Private Label Update 2008

Dollar sales of private label food products grew 9.1% last year, but the increase was driven almost entirely by price increases rather than unit sales, according to research from The Nielsen Company. Private label unit sales actually declined 1.2% for the year, according to Nielsen data.Conventional wisdom holds that shoppers are more inclined to opt for lower-cost private label products during an economic downturn, but the current wave of data shows national brands holding their own against private label competitors."For the most part, we're not seeing this big growth in private label due to a shift away from brands, which is a big learning," said Tom Pirovano, director ofIndustry Insights, The Nielsen Company, during a presentation at Nielsen's Consumer 360 Conference last June in Phoenix. Higher prices in commodity categories such as eggs, milk and cheese -- all of which have very high private label market shares -- were largely responsible for driving the overall increase in private label dollar sales, Pirovano said. In supermarket, mass and drugstore channels combined, private label sales were up 9.1% to $77 billion in sales in the 52-week period ended April 19, 2008. Meanwhile, dollar sales of branded products grew 3.9% on unit sales that declined 0.4% in the same time period. Private label dollar share increased from 15.3% to 15.9% across food, drug and mass channels, but unit share slipped from 20.2% to 20.1% in the same period. Pirovano suggested that brands focus on delivering constant innovation in packaging sizes and product formulations to compete effectively with private label. Offering new packaging sizes makes it harder for shoppers to compare prices at the shelf, while value sizes with bonus product have the added benefit of being more environmentally friendly because they reduce shipping costs, he said.Reducing prices to compete, while tempting, is generally a bad idea, Pirovano said. "It might help in the short run to make your sales numbers for the year, but building up brand equity is really hard. If you lose brand equity, it's really hard to get back," he said.

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