"We saw a significant investment by large retailers around value private label lines, which proved to be very successful in terms of preventing shoppers from defecting to hard discounters at the beginning of the recession."

In fact, she told PL Buyer, such investments “really helped stem the growth of ALDI and Lidl in Europe."

But given improvements in the quality of value-tier private label offerings, rock-bottom pricing is simply not sustainable, Berg continued, adding that she expects a reduction in the amount of shelf space dedicated to value lines over the next 12 months.

"Given the lower price point from which many of these products trade," she explained, "it would be far more beneficial for retailers to promote their premium private label lines once consumer spending regains pace."

In fact, Berg remarked, an argument could be made in favor of a two-tiered strategy that offers both value and premium private label products but no national brand equivalents - currently the foundation of most retailers' store brand programs.

"Standard lines used to serve as the national brand equivalent in terms of quality, but at a lower price point, while value lines used to be the poor-quality generic alternative," she explained. "However, retailers such as Tesco and Walmart have massively improved the quality of their value lines. As a result, we have seen some self-cannibalization as shoppers trade down from standard to value, which makes us question, 'Do we really need a standard line?'"

While Americans' affinity for national brands, combined with the regional nature of the U.S. grocery business, make it unlikely store brands here in the states will ever achieve the sorts of shares enjoyed by private label in Europe, Berg said she believes plenty of upside potential exists. Although consumers lured by private label's lower prices during past recessions often returned to national brands once the economy improved, things are likely to be different this time, she explained.

"In the years leading up to this recession, U.S. supermarkets had already been making significant improvements in quality, packaging and marketing of their own brands,” she said. “The recession really helped to generate awareness of [those changes]. As a result, I don't predict a mad rush back to the national brands like in the past."

Retailer attempts to "get rid of the tail" (i.e., SKU rationalization) are also expected to improve private label's fortunes in the United States, Berg said, citing initiatives already in place at Walmart, Supervalu and other retailers. She also noted opportunities to expand store brands beyond physical products into services such as banking, insurance and telecommunications, much like Tesco has done in the United Kingdom.

For more information, please visit http://www.planetretail.net. -- Denise Leathers