PRIVATE LABEL

Private Label Revolution

By Maxine Lauer

This new formula of social behaviour – spending less and enjoying more – is extending to how we shop and view brands. It is thus no surprise that private label goods – which have improved in quality and span the spectrum of price point offerings – have become an important economic strategy for consumers. The future of private labels will be the trade-up story, or the ability of stores to offer to consumers more mid-range luxury products.

A social revolution is sweeping through industrialised areas of the world. After decades of over-consumption, consumers are adopting new habits and lifestyles that most observers feel will have long-reaching effects well after the economy bounces back. One example is the revitalisation of do-it-yourself (DIY) activities within our homes, not just in trying to fix things around the house or painting walls, but also cultivating plants and self-beautifying procedures. As the generation after the relatively affluent group that fuelled the service industry, younger consumers are more willing to try things they have not been exposed to.

This shift towards DIY has significant implications, not only for how we are living, but also on how we evaluate our food, where we shop and even how we entertain. Consumers now desire a higher degree of end satisfaction and want to do more for less. The tremendous growth in edible gardening my have started because of economical reasons, but it is now being sustained by the pleasure taken in eating delicious foods prepared simply at home using fresh, seasonal and local ingredients.

This new formula of social behaviour – spending less and enjoying more – is extending to how we shop and view brands. The rise of private label purchasing has been well documented over the past year in many articles and studies. An NPD Group report revealed that 24 percent of all food and beverages served in American homes last year were store brands, up from 18 percent in 1999. In addition, 97 percent of US households consume private label foods on a regular basis.

This trend is also true in other merchandise categories – Best Buy is currently aggressively promoting its house brand range of electronics, while sales of non-edible private label consumables have increased dramatically as well. Private labels now account for 45 percent of total US clothing sales. But while the country is the largest market in the world for private labels, Euromonitor figures in 2008 show that it actually ranks below Western Europe in private label penetration in terms of total retail dollars.

The reason for this might lie in the mind-boggling numbers of products in the market. According to the Food Marketing Institute, nearly 47,000 distinct products line the shelves of a typical food retailer in 2008, an increase of more than 50 percent from 1996. Consumers have become overwhelmed by the available choices, many of which are non-distinctive and more suitably characterised as “clutter”. In fact, according to research by Paco Underhill, a noted environmental psychologist, founder and CEO of the firm Envirosell, “purchasers” spend an average of 11.27 minutes in a store, while “non-buyers” stay for just 2.36. The days of browsing for leisure seem to be long gone, as consumers become accustomed to the sensory overload of retail products. One outlet thus looks like any other, and offerings from various brands appear similar as well.

Affordable Quality

It is thus no surprise that private label goods – which have improved in quality and span the spectrum of price point offerings – have become an important economic strategy for consumers. It also offers a higher degree of shopper satisfaction since consumers spend less and no longer perceive a significant quality trade-off. As a result, companies have come up with interesting corporate strategies in response to this trend. Safeway has brought its private label offerings public, with agreements inked to market its “O” organics and “Eating Right” store brand products at Albersons, ShopRite and Exito supermarkets both domestically and internationally. In addition, its Eating Right brand is already in stores belonging to Big Y Supermarkets, Price Chopper and Hy-Vee Inc. By bringing a viable private label programme to regional chains that do not have the resources to do it themselves, Safeway has effectively redefined the game.

Private labels are also fast becoming a differentiator for non-traditional food channels like limited assortment chains such as Trade Joe’s or Whole Foods. Trade Joe’s carries no well-known national brands and private labels account for 80 to 85 percent of non-alcoholic products. In the 2009 Future of Food Retailing Report by Willard Bishop, it was projected that the market share for the traditional grocery sector in the US will decrease almost five points to 43.5 percent from 2008 to 2013. On the other hand, the non-traditional grocery sector is expected to increase by a similar amount to 41 percent. The firm predicts that this trend will see non-traditional grocery, where there food industry is seeing exciting developments, mostly by private labels, surpassing traditional grocery by 2014.

The future of private labels will be the trade-up story, or the ability of stores to offer to consumers more mid-range luxury products. The barrier of distrust has been removed, and a window for trade-up opportunities has opened. Costco reports that private label products now constitute 20 percent of its purchases. Consumers are now looking to private label goods not just for economic solutions, but also for the creativity and differentiation that has been missing from brand names. An example would be Fortnum and Mason in the UK, which is offering honey made from its own beehives at the rooftop of its prestigious London store. Retailers are thus seizing this new profit strategy with both hands, and brand manufacturers will need to accept the challenge of these differentiated offerings in order to compete on the same grounds.

About The Author

Sphere Trending (www.spheretrending.com) is a consumer and design trend forecasting firm located in Waterford, Michigan. In business since 2000, Sphere Trending is a unique hybrid of consumer and design trends that bridges the gap between consumer, manufacturer and retailer. This talented team of consumer insight specialists, retail and marketing trend forecasters, designers, trendspotters, artists and educators connect colour, design and style desires to the current marketplace. Travelling the globe to 45+ tradeshows, cities and conferences, the Sphere Trending team explores changing generational demographics, new consumer values, product and design trends along with innovative retail and marketing environments to create custom solutions for their clients; including national retail chains, major manufacturers and Fortune 500 companies.