

Retail Systems Research (www.retailsystemsresearch.com) is the only research company run by retailers for the retail industry. RSR provides insight into business and technology challenges facing the retail industry ecosystem, and thought leadership and advice on navigating these challenges for specific companies and the industry at large. Collectively, RSR’s analysts have nearly 75 years of experience as retailers, spanning grocery, fashion, specialty and restaurant/hospitality. Our backgrounds encompass store operations and workforce management, supply chain, merchandising, marketing, and IT. We work with retailers and solution providers large and small. Our philosophy is simple: your success in the market is our success.

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