PRIVATE LABEL POWER

The Wall Street Journal has an interesting story about store brands and consumers increasing acceptance of them. The United States has a relatively small percentage of private label market share. Many nations in Europe purchase private label [store brands] at double or triple the U.S. rate.

NOVEMBER 6, 2008

At the Supermarket Checkout, Frugality Trumps Brand Loyalty

By ELLEN BYRON

When Summer Mills visited her local CVS drugstore recently, to save a few dollars she bought the store-brand facial scrub rather than the Olay version she normally uses.

"I thought I'd be able to tell the difference, but I couldn't -- I looked at the ingredients and they seemed almost the same," says 30-year-old Ms. Mills, a stay-at-home mother of two in Ardmore, Okla. On her next shopping trip, "I'm going to buy the store-brand moisturizer and cleanser -- it's less money."

A few things to think about

• Food prices have been inflated by rising grain prices as well as fuel transportation costs
• Consumers are feeling a pinch from higher fuel prices that have only recently pulled back
• People are cutting expenses where they can
• Unemployment was most recently reported as 6.1% in Sept.
• More firms have announced layoffs or initiated them since then
• People are tightening their financial belts

Benefits to Retailers of Private label brands

• Compare favorably with major competitors such as Walmart.
  
• They are hard to directly compare with Walmart bands and sizes
• Reduce comparison to prices in other stores as the items are different
  
• If a consumer falls in love with a particular item, it is not available at any other retailer, this increases store loyalty
• Loyalty increases store visits
• Loyal customers spend more because some quality outweighs potential costs savings from a less respected brand or a less expensive private label
  

Takeaway

If current economic conditions persist major branded goods producers will come under increasing pressure. This pressure will come from retailers and consumers. Even the stock market will make demands if performance of branded items slips.

It is critical for branded goods makers to create a compelling case to consumers why their product is worth a premium price. If U.S. unemployment hits 8.5% or higher branded goods firms will be under major strains.

Consumers are becoming more comfortable with private label. The longer consumers are under strain and purchasing them, the stronger their loyalty will be when things get better. It may be tougher to get up sell people in the future. The case will have to be stronger and more compelling.


What are your thoughts?