The Hot List
By Denise Leathers
From soup to nuts (literally!), this year’s tally of the top private label gainers includesa record number of categories.
The FBI’s got its 10 Most Wanted list, Billboard has the Top 100, and Dave Letterman always gets a laugh with his Top 10. But the list every private label buyer really wants to gets his hands on can only be found right here.
Based on figures supplied by Chicago-based Information Resources Inc., PL Buyer’s annual private label Hot List includes categories with at least $10 million in annual sales that racked up double-digit gains in food, drug and mass merchandise outlets (excluding Wal-Mart) over the past 52 weeks ending March 19, 2006. With just more than a third of the entries making their second-consecutive appearance, this year’s list includes a record 73 private label categories — up from just 56 in 2004.
One likely explanation for the high number of categories this year is across-the-board price increases related to rising fuel costs and Hurricane Katrina-related supply disruptions. However, in all but three categories on the Hot List (ground decaffeinated coffee, refrigerated dips, and shelf-stable prune/fig juice), unit sales were also up, suggesting there’s more to the story than just price increases. But price does play a key role, says Sheila McCusker, editor of IRI’s Times & Trends newsletter. “In the face of rising costs, it appears that more consumers have turned to private labels in more categories,” she says.
The Rich Get Richer
Surprisingly, though, some of the private label categories benefiting most from the cash crunch are those where store brands already enjoy strong sales. For example, while one might expect good growth in categories where private label shares are only in the single digits — 34 of those on this year’s list — gains are harder to come by in more “mature” segments. Nonetheless, 20 of the private label categories on the list boast dollar shares in excess of 21 percent — well above the industry average.
According to Michael Sansolo, senior vice president at the Washington, D.C.-based Food Marketing Institute, already well-established private labels — especially in “less visible” categories — represent a way for consumers to stretch their dollars further without significantly altering their lifestyles. “We found in some of our shopper surveys that [rather than crossing an item off their shopping list] people are…finding cheaper ways to do the same things and make the same purchases. So in areas where private label is already known and widely used, shoppers are diverting dollars from national brands to less expensive private labels.”
So, while they may not be ready to serve their guests a bottle of store brand wine or feed their baby private label formula (both of which made this year’s list but whose shares still languish around 1 percent), consumers are perfectly comfortable switching to private label garbage bags, ice cream cones, disposable gloves, canned pineapple, petroleum jelly, heat and ice packs, etc.
According to McCusker, one way to prove that consumers really did switch from national brands to store brands in those categories — as well as the majority of those on the list — is to look at the change in “dollar share of type vs. year ago.” In all but six categories (personal lubricants, rice cakes/popcorn cakes, non-disposable gloves, canned and bottled tea, convenience/PET still water, and multi-serve frozen dinners/entrees), the change was positive, indicating private label’s dollar share grew at the expense of national brands. Among those categories posting dollar share-of-type gains in excess of 5 points were refrigerated pizza/pizza kits (+14.8 points), canned/bottled carrots (+9.6 points), pencils (+9 points), refrigerated fresh soup (+8.1 points), nutritional snacks/trail mixes (+5.9 points), dog/cat needs (+5.6 points) and instant decaffeinated coffee and rawhide dog chews (both +5.1 points).
|CATEGORY ||Dollar Sales (in millions) ||% Change Vs. Yr. Ago ||Dollar Share ||Unit Sales (in millions) ||% Change vs. Yr. Ago |
|Refrigerated Pizza/Pizza Kits||$23.2||276.2%||19.7%||3.7||149.4%|
|Cloth, All-Purpose Cleaner||$19.0||125.1%||8.9%||9.2||122.0%|
|Refrigerated Fresh Soup||$97.3||79.0%||91.1%||27.2||84.8%|
|Refrigerated Kefir/Milk Substitutes/Soymilk||$24.3||72.9%||6.0%||10.1||68.1%|
|Nutritional Snacks/Trail Mixes||$30.0||65.5%||23.3%||8.9||68.0%|
|Ready-to-Eat Popcorn/Caramel Corn||$15.2||52.1%||7.6%||8.2||8.6%|
|IQF Frozen Turkey/Turkey Substitute||$11.2||50.7%||7.1%||4.4||49.8%|
|Domestic Table/Still Wine||$49.3||43.9%||1.5%||10.2||34.7%|
|Chocolate Candy Box/Bag/Bar (3.5-ounce+)||$53.8||38.6%||3.2%||28.6||20.7%|
|Rawhide Dog Chews||$63.6||36.8%||21.2%||17.5||28.2%|
|Dried Meat Snacks||$23.7||32.1%||7.8%||6.5||34.1%|
|Frozen Appetizers/Snack Rolls||$56.3||31.7%||6.6%||20.0||19.6%|
|Muscle/Body Support Devices||$16.7||26.0%||6.3%||3.5||23.9%|
|Convenience/PET Still Water||$405.9||24.8%||13.3%||165.7||14.5%|
|Ready-to-Drink Milk Substitutes||$10.0||24.5%||9.4%||5.3||2.6%|
|Salted Snacks (No Nuts)||$19.1||23.8%||1.9%||11.6||8.8%|
|RTS Wet Soup||$137.1||22.4%||7.6%||133.8||11.4%|
|Refrigerated Prepared Salad/Fruit/Coleslaw||$142.5||21.7%||38.9%||55.2||14.6%|
|Crackers with Fillings||$13.1||19.4%||3.9%||9.3||22.5%|
|Uniform Weight Fresh Lettuce||$80.3||18.9%||14.1%||31.0||15.8%|
|Ice Cream Cones||$29.6||18.6%||35.6%||22.3||19.3%|
|Anti Smoking Patch||$57.9||17.9%||40.9%||2.1||20.3%|
|Rice Cakes/Popcorn Cakes||$16.3||17.6%||9.8%||11.0||18.9%|
|Natural Crumbled Cheese||$12.4||17.1%||8.0%||5.5||18.7%|
|Ground Decaffeinated Coffee||$37.1||14.8%||14.1%||10.9||-4.7%|
|Canned and Bottled Tea||$28.0||14.6%||3.6%||17.2||14.1%|
|Refrigerated Coffee Creamer||$31.0||14.4%||4.2%||17.2||4.7%|
|Refrigerated, Handheld Non-Breakfast Entrees||$37.2||14.1%||44.8%||11.6||11.3%|
|Aseptic Juice Drinks||$10.8||13.9%||1.8%||6.3||15.8%|
|Anti Smoking Gum||$117.7||13.6%||41.1%||3.5||14.3%|
|Blood Pressure Kit||$23.0||13.1%||24.2%||0.6||13.8%|
|Liquid Laundry Detergent||$64.0||11.9%||2.4%||19.7||9.8%|
|Instant Decaffeinated Coffee||$11.3||11.8%||11.0%||3.0||5.6%|
|Baby Formula, Powder||$20.3||11.5%||1.1%||1.5||4.0%|
|SS Bottled Prune/Fig Juice||$22.3||10.9%||28.0%||7.5||-3.9%|
|Liquid all other Soap||$18.4||10.8%||3.4%||6.6||3.5%|
|Multi-Serve Frozen Dinners/Entrees||$70.2||10.8%||7.1%||11.3||13.6%|
|First Aid, Tape/Bandage/Gauze/Cotton||$112.4||10.6%||24.3%||47.7||8.6%|
|Garbage/Trash/Lawn and Leaf Bags||$312.6||10.1%||31.8%||108.8||1.5%|
The Top 10
Topping this year’s list of dollar sales gainers are refrigerated pizza/pizza kits (+276.2 percent), pencils (+203.4 percent), cloth all-purpose cleaners (+125.1 percent), dog/cat needs (+84.5 percent), refrigerated fresh soup (+79.0 percent), refrigerated kefir/milk substitutes/soymilk (+72.9 percent), nutritional snacks/trail mixes (+65.5 percent), hand sanitizers (+63.0 percent)), ready-to-eat popcorn/caramel corn (+52.1 percent) and heat/ice packs (+51.1 percent). What do they have in common?
“With the exception of pencils, which are, to a large extent, a commodity, and hand sanitizers, most of the categories in the top 10 are fairly big-ticket items (over $2 per unit),” answers McCusker. When they’re asked to shell out big bucks, “Consumers are more inclined to look for value-priced alternatives particularly where there is no dominant brand” — another common thread among this year’s Hot List entries. Other high-priced items on the list include blood pressure kits (average price per unit $37.37), anti-smoking gum ($33.19), glucose ($29.37), anti-smoking patches ($28.24), tooth bleaching/whitening powders ($13.74) and baby formula-powder ($13.14).
Another attribute common to many of the categories on this year’s Hot List is their size. Dan Raftery, president of Antioch, Ill.-based Raftery Resource Network, says, “These are products that didn’t have a lot of sales last year, so the gains are coming off of a small base.” Indeed, except for dog/cat needs, none of the top 10 sold more than $30 million last year. But that doesn’t mean they’re not hot, adds Raftery. “A little fire can spark a bigger fire.”
Moreover, several categories on the list posted dollar sales in excess of $100 million, most notably convenience/PET still water ($406 million) and garbage/trash/lawn and leaf bags ($313 million). While the former simply mirrored growth in the bottled water category as a whole, keeping private label’s dollar share steady at 13.3 percent, private label owes its success in garbage bags — one of the aforementioned “less visible” categories — to “sizable price increases” by branded manufacturers. According to McCusker, branded facial tissue, coffee and ready-to-serve soup also saw significant jumps in price at retail, which helps explain the appearance of those three $100 million-plus categories on this year’s Hot List.
But it’s not just that branded prices went up, say analysts. That happens every day. It’s the fact that the quality of branded goods didn’t keep pace. “The so-called branded people walked away from the value equation,” focusing more on Wall Street than Main Street, explains Richard George, professor of food marketing in the Haub School of Business at St. Joseph’s University in Philadelphia. “They increased prices without enhancing quality. So consumers were more willing to try products with the retailer’s name on it,” George says.
And often, they found those products to be better than they remembered. In the facial tissue category, for example, “I think private label quality improved and the national brands’ declined, even though their prices have gone through the roof,” says sales and marketing consultant Tom Aquilina, owner and president of Crystal Lake, Ill.-based Aquilina & Associates. Private label facial tissue has been around “forever,” he adds, but retailers finally got an opportunity to make a statement about value, “and they cashed in on it.”
Another private label category that owes its appearance on the list to improved quality is refrigerated pizza/pizza kits. “That one just blows me away,” says one retailer, “because [pizza is] so competitive. People can call up the local pizza parlor and get all these great deals and get it delivered. Plus frozen pizzas are always on deal. So, refrigerated pizza is up because retailers have actually improved the quality and can effectively compete against other alternatives.”
Targeting the Right Categories
According to industry insiders, the key to private label’s success isn’t offering top-quality store brand alternatives in every category. It’s offering them in the right categories. Judging by those that appear on the Hot List, says George, “Retailers have done a good job of using store brands to differentiate themselves by asking, ‘What categories can we use to provide a point of difference between us and others?’ Refrigerated soups, refrigerated prepared salads, kefir/milk substitutes/soy milk, nutritional snacks/trail mixes those are all good examples of products people are concerned about, products that really address emerging consumer needs for good nutrition, convenience or quality. These are the kinds of unique items that help differentiate a retailer from the competition.”
Adds McCusker, pointing to some of the same categories, “Retailers are becoming increasingly sophisticated in their private label strategies in that they’re targeting high-value, high-growth consumer segments, including consumers with chronic health-related conditions, those interested in organic products, and those demanding more fresh foods and healthier, more nutritional products.”
“As a nation,” says George, “we’re moving away from the NATO — no action, talk only — mentality toward taking charge, taking responsibility for issues like obesity and diabetes. So there’s a great opportunity for retailers to develop their own labels to address some of those problems and become part of the solution.”
What other “emerging” and/or “meaningful” categories are savvy retailers focusing their private label efforts on? “Retailers continue to get into all-natural and organic,” says Aquilina, citing the recent addition of Safeway’s new O Organic line. “Retailers have definitely created another brand for natural and organic under the private label umbrella, and it will continue to grow.” In fact, he notes, “Anything having to do with wellness will see good growth.”
Another up-and-coming segment, says Regina Tator, director of corporate brands at Schenectady, N.Y.-based Price Chopper Supermarkets, is products aimed at baby boomers. For example, “The growing population of middle-aged consumers has helped increase soymilk sales,” she says. But the Hot List also includes a number of other products used primarily by that demographic, including heat and ice packs, muscle/body support devices, glucose and blood pressure kits.
Convenience items such as refrigerated prepared salads, refrigerated handheld non-breakfast entrees, refrigerated dinners/entrees, and frozen appetizers/snack rolls, all of which appeared on this year’s list, also are expected to make a strong showing in the future. “Consumers want more convenient foods,” Aquilina says. “It’s a way of life. Those categories as a whole are up, and private label is riding the curve with them.”
McCusker is quick to point out, however, that not every private label category on this year’s list mirrors growth in that category as a whole. In fact, dollar sales in the aseptic juice drinks, crackers with fillings, dried meat snacks, instant decaffeinated coffee, pencils, pens, processed loaf, salad toppings, and tooth bleaching/whitening powders categories as a whole are down. In those cases, she says, “Two factors are likely at work. One, consumers may have curbed purchases in these categories overall due to budget strain and may have turned to private label when they need products, and two, manufacturers may have decreased focus in declining categories, decreasing ad spending, eliminating SKUs, etc., thus opening up opportunities for private label.”
The former probably explains some of private label’s success in the somewhat anomalous coffee category – both ground and instant – but coffee’s appearance in many retailers’ premium private label programs also plays a role. “There are just a ton of regional coffee distributors that have catapulted retail prices based on the Starbucks pricing model,” Raftery says. “Branded options are probably cheaper than private label in this category now.”
The growth of premium private label likely has impacted a number of other categories as well, say analysts, though it’s difficult to ascertain exactly how much given widespread price increases that have occurred for other reasons. Still, a whopping 29 private label categories on this year’s list posted significantly higher dollar vs. unit sales gains, and many of them include products likely to be offered under premium retailer brands (coffee, chocolate candy, wine, olive oil, frozen appetizers/snack rolls, refrigerated dip, ready-to-eat popcorn/caramel corn, salsa, other salted snacks).
Other Growth DRIVERS
While the quality and value offered by today’s store brands along with the availability of store brands in the right categories are among the most likely explanations for private label’s stellar growth over the past year, analysts say a few other factors also are driving gains. According to Raftery, the entry of more national brand manufacturers into the private label game recently has allowed — or at least made it easier for — retailers to enter categories they might not have otherwise. “Most of the impetus is coming from retailers who don’t like to deal with large numbers of vendors or would prefer to go with an existing vendor for a new product line.”
“It’s a defensive move,” adds George, who says branded manufacturers would rather “eat their own lunch than have someone else eat it for them.” But will it help private label in the long run? “I think you can get the national brand guy to meet your specs,” answers George, “but not necessarily provide a point of differentiation that’s so critical.” The bottom line, he says, is retailers have to find suppliers that can work with them to create something unique.
At the other end of the product spectrum, says Raftery, private label also is getting a boost from the ability of ever-larger retailers to directly import commodity products from overseas. The 203 percent jump in private label pencil sales, for example, could be the result of bigger retailers going directly to the source in China or India, skipping the stateside middleman and his brand in favor of their own.
Looking to the Future
According to Aquilina, a lot of the categories on this year’s Hot List represent “pipeline fill” – lots of retailers getting into new categories where private label versions weren’t widely available until recently. In categories like cloth all-purpose cleaners and tooth whiteners, for example, “I’m not sure if the growth [displayed over the past year] will sustain itself. It’s just too early to tell if too much pipeline fill has inflated the numbers.” But, he says, products that address key consumer needs for better nutrition, improved health and wellness, convenience, portion-control, quality and value will likely stand the test of time.
The take-away, says Raftery, is “If you look at this list and you don’t have a private label offering in some of these ‘hot’ categories, you ought to consider it, especially if you already have a [national brand] supplier.”
“Consider how to use your own label to set yourself apart,” adds George, who says differentiation is especially critical for Safeway, Kroger, and other such stores “in the middle. Everyone knows what Whole Foods, Wegmans, and even Aldi are about, and what they stand for.” But not every retailer can make the same claim.
To help them in that endeavor, Aquilina predicts more retailers will seek branded CPG marketing people. “Some day down the road,” he concludes, “the real national brand will be the retailer’s brand.” PLB