Private Label Update

While more than three-quarters of U.S. consumers believe that many store brands are of "excellent" quality, private label share of total packaged goods spending has remained essentially flat since 2003, according to a new report from Information Resources Inc. In recent years, strong national brands in categories driven by continual technical innovations, such as diapers and light bulbs, have helped to offset private label gains in more commoditized categories like milk and bottled water, according to IRI's report, titled The New Face of Private Label.Private-label dollar share has hovered near 16% for the past four years, while unit share has remained near 21%. That share may well increase in the future, however, as many retailers see private label as a key strategy to improve profit margins and boost shopper loyalty through exclusive assortments.Despite the increased attention, store brands in several product categories remain "underdeveloped," according to the report. Moreover, some view the U.K. as a model for what is possible with store brands. There, private label unit share is a whopping 42%, according to ACNielsen.Private label categories posting top dollar growth include milk, vitamins, bottled water, snack nuts and butter, while declining categories include diapers, cigarettes, frozen juices and light bulbs. Private labels with declining share are often in categories that haven't been able to keep up with the steep product "innovation curve" set by strong national brands, the report notes.Retailers have limited funds to develop and promote their store brands, so a common strategy is to target categories with low brand strength and low levels of innovation or "commodity" categories. The least desirable targets for growth are categories with high brand strength and continual levels of product innovation.IRI found that consumers were more likely to buy private label products in easy-to-duplicate "functional" categories, such as cold/flu remedies, vitamins and first aid products. In more personal or "emotional" categories, such as hair care products or cosmetics, consumers were more likely to purchase the national brand."One of the challenges for manufacturers in this space is to know where you stand based on these types of criteria," said Sean Seitzinger, director of IRI's Center for Retail Innovation. "Understanding the functional advantage and performance that your brand has versus a private label solution, or understanding the personal relationship that a brand has with the consumer, are critical in understanding how a brand might be at risk."Retailers surveyed for the report identified packaging as a key component to overall private label messaging strategy. Some retailers rely heavily on packaging to help differentiate among "good, better, best" price tiers in their private label offerings.A survey of winners in the Private Label Manufacturers Association's 2006 "Salute to Excellence" awards reveals just how sophisticated packaging design has become for store brands. (View attached gallery of winners.) Many of these designs move beyond simple "me too" messaging with hiqh-quality photography, elegant typography and unique shapes that rival the best national brands.That's not to say, however, that "me-too" packaging isn't still common among store brands. The past few years have seen a number of trade dress infringement lawsuits by national brands. (See Related Articles below.) Among the most aggressive litigators, Procter & Gamble has filed several lawsuits and forced settlements in defense of its Bounty, Nyquil, Crest Pro-Health Rinse and other brands.National brands also face stiff pricing and shelf space competition from private labels. Indeed, respondents to the 2007 Trends Survey sponsored by P-O-P Times and the In-Store Marketing Institute ranked store brands' preferential shelf space and pricing as even more serious threats than imitation of packaging trade dress. More than 40% of consumer product manufacturers responding to the survey considered store brands at least a moderate threat to their marketing activity.Given that some supermarkets have begun to scale back center-store footage, IRI predicts that second- and third-tier national brands will face increasing shelf space pressure from store brands. Some will likely be squeezed out entirely, and those that remain will be challenged to become even more effective product innovators and business partners to help retailers build category growth.

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