Keeps Growing and Growing and Growing...
A new study shows private label growth continues to outpace national brand rates.
By Michael Friedman
The runaway growth of private label is not anticipated to slow down anytime soon, according to findings in a recent study by ACNielsen, Schaumburg, Ill. Sales of private label have grown at twice the rate of branded over the past six years. From 1997 to 2003, dollar sales of private label items were up 48 percent, compared with a 22 percent increase for branded products and a 25 percent gain for all consumer packaged goods categories.
When looking at sales for the 52 weeks ending Dec. 27, 2003, vs. the same year-earlier period in food, drug and mass merchandisers (including Wal-Mart), private label items were up 2.5 percent in units and 4.4 percent in dollars, compared with increases of 0.3 percent and 2 percent for branded products and 0.7 percent and 2.3 percent for all categories.
Private label represented a 19.9 percent unit share and a 14.9 percent dollar share across all consumer packaged goods categories in 2003.
Among the key findings of the study are:
Not all consumers are alike in their purchasing of private label goods; however, all consumers are likely to extend trial to new private label offerings.
Private label activity is hottest in currently underdeveloped areas, such as in general merchandise categories and in alternative (non-grocery) channels.
Successful private label businesses are related to a focus on building product-specific and retailer general loyalty, not necessarily as a result of factors in the category, such as fewer branded offerings, significantly lower prices or significantly higher promotional levels.
Private label is more than a $1-billion business in more than 15 product categories.
Private label products penetrate every single U.S. household and the breadth of purchasing typically spans across more than 20 product categories.
Gail Zielinski, account director, ACNielsen Homescan, Schaumburg, Ill., and author of the study, says the continuing consolidation of retailers will add fuel to the desire of large retailers to create their own identity across the store. She believes that evolving private label programs into mid-tier and premium offerings will bring about increased interest and sales from non-traditional private label demographic segments.
Retailers, Zielinski says, will have to focus on how to maximize consumer variety and value with private label and branded assortment living in harmony.
“Building private label loyalty has the same tenets as building brand loyalty and that is consistent pricing, attractive packaging, and putting out a quality product that delivers on its performance or claims or benefits time after time,” says Zielinski.
The study holds several implications for retailers, according to Zielinski. They include:
Those retail accounts more successful in the development of their private label businesses have tailored their private label program to match their corporate strategy and channel strength/personality.
Private label offerings don’t necessarily have to be cheaper; creating and investing in your own brand image can foster loyalty and eventually command a premium price.
Retailers should look into other channel types and identify their largest private label businesses; consider if private label focus on those same categories is appropriate given the category role in your corporate strategy.
Trial of private label products runs deep; use cross promotions to introduce consumers to new private label entries and to grow private label sales.
Behold These Truths
The study found that some historical private label truths continue to hold. They include the fact that larger and more developed private label businesses are food commodity products. Also, the grocery channel is the most successful in building significant sales from private label items and getting a private label product in the shopping cart most often. And, private label sales are most developed among middle income, larger households with kids of all ages.
However, the study also points to some new twists appearing in private label activity, such as the largest sales increases show accelerated movement of private label items into the frozen and general merchandise aisles. Private label office/school supplies were up 36 percent in unit volume in the 52 weeks ending Dec. 27, 2003. And private label unprepared frozen meat, seafood and frozen pizza/snacks were ahead 17 percent and 13 percent, respectively.
“We’re seeing a lot of growth in private label frozen foods and I think that is tied to the realization that more than 90 percent of households visit the frozen food aisles because they contain everything from pizzas to ice cream to vegetables. And as consumers are still looking for meal solutions, a lot of times they are found in the frozen section. Retailers have identified the frozen food department as an appropriate place to really emphasize a lot of private label activity,” Zielinski says.
The study also found that the demographic profile of the private label consumer is blurring as an increased percentage of private label sales is tracing to one- and two-member households and those that are more affluent.
By The Numbers
While the majority of the biggest private label categories are food/beverages, four of the top 12 are non-food categories — paper products, medications/remedies, vitamins and pet food. In the 52 weeks ending Dec. 27, 2003, milk was the leading private label category with sales of $7.4 billion. It was followed by bread and baked goods, $4.1 billion; cheese, $3.2 billion; paper products, $2.4 billion; fresh eggs, $1.9 billion; medication/remedies, $1.8 billion; vitamins and fresh produce, both $1.5 billion; packaged meat, $1.4 billion; pet food and carbonated beverages, both $1.3 billion; and unprepared frozen meat/seafood, $1.2 billion.
On a unit share basis, private label held a majority position in eggs (66 percent), milk (58.6 percent) and sugar/sugar substitutes (51 percent) in the 52 weeks ending Dec. 27, 2003. And in such non-food categories as first aid and wrapping materials, private label’s unit share was 44.4 percent and 40.3 percent, respectively.
The study found that not all private label products are thriving. For example, private label unit sales of diet aids and frozen juices/drinks were down 22 percent and 15 percent, respectively, in the 52-week period. “A lot of it has to do with branded manufacturers being on the forefront of differentiating their products or upgrading them or making them more innovative and private label not yet catching up. With diet aids, branded manufacturers have modified some of their products and/or introduced new products that specifically speak to low carbs,” says Zielinski.
By department, private label accounted for 18 percent of food/beverage dollar sales in 2003; 16 percent of health and beauty aids; 11 percent of non-food and 5 percent of general merchandise. The food and beverage department represented 76 percent of private label dollar sales, compared with 11 percent for health and beauty aids, 10 percent for non-food, and 3 percent for general merchandise. Food and beverage’s share was down from 1997 when it stood at 80 percent. HBA and non-food each saw their share rise two percentage points from 1997 to 2003.
The study shows that the growth in private label HBA has been consistent over the past few years, while non-food and general merchandise have experienced stronger and slower growth years. “Non-foods and general merchandise have had less private label entries and items being offered. Private label is just now rolling into these areas in stores. So when you start with a smaller base you’re going to see some accelerated growth. What a major retailer and/or product segment does relative to private label in any one year can have a big effect,” Zielinski says.
Private label is making the most use of promotions in batteries/flashlights, carbonated beverages, film/cameras and ice cream, according to the study. In the 52 weeks ending Dec. 27, 2003, 35 percent of private label battery/flashlight unit sales were sold on promotion, compared with 34 percent for carbonated beverages and 33 percent for both film/cameras and ice cream.
The Price Picture
The study found that across food/drug/mass channels and all consumer packaged goods types, private label is priced at an average 39 percent discount to branded product. Generally, a larger price gap between private label and branded offerings occurred on non-food and general merchandise items. In general merchandise, the private label average price per unit was $2.67 vs. $4.87 for branded, representing a 45 percent discount. For non-food, it was $2.11 vs. $3.45, a 39 percent discount; for HBA, $3.50 vs. $4.43, a 21 percent discount; and for food/beverage, $1.51 vs. $1.95, a 23 percent discount.
Several private label products typically sell for half the cost of the branded choice, according to the study. For example, private label light bulbs sell at an average price that is 72 percent less than branded. For baby needs, private label’s price is 62 percent less; for cosmetics it is 61 percent less; for men’s toiletries, 56 percent; children’s cologne, 55 percent; carbonated beverages and first aid, each 53 percent less.
In the food/beverage department, the top five categories selling private label with the largest discount to branded pricing were carbonated beverages at a 53 percent discount; bottled water, 50 percent; crackers, 46 percent; dough products, 41 percent; and dry mixes, 41 percent. However, in the case of baby food, wine, frozen unprepared meat/seafood, salad dressings and frozen prepared foods, private label’s price was actually more expensive than branded. Private label baby food’s price was at a 220 percent premium; wine’s 60 percent; frozen unprepared meat/seafood, 34 percent; salad dressings, 33 percent; and frozen prepared foods, 10 percent.
Zielinski believes there are two reasons why private label’s price can be more expensive than branded. “First, retailers are using a lot of these categories to create expertise or specific positions for themselves. They’re saying they want to be the customer’s baby destination or known for putting a quality dinner on the table or that their wine selection is the best in the tri-state area. The second reason is that these categories probably have more premium private label entries that are focused on being at par or above the branded alternative,” she says.
In health and beauty aids, private label does not hold a premium price position in any category. The top five HBA categories selling private label with the largest discount to branded pricing are baby needs, at a 62 percent discount; cosmetics, 61 percent; men’s toiletries, 56 percent; child cologne, 55 percent; and first aid, 53 percent. The top five HBA categories selling private label with the smallest discount to branded pricing were family planning, at a 7 percent discount; feminine hygiene, 11 percent; diet aids, 15 percent; hair care, 17 percent; medicine/remedies, 23 percent.
In non-food, private label household cleaners had the largest discount, 43 percent. It was followed by personal soap at a 42 percent discount; fresheners/deodorant, 38 percent; paper products, 36 percent; and wrapping materials, 34 percent. The five categories selling private label with the smallest discount were tobacco, 8 percent; charcoal, 22 percent; household supplies, 24 percent; disposable diapers, 29 percent; and detergents, 30 percent.
In general merchandise, private label computer/electronics had the largest discount at 79 percent, followed by light bulbs, 72 percent; lawn and garden, 47 percent; vehicle care and film and camera, each 45 percent. The private label prices of varnish and shellac, buckets and bins, and candles/incense were actually more expensive than branded, selling at premiums of 42 percent, 36 percent and 32 percent, respectively. “A lot of retailers place these categories in the convenience quadrant. Categories that are treated as convenient ones tend not to get discounted because retailers say they’re going to make their margins here,” says Zielinski.
Creating Loyalty and Growth
Not surprisingly, higher private label loyalty rates are often found in infrequently purchased categories. For example, private label refrigerated garlic spreads have a brand loyalty of 100 percent. “Infrequently purchased categories don’t give consumers the chance to come back and make a switch. In the case of garlic spread, a consumer may buy private label and they don’t need to buy it again until the next year, so they are 100 percent loyal to the private label brand,” Zielinski says.
Although private label share is strongest in some categories that have few branded products, there does not appear to be an overall correlation between the number of brands and private label strength, according to Zielinski.
ACNielsen surveys have found that a strong private label offering is not the driving factor in consumer loyalty or retailer choice. Convenient location is the No. 1 reason consumers frequent their favorite grocery store. Store deals and everyday low price are reasons Nos. 2 and 3. Store brand assortment ranked 10th.
In looking at individual trade channels, the study found that many channel types rely on private label programs for at least 10 percent of their total dollar sales. Private label represented 19 percent of grocery store dollar sales in 2003, 14 percent of supercenter sales, and 11 percent of both club store and dollar store sales. Traditional mass merchandise, drug store and convenience/gas outlets were undeveloped in private label share with private label accounting for 9 percent, 7 percent and 3 percent, respectively, in these formats.
Grocery stores accounted for 80 percent of all private label dollar sales in 1997 but that fell to 65 percent in 2003 as more private label products were sold through supercenters and club stores, which saw their shares climb from 4 percent to 11 percent and from 1 percent to 5 percent, respectively.
The growth rate for private label in 2003 topped 2002’s gains in grocery, mass merchandisers and drug stores, although in the latter two the gains were off of much smaller bases.
The percentage of shopping trips that include the purchase of a private label product is greatest in grocery and supercenters, according to the study. With private label bread, milk and egg transactions excluded, 63 percent of grocery and 58 percent of supercenter shopping trips included the buying of a private label product. This compared with 38 percent of shopping trips for club stores, 31 percent for mass merchandisers, 29 percent for dollar stores and 26 percent for drug stores.
Within the grocery channel, the largest private label categories are all food staples — milk, eggs, bread, ice cream, shredded cheese, cereal, butter and granulated sugar. A large private label category does extend into the frozen aisle with store brand frozen poultry selling $424 million in 2003.
Among mass merchandisers (regular formats, not supercenters), nutritional supplements displaced disposable diapers as the leading private label category on a dollar basis last year. They were followed by pain remedies for headaches, milk and dry dog food.
Supercenters have big private label businesses in both the food and non-food sides of the store, according to the study. In the food/beverage department, significant private label dollar sales are generated from milk, bread, shredded cheese, cookies and sugar. In the non-food section, big private label businesses include nutritional supplements, dry dog food and disposable diapers.
In drug stores, the key private label categories follow the traditional drug store product line. The leading private label sellers are nutritional supplements, cold and headache remedies, vitamins, alkaline batteries, minerals and laxatives.
In club stores, private label paper products lead the way. Private label toilet tissue and jumbo-size paper towels combined yield $275 million in sales. Sizable private label dollar sales are also turned in by nutritional supplements, milk, shelf-stable chicken, still/non-carbonated water, dry dog food and vitamins.
In dollar stores, there were 12 categories that had annual private label dollar sales of at least $10 million. The leading categories were toilet tissue, cold and headache remedies, disposable dishes, candles/holders, kitchen utensil gadgets and paper towels.
According to the study, a store brand item was bought on average 69 times in 2003. On a trip when store brand was purchased, an average of $7.17 was spent on private label. In looking at the numbers with the exclusion of milk, bread and eggs, frequency was reduced by just 10 occasions with purchase size dropping to $6.80 per trip. Between 1997 and 2003 the amount spent on store brand goods per shopping occasion, excluding milk, bread and eggs, rose 34 percent. The gain was primarily due to private label expanding into a more premium role and price point in some retailers, as well as private label expanding into some higher-priced categories.
The study showed that the depth of private label purchasing is great, with 66 percent of U.S. households buying private label in 21 to 50 mega categories. In the period of 1999 to 2003, the depth of consumer interest in private label has expanded significantly. The largest increase has been in the number of consumers buying private label in 51 or more mega categories.
The study pointed out that there are some sizable categories that represent possible private label category expansion opportunities. The 10 most highly penetrated categories that currently have negligible private label sales are fresh strawberries, chewing gum, women’s hair coloring, deodorants, frozen poultry, health bars and sticks, miscellaneous pet food, instant meals, frozen dessert cakes and dietetic chocolate candy.
Households spending the most on private label products are larger households (5+ members) and those with older kids (13 to 17 years old), according to the study. And, not surprisingly, those households showing the greatest loyalty to private label products are those that are more economically challenged.
When ACNielsen took all private label consumers and split them up into equal fourths based on how many dollars they spent on private label products, it found that half of the buying households (the “heavy” and “super heavy” buyers) accounted for 77 percent of private label sales. And more than half (51 percent) of the sales were concentrated among just 25 percent (“super heavy” buyers) of U.S. households.
Private label spending in 2003 among “super heavy” buyers averaged $807 (excluding bread, milk and eggs) — more than seven times the $115 spent by the average “light” private label buyer. “Super heavy” consumers spent 20 percent of their consumer packaged goods dollars on private label products, vs. just 6 percent among “light” buyers.
Purchase frequency is the key driver in separating “light” from “heavier” private label consumers. The “super heavy” buyers made 90 purchases (excluding bread, milk and eggs) in 2003, vs. just 29 occasions for “light” buyers. “Super heavy” consumers bought private label on 45 percent of all shopping occasions, compared with 23 percent for “light” private label shoppers. “Heavier” buyers also spend more per occasion. “Super heavy” buyers spent more than two times more per buying occasion on private label products than the “light” buyers — $8.94 vs. $4.02.
The study also showed that heavier private label buying households purchase store brands in a greater number of product groups. Eighty-four percent of the “super heavy” buyers purchased private label products in 41 or more product groups; 73 percent of “light” buyers purchased in 11 to 30 product groups.
“As we differentiate between ‘light’ and ‘heavy’ private label buyers, frequency is different and the loyalty is different, but the depth is there and it is growing. The depth of trial and interest and purchasing of private label is common across all consumers,” says Zielinski.
“Heavier” private label buyers concentrate more of their store brand spending in consumable categories, according to the study. Consumables represent 78 percent of private label spending by “super heavy” buyers vs. 70 percent by “light” buyers.
The study found that nearly all “super heavy” private label consumers buy store brand cheese and paper products (bread, milk and eggs were excluded). Among “light” private label buyers, paper products and food staples such as cheese, canned and frozen vegetables, condiments and fresh produce, as well as first aid and medication/remedy products were among the categories purchased by the highest percentage of buyers.
Most “super heavy” buyers are larger households, with 61 percent of these households having 3+ members. “Super heavy” private label buyers also tend to be comprised of younger female heads, with 64 percent of their households having a female head 54 or younger.
According to the study, household income doesn’t appear related to heaviness of private label purchasing. Thirty-four percent of “super heavy” private label buyers have annual income of less than $20,000, vs. 36 percent for “heavy” buyers; and 38 percent for both “medium” and “light” private label buyers. In each of the four classifications, 19 percent of households had income of more than $70,000. Zielinski does not find this surprising.
“Maybe a few years ago when private label just communicated a low-price item it would have been a disconnect. But now, given the fact that every household buys private label whether they be high income or low income, it doesn’t surprise me because high income households want quality and value just like low income households,” she says.
The same holds true for household affluence levels, according to Zielinski. “The percentages align pretty closely to the population — 24 percent of private label sales come from affluent households and that’s 30 percent of the population. We’re not seeing dramatic demographic sales because private label is in so many categories now. All consumers are responding more to private label,” she says.