Has Private Label’s Power Peaked?
How can retailers improve their private label business, positioning their store brands for renewed growth and consumer interest?
Does an improving economy mean a downturn in private label sales? Not necessarily. However, recent research from Perception Research Services (PRS) suggests some potential softening in select categories after years of steady growth.
PRS has been conducting shopper research on private label attitudes, usage and packaging since 2010. The company recently completed a study involving 500 individuals, all over the age of 18 (half of which were ages 18–39, half ages 40+) and from a variety of demographics, which revealed most shoppers (78%) still purchase some private label products on a regular basis. However, this figure is significantly lower than last year (86%) across all surveyed income groups and demographics. And whereas last year’s data showed a significant increase in the average number of private label categories purchased regularly (from 4.8 to 7.4), this figure only held steady from 2012 to 2013.
While this purchase data doesn’t spell disaster, the concern really comes from shoppers’ perceptions, which are often an early indicator of future behavior. In perceptions of product quality (relative to national brands), PRS saw declines across 10 of the 13 categories evaluated, including frozen vegetables, cookies, cleaning products, canned vegetables and vitamins/medicines. Another indication of slippage is how shoppers feel about buying private label products. Here, we saw a significant drop on shoppers’ mentions of feeling good, respectable and proud in relation to buying a store brand.
Even in pain relievers, where private label sales have been growing steadily as Johnson & Johnson and Novartis have struggled with product recalls, retailers’ own brands appear to have captured shoppers’ wallets—but not their hearts and minds. In fact, on an absolute basis, private label competes the least effectively (vs. national brands) in three categories: personal care products, frozen meals and vitamins/OTC medicines. Relative quality perceptions and shopper receptivity are weakest in these areas.
Has private label peaked, or is there more room to grow?
To some degree, the answer lies in understanding and interpreting the drivers of this decline.
• New is now normal. On one level, the softness may be a function of private label’s recent growth and success. Shoppers’ initial excitement at seeing high-quality and low-cost store brands has most likely dissipated into an expectation. And some national brand manufacturers have felt the heat and “stepped up their games”—including value-added packaging and promotions, in some cases—to better compete with store brands.
• An improving economy. Despite the recent federal shutdown and concerns about the debt ceiling, analysts still maintain that the U.S. economy will continue to recover and improve. This factor very well may be playing a role in taking a bit of the bloom off the rose of private label. While shoppers are generally happy with most private label products, one poor experience might send them back to “trusted” national brands, particularly as their finances improve.
Despite these challenges, a look at Europe—where private label comprises over 30 percent of packaged-food sales—strongly suggests that there is considerable room for further growth.
So where does private label go from here? How can retailers continue to drive profitable growth?
Our experience suggests that an important part of the answer lies at a tactical level, through improvements in packaging and ramping-up in-store marketing.
Ensuring Effective Packaging
Retailers are in the enviable position of owning what is perhaps the most-important part of the buying process: the last five seconds before a consumer decides to buy a product, otherwise known as the first moment of truth (FMOT). This is where 70% or more of purchase decisions are made.
At that moment, the package is the brand’s embodiment and spokesperson. It is what the shopper relies upon to convey quality, through both its appearance and messaging. Many retailers have learned this lesson and invested in creating new packaging systems in order to:
• Display packaging graphics that create visual attention and present products in a compelling manner
• Convey key product information and reassurances
• Facilitate the shopping experience by helping shoppers navigate complex product lines
• Often establish and distinguish their private label product lines as their own brand offerings—bona fide brands in their own right, with effective identities independent of the store name
However, in many cases, we’ve also seen retailers make mistakes. Some are so focused on design aesthetics that they forget the vital role of information delivery and clear navigation. Others mistakenly believe that the packaging needs to look “generic” in order to reinforce low price and value, or that mimicking the appearance of national brands is necessary to suggest equivalent product quality.
Retailers also sometimes introduce new packaging without the benefit of robust consumer research. In doing so, they jeopardize this opportunity to drive sales—and run the larger risk of confusing or alienating their shoppers (and perhaps even driving them away from the store). Indeed, we’ve seen several cases in which the immediate impact to the bottom line was direct, severe and could have been prevented— had consumer feedback been gathered and incorporated to refine new packaging prior to introduction.
Recently, a prominent Midwest grocery chain asked PRS to validate their new design system before launching it across every category in the store. And while the new design was generally a vast improvement over the existing system, we uncovered some important opportunities for enhancement in our study:
While the design system maintained high levels of shelf visibility and made important improvements in product imagery, it also created some confusion during the shopping process, which can often drive sales declines.
For the pasta line, a new color-coding system and script product descriptor font were aesthetically pleasing, but hard to read. If shoppers struggled to locate their usual product, they might instead opt for an alternative national brand, leading to significantly lower purchase levels.
For potato chips, a new, more-cohesive approach to the various segments helped to unify and organize the line and facilitate shopping—except for one important segment, Kettle Chips. There, line uniformity had a potentially negative impact, and the product style would benefit from a bit more-distinctive look compared to regular chips.
For juice, critical communication was lost either due to placement outside of the primary viewing pattern, or else by creating weaker color contrast. This could lead to shopper confusion and purchase declines.
These insights led to an optimization of the new packaging, which is now rolling out.
Merchandising Best Practices
In addition to packaging, retailers have a tremendous opportunity to create more-meaningful connections with shoppers via in-store merchandising, signage and displays.
And while every retailer spends huge sums creating these materials, few (if any) have a strong sense of where and how this money is best spent. In fact, our in-store shopper research has consistently shown that a great deal of in-store point-of-purchase (POP) spending is wasted due to poor placement or messaging.
For example, in a recent in-store study for a different grocery chain, we found a tremendous number of large signs placed throughout the store, which were quite confusing or meaningless to shoppers.
Signs in the produce aisle that generically stated “Spend Less” were not taken to mean that price reductions had been applied.
Larger signs stating “Fresh Produce, Fresh Prices” extended over both regularly-priced and sales items, resulting in confusion and frustration.
Even more frequently, shoppers sometimes simply don’t see in-store signage, largely due to poor store placement:
For example, while most shoppers are keen to pick up the weekly circular, we recently visited a store in which the circular display was placed too far out of the way to be noticed as shoppers entered the store.
Similarly, a prominent sign announcing the introduction of a new private label branding system (replacing the one using the store’s name) was overlooked by most shoppers because it was placed near the produce department, home to very few of the private label packaged products in the new branding system.
Across multiple retailers and channels, our mobile eye-tracking system has revealed that much overhead signage is completely ignored. While shoppers use ceiling-based materials to guide store navigation, once they are in their aisle of choice, their focus is straight ahead or slightly downward. Thus, point-of-sale materials at eye or arm level (interspersed with packaging) are far more visually impactful than those positioned above the products.
As with packaging, speaking with shoppers is often one of the keys to success. But when seeking feedback on POP impact, the intent may not necessarily be to pre-test and refine each new system. Instead, retailers can use shopper insights to properly allocate resources and create core principles or templates for effective presentation across initiatives.
For both packaging and merchandising, retailers will be well-served to “start with the shopper.” In the short term, doing so will help prevent costly disasters, leading directly to higher sales and an improved marketing ROI. In the longer term, it will allow retailers to build stronger store brands that compete more effectively, perhaps even making their store a destination.
Such renewed vigor and discipline will help continue the growth trajectory of private Label for many years to come.