The Non-Foods Hot List
By Denise Leathers
Thanks in part to across-the-board price increases related to rising fuel costs, a record number of private label non-foods categories posted double-digit gains. But will they be able to sustain that growth over the long haul?
View Non-Foods Hot List
When socialite Paris Hilton first uttered the now-famous phrase, “That’s hot!” she probably wasn’t talking about private label products. But the expression certainly describes this year’s list of the fastest-growing private label non-foods categories.
The Non-Foods Hot List comprises store brand categories with annual sales in excess of $10 million that posted double-digit dollar sales gains across all formats throughout the past 52 weeks ending Feb., 25, 2007. This year’s non-foods list includes a record 44 non-foods categories — a 51.7 percent increase over last year. Why did so many more categories make the cut?
According to Sheila McCusker, editor of Times & Trends, a newsletter produced by Chicago-based Information Resources Inc. (IRI), across-the-board price increases associated with rising fuel costs deserve much of the credit. “Average CPG prices increased 4.1 percent last year,” she reports. But many non-food categories, including garbage bags, hand and body lotions and baby oil, all of which are made with petroleum products, saw significantly higher price increases. In fact, unit sales in those three categories expanded only 2.4, 1.6 and 3.3 percent, respectively. However, the fact that those private label categories posted even modest unit growth in the face of such significant price increases suggests that, as overall costs climb, more consumers are making the switch to store brands to save money.
“Private label non-foods are priced at a larger discount to branded products than private label food and beverage,” McCusker says. “And that price gap is very attractive to many consumers, particularly when pricing across many categories is increasing substantially.”
Given the rise in prices at retail, it’s no surprise that dollar sales gains outpaced unit sales gains in 41 of the 44 categories on this year’s list (only 22 categories posted double-digit unit sales gains). In fact, unit sales in two non-foods Hot List categories — hair accessories and shoe laces/accessories — actually fell. But rising costs don’t tell the whole story.
According to industry consultant Tom Aquilina, president of Crystal Lake, Ill.-based Aquilina & Associates, some retailers are starting to take longer margins on private label non-foods. With savings over national brands averaging 34 percent, “There’s enough of a spread that they can inflate the retail price point a bit,” he says.
In categories such as hair conditioner, perfumes, colognes and liquid all other soap, McCusker adds, “We’re also likely seeing the effects of premium private label. This trend has been evident in food and beverages for the past several years and is likely beginning to gain traction in non-foods as well.”
Small Categories More Attractive
In 16 of the 44 categories on this year’s Hot List, private label gained (and in one case lost) less than one share point vs. the national brands (dollar share of type change vs. year ago), suggesting private label was simply mirroring national brand growth; but the shift was more pronounced in 13 of the categories, where private label gained more than two share points: anti-smoking tablets (+22.0 points), shoe laces/accessories (+12.2), household cleaning supply containers (+6.0), personal thermometers (+3.6), dog/cat needs (+3.6), hand sanitizers (+2.9), tights (+2.8), all other batteries (+2.6), foot care devices (+2.6), nasal spray/drops/inhaler (+2.5), pregnancy test kits (+2.3), glucose (+2.3) and rawhide dog chews (+2.2).
While store brand anti-smoking tablets simply didn’t exist a year ago, many of the other categories where private label gained significant share points are smaller-volume segments that may not have warranted retailers’ attention in the past. But the times, they are a’ changin. “Clearly, retailers are taking their private labels into a lot of new categories,” Aquilina says. “They’re looking for margins,” he explains, “and margins come from private label. Plus, they want to provide value to their customers. If they can offer a product for 20 to 25 percent less than the national brands, which they’re often able to do in non-foods, they will.
“There’s also a lot more channel blurring now,” Aquilina continues. Supermarkets, drug stores and mass merchants are all competing for the same business, so each has to offer products typically available in the other formats at comparable prices. But categories such as shoe laces/accessories and personal thermometers are so small and so lacking in national-brand equity that some retailers are opting to carry them only under their own label — the so-called “100-percent solution.” So even though those categories as a whole aren’t growing, existing sales are shifting from national brands to store brands, pumping up private label shares.
At the other end of the spectrum, retailers also seem to be focusing their private label efforts on products that really matter to consumers. For example, although the category as a whole remains flat, sales of private label weight-control liquids/ powders continue to grow. “Clearly,” McCusker says, “retailers have made this a major focus area, tapping into consumer concerns over health and wellness with a lower-priced option in a relatively high-ticket category.”
She adds that retailers are becoming more sophisticated in their approach to private label, targeting high-value, high-growth consumer segments. For example, a number of categories on this year’s non-foods Hot List target aging baby boomers trying to manage their aches and pains at home (foot care devices, heat and ice packs, external analgesic rubs, etc.) while others are aimed at echo boomers just now starting families (pregnancy test kits, nursing/feeding accessories, baby care and safety accessories, baby formula, etc.).
“There’s a nice barbell effect here in terms of demographics,” says consultant Dan Raftery, president of Antioch, Ill.-based Raftery Resource Network. “We’re seeing lots of products aimed at baby boomers and lots aimed at their grandkids.” Other common themes include pet care products (for the growing number of empty-nesters lavishing attention on their cats and dogs), OTC drugs (especially for conditions associated with aging), higher-end health and beauty aids, sun-care products (to help prevent skin cancer and wrinkles), and more convenient cleaning supplies.
The Top 10
Topping this year’s non-foods Hot List of dollar sales gainers are 1. Anti-smoking tablets 2. All other batteries 3. Baby care and safety accessories 4. Liquid all other soap 5. Dog/cat needs 6. Shoe laces/accessories 7. Hair conditioner/crème rinse 8. Dental accessories/tools 9. Nursing/feeding accessories 10. Foot care devices. What else do they have in common?
First of all, overall dollar sales in each category are relatively low. Except for dog/cat needs, none of the top 10 eclipsed the $50-million mark. But, with the exception of dental accessories/tools, McCusker notes, “They’re all relatively high-ticket products, so private label is an attractive alternative.” National brand anti-smoking tablets, for example, can cost up to $50, while the store brand averages $28.20. When consumers can save $20 vs. 20 cents, McCusker says, they are much more likely to give private label a try.
The non-noods Hot List also includes a number of categories in which private label is under-developed, leaving more room for growth. In fact, private label’s “dollar share of type” is in the single digits in 17 of the 44 categories, including six of the top 10. The good news is store brands are finally making progress in categories such as hair conditioner, baby formula and laundry detergent, where they’ve struggled mightily in the past.
Despite the high number of categories with low private label shares, several already strong store brand categories also made this year’s non-foods Hot List. Those whose dollar shares exceed 30 percent — well above the industry average — include: Tights (74.7%), household cleaning supply containers (35.7%), personal thermometers (35.2%), hand sanitizers (34.5%), garbage/trash/ lawn and leaf bags (33.4%), shoe laces/accessories (31.5%) and baby oils (30.8%). Analysts theorize that while consumers may not be ready to wear private label cologne or feed their baby store brand formula (both of which made this year’s list but whose shares still languish in the low single digits), they are perfectly comfortable using private label garbage bags, plastic buckets, shoe laces and other well-established, but “less visible” store brand products where the risk of disappointment is low.
Show Me the Money
In terms of total dollars, the top-grossing non-foods Hot List categories include paper towels ($460.4 million), garbage/trash/lawn and leaf bags ($361.9 million), first aid tape/bandage/gauze/cotton ($124.9 million), nasal sprays/drops/ inhalers ($90 million), dog/cat needs ($85.9 million), cleaning tools/mops/ brooms ($85.8 million), liquid laundry detergent ($77.7 million) and rawhide dog chews ($75.5 million). Because they combine two very desirable characteristics — high growth and high dollars — there’s a tendency among retailers to give these categories top billing. But retailers need to take a closer look at each segment, Raftery says.
While categories such as dog/cat needs and nasal sprays are no-brainers because they have comparatively high price tags and don’t take up too much space, paper towels are a different story, he says. Average price per unit is only $1.70, margins are low and the product takes up a lot of space both in the store and in the warehouse. “Consumers are buying [private label paper towels] in large quantities and sales continue to grow,” he explains, “So it’s important to give them space. But retailers should do so judiciously.”
The highest-priced non-foods Hot List categories are glucose ($33 per unit), anti-smoking tablets ($28.20), baby formula-powder ($12.40), household cleaning supply containers ($9.70), pregnancy test kits ($8.80), personal thermometers ($7.90), shoe laces/accessories ($7.70), heat/ice packs ($7.50) and dog/cat needs ($7.10). But again, just because a product has a high ring doesn’t necessarily mean it’s a good fit for private label. In a category like baby formula, for example, Aquilina asks, “If national brand sales are growing, why trade the consumer down to a private label? I’d rather take that extra $6 to the bank than 40 percent profit on a lower-priced store brand. Moreso than ever before,” he adds, “retailers really have to carefully analyze the implications of offering a private label in a particular category before they jump in.”
Cautious Optimism for the Future
And then there’s the question of sustainability. Just because a category is growing this year, doesn’t mean it will continue to expand. “I’m not sure how viable some of these categories will be two or three years down the road,” Aquilina says. “It’s hard to know how much is pipeline fill and how much represents true growth. So, I’d be careful not to enter some of these categories until they become more mature.” He notes that only 13 of the 44 categories on this year’s list are repeats from last year (vs. almost half of the categories on the Foods Hot List, published last month in PL Buyer. (Visit our Web site for the complete Foods Hot List), highlighting the tendency of non-foods in particular to come and go.
“The high number of non-food categories that are new to the list points to the large impact that market conditions — price and innovation levels in particular — play in influencing private label growth,” McCusker adds, noting that 2006 was a relatively slow year for new product introductions in health care, for example.
Which private label categories are most likely to stand the test of time? “I think we’ll see more premium private label non-foods that will gradually shrink the price gap,” McCusker answers, who also expects store brands to enter growing niche segments like health and beauty care products for kids and ethnic consumers. “I also think we’ll see more eco-friendly products and packaging within private label,” she remarks.
“I think the whole OTC section will continue to bloom,” Raftery adds, who also foresees growth in private label toiletries as more consumers gain experience with those types of store brand products. “This is a snowball going downhill,” he concludes. “As more people try private label non-foods, they’ll spread the word.”