Private Label Buyer

Private Brands Expected to Grow Post-Recession

November 9, 2009

The recession might be over, but a new report from Stamford, Conn.-based Daymon Worldwide Inc., predicts the recovery will be long and arduous, creating plenty of opportunities for continued private label growth.



The recession might be over, but a new report from Stamford, Conn.-based Daymon Worldwide Inc., predicts the recovery will be long and arduous, creating plenty of opportunities for continued private label growth.

According to Ron Shirk, Daymon’s global research manager and author of "The Maturing U.S. Recession & Implications for Private Brands," persistent unemployment, a drop in median household income and higher taxes and interest rates - during a recovery without government bailouts and stimulus programs - could put more of a squeeze on consumers than the recession itself.

"Private brands will not easily relinquish any of their recessionary gains,” he said. “Instead, signs point to a post-recession with recession-like traits where 'learned' shopper behaviors are likely to be extended and may well become entrenched over the long-term."

To support his position, Shirk pointed to store brand gains after the 1990 and 2001 recessions, neither of which was as severe or protracted as the 2008 downturn, which already sparked a gain of 1.2 share points for private label. However, he noted, the key to continued growth post-recession will not be store brands' low prices. Instead, it will be their quality.

Alex Miller, president of Daymon, recently echoed Shirk’s prediction.

"We know the success of private brands is related to hard work, not just hard times,” he said, “and we are convinced that it will continue no matter what develops or how quickly things change in the economy."

Shirk told PL Buyer that the most important thing that happened during the recession was the “increased exposure and trial of private brand products." He added that cash-strapped consumers who might have been attracted, at least initially, by low private label prices soon discovered that "the quality is at parity or in some instances better than other brands," leading to the realization that "there's no need to pay the extra money."

But retailers should not expect to rest on their private label laurels post-recession. Yes, consumers will be facing many of the same economic challenges - perhaps for years to come - but some of the issues will change. That reality will require a change in approach by retailers as well.

For example, said Andres Siefken, vice president of brand strategy and marketing for Daymon Worldwide, the concept of a “value consumer” has evolved in a very short time from lower-income shoppers who focus on value out of necessity to a significant portion of all shoppers who focus on value because they need to stretch dollars.

"It's important for retailers and manufacturers to understand what features, needs and priorities define their [new] value consumers," he said.

The value proposition also has changed, he added.

"Equating value with price has been easy," Siefken explained. Post-recession, however, value won't be determined only by price but "what the consumer gets for that price," suggesting retailers need to look for new ways to add value (because national brands will be working overtime on ways to build it into their products).

Siefken also said retailers hoping to grow store brand sales post-recession will need to manage their private labels like national brands, "recognizing the fact that stores and banners are the biggest brands of all." He added that leveraging the power of those "big brands" will be critical "for withstanding competition and for getting full benefit from the natural advantages of private brands."

According to Siefken, "Successful recession-era strategies will need to be evaluated for longer-term viability; areas that were 'backburnered' during the recession will need to be brought forward; and issues that may have quieted down during the recession can be expected to kick up again."

"Competition is going to be fierce," Shirk added, noting the increased importance of innovation and agility post-recession. "Change is imminent. Private brand retailers and manufacturers who hang back run the risk of falling seriously behind the curve with regard to consumers and their competitors."

Store brands have a bright future ahead of them. The challenge, the report said, is for retailers to fully grasp the opportunity “and deal with the recession fact-set even after the recession."

For more information about the report, please visit http://www.daymon.com. -- Denise Leathers