Datamonitor Predicts Private Label Progress

April 1, 2006
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Datamonitor Predicts Private Label Progress

Sales of private label consumer packaged goods totaled $246 billion in Europe and $107 billion in the United States, figures that are expected to grow to $307 billion and $130 billion, respectively, by 2010, according to Datamonitor, an international business information firm. Datamonitor has released an extensive report on private label trends in Europe and the United States. The study reports that during 2005, private label’s CPG share is predicted to increase from 23.1 percent to 25.8 percent in Europe and, more modestly, from 15.9 percent to 17.3 percent in the United States.
The report notes that consumers’ relationships with brands is changing and while particular brands are seen as signs of lifestyle sophistication, the focus is on quality and the desire to treat oneself rather than to impress others. National brands are differentiating themselves by “premiumization,” gourmet offerings and healthier ingredients, but retailers are following suit with their own upscale items.
“Consumers increasingly trust retailers’ own offerings, and are more willing to switch from buying famous [national] brands to buying private label goods,” said Datamonitor’s Matthew Adams and the author of the report. This growing trust in store brands is reflective of the consumer belief that retailers have had a generally positive impact on their daily lives through the extended shopping hours and an ever-increasing array of products and services.
Another key element in this growing acceptance of private label products is the fact that retailers have a clearer understanding of their customers and are able to target the needs of their shoppers and develop their own innovative offerings rather than merely following the national brands, according to Datamonitor. In addition, online shopping and frequent-shopper programs have allowed retailers to develop a closer connection to their customer base.
The retailers’ ability to offer a broad range of items – value, mainstream and premium — under a single umbrella brand also has contributed the private label growth. This is particularly important since attitudes toward store brands vary by demographic, the study says.
The mature consumer, for example, typically associates private label with economy-priced products, having witnessed the initial generic private label products. Still, with the need to live on a somewhat lower retirement income, older shoppers are often willing to trade down to private label on occasion.
Conversely, younger consumers who have been less exposed to the early private label offerings are accustomed to thinking of store brands as more upscale. Nonetheless, the concern with image or “coolness” is strong with these shoppers and they tend to favor national brands.
In between these two markets are the over-analyzed baby boomers, a large, active group who are demanding enough to look for real value, whether that comes from a premium private label line or a national brand.
While private label is becoming less of a discount purchase, it is clear that price and product consistency remain issues. Datamonitor reports that consumers overwhelmingly feel that store brands must be priced lower than national brands, with U.S. consumers, in particular, expecting a significant discount on private label. Though private label still has an association with low price, many private label purchasers are not low-income consumers being forced to economize. Datamonitor points to a trend it calls “sacrificial consumption,” in which a shopper economizes with a private label item in one category and indulges with a national brand in another category.
While private label has made major strides in gaining consumer acceptance in recent years, Datamonitor reports that 83 percent of consumers believe that private label quality varies substantially between different products and different brands. The quality from one retailer to another is too variable for consumers to have positive perceptions of private label in general, but they do have positive perceptions of particular retailers and those retailers’ store brands, Datamonitor says. PLB
Nash Finch Puts Private Label in the Spotlight
Edina, Minn.-based Nash Finch Co. conducted its first-ever food show for independent retailers and corporate stores over a two-day period in Minneapolis. Themed “Bigger, Better, Together,” the event attracted approximately 500 attendees from six Nash Finch distribution centers, representing some 300 supermarkets across eleven Midwestern states.
Attendees were offered a broad range of exclusive special-deal allowances available only at the event. In addition, Nash Finch highlighted its 102-year-old proprietary Our Family label in numerous booths, which showcased state-of-the-art programs and services including: advertising, marketing, consumer science, community promotions, point-of-sale signage, “satisfaction guarantee” enhancements and new items, such as the premium Pride label.
The show featured head-to-head taste tests with competitive national and regional brands. “One of my biggest business drivers is the Our Family label,” says Fred Witecy, president of No Frills stores in Nebraska. “Our Family’s commitment to quality is exemplified by their consumer science research and their new ad campaign.”
Nash Finch announced a strategic alliance with the Minnesota Twins baseball club which will include Our Family Half-Price Tuesdays, Saturday Tailgate Parties and Photo Night with players. Customers also can sample Nash Finch products at the ballpark. PLB
Behind the Scenes at Trader Joe’s
With its first New York City store opening this spring, Monrovia, Calif.-based Trader Joe’s opened the door to its secret tasting process to a reporter from The New York Times. Her story sheds some light on how the fast-growing retailer searches out and refines its private label offerings, which represent about 80 percent of the 3,000 or so items in a Trader Joe’s store.
“The stores are small, the selection is uneven and the corporate culture can be described as dorky,” the story begins. “But because its products are often not available anywhere else, because they mysteriously appear, disappear, then reappear on the shelves; or perhaps simply because they often taste very, very good, Trader Joe’s has become tremendously popular…”
On a daily basis, the company convenes a group of trained employees called “the tasting panel” to taste, evaluate, critique and improve its varied line of house brands. Trader Joe’s president is quoted as saying, “The tasting panel is what takes us from having good products to having addictive products.”
New product ideas have been uncovered by Trader Joe’s category leaders in places that range from a small restaurant in Italy to an airport in Thailand. But regardless of where they originate, the ideas end up in front of the tasting panel members.
As described in the story, the tasters pull no punches in their comments: “This one has a cardboardy texture at the end;” “like dirty socks;” “I think people want to see those black flecks.”
Even those products that make it through these tough critics have to find a loyal consumer base or they are quickly dealt with. Matt Sloan, vice president of merchandising told the Times, “The bottom 10 percent is always being rotated out. It’s painful but necessary, because it ensures that we always have new products for our customers to get interested in.” PLB
The Hispanic Influence
The number of Hispanics in the United States is growing three-times faster than the population as a whole, according to U.S. Census Bureau information released last summer. Hispanics accounted for half the U.S. population growth from July 2003 to July 2004 and numbered 41.3 million, almost 14 percent of the population, as of July 1, 2004. Hispanics now are the leading U.S. minority, outnumbering the African American population, which was 39 million in July 2004. In the United States, 38 percent of the Hispanic population is younger than 20 years old, spending an average of $375 a month, which is 4 percent more than the average for non-Hispanic teenagers.
With the evolving appearance of the U.S. population come new expectations from consumers and new dilemmas for marketers and retailers. How can the industry reach those tastes, cultures and languages? Cultural marketing continues to become more relevant as the U.S. Hispanic population demonstrates more buying power.
According to New York-based Hispanic Marketing and Advertising Group, the Hispanic market has some unique characteristics critical for retailers to recognize when targeting this opportunity. Each Hispanic group has its own customs, depending on the country of origin, thus creating the challenge of developing a unified message to appeal to the entire community. There is a high level of loyalty to Hispanic spokespeople and sponsors, and a strong commitment to family, religion and heritage. Brand loyalty among the Hispanic market is significant, though brands with consistent quality, minimal risk and familiarity can capture Hispanic consumers, even if those brands are private label.
Buying power within the Hispanic population is expected to grow significantly in the next four to five years, according to multiple reports. Packaged Facts, a division of MarketResearch.com, estimates the buying power of the Hispanic market is about $766 million and will approach $1.1 trillion by 2010.
Many retailers already  have recognized the importance of the Hispanic community through bilingual packaging and more recently, specific store formats targeting the needs and desires of the Hispanic market. Nationwide, leading chains such as Wal-Mart and Big Lots are carrying more ethnic foods and featuring Spanish packaging and signage in categories popular with Hispanic customers.H-E-B, with many stores in the highly Hispanic-populated Southwestern region, carries a wide variety of Mexican-made items, and in the Chicago area, Goya and La Preferida products are very prevalent in both the Jewel-Osco and Dominick’s stores.
Sweetbay Supermarkets division of Delhaize places a strong focus on ethnic food offerings to take advantage of the growing Hispanic population in Florida, and the “Publix Sabor” format was developed to specifically target the Hispanic market integrating Hispanic products throughout each grocery aisle. PLB
TreeHouse Makes Acquisitions
TreeHouse Foods, Chicago-based manufacturer of private label pickles, sauces, non-dairy creamers and refrigerated salad dressings, expects that its acquisition of Del Monte Foods’ private label wet soup and infant feeding businesses will boost its annual revenues by some 40 percent, from just more than $700 million to $1 billion. The transaction, valued at $275 million, is expected to close in the first quarter of 2006.
The soup business has an estimated 70 percent volume share of private label soup sold in the United States. Private label soup, in turn, represents about 10 percent of the total wet soup category.
Del Monte’s Nature’s Goodness infant feeding line is the number three brand in the market, behind Gerber and Beechbut, with an estimated 5 percent share.
Del Monte Chairman and Chief Executive Officer Richard G. Wolford said that his company is focused on its branded businesses. Del Monte’s College Inn broth business is not part of the sale and the will be produced by TreeHouse under a co-pack agreement.
Both the soup and baby food businesses will become part of TreeHouse’s Bay Valley Foods unit. PLB

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