Will private label products continue to sustain their growth once the economy rebounds? The answer will depend on the retailer, the category and household demographics.
By Matt Germain
The consumer goods industry has continued to watch the impressive growth of private label over the past two decades, much to the amazement of retailers and trepidation of manufacturers. Industry experts are wondering when private label items will become as common as branded items in consumers’ pantries.
To obtain a detailed consumer-centric look at the growth of private label, Spire used its proprietary Loyalty Panel, which contains item- level POS transaction data for 18 million households.
Specific questions included: What impact has the economic recession had on private label growth? Have some households increased their purchasing of private label items over the past two years? Now that the economy looks like it is on the upswing, are we seeing any change in the rate of private label items purchased?
Overall, private label share of dollars per household increased from 15.6% in the four weeks ended Sept. 30, 2007 to 17.8% in the four weeks ended Sept. 30, 2009, with an increase in almost every quarterly period. Share of private label units per household also realized an increase from 17.8% to 19.1% during the same period.
One area where we have started to see declines versus year-ago periods is in the loyalty measurement of private label household share of requirements. In this measurement, if, for example, eight out of 10 soda purchases were for a particular brand, the household would be 80% loyal to the brand.
As we dive deeper into the data, we find that private label growth seemed to accelerate during the height of the economic recession. This sales growth is not coming from more buyers, as virtually every household is buying some private label items, with penetration already at 100%. The growth is driven by an increase in private label spending per household, driven by consumers purchasing private label in more categories across the store than ever before. Private label growth in terms of both volume and share varies greatly across categories.
However, there is a clear correlation between price gap and private label share growth. Price gaps have widened in recent years as national brand manufacturers have raised everyday prices and retailers have increased promotion of private label, helping to fuel growth of private label across many categories.
Private label growth is in part due to an increase in the number of private label items in distribution in the back half of 2008, this increase in item distribution also correlates with the increase in dollars spent per household on private label items during the same period. Spire’s analysis at the household level over a two-year period also revealed that the percent of private label units on deal increased, along with the average depth of discount from 27% to a high of almost 30%.
In addition, the percentage of private label units on deal and the depth of discount decreased in the fourth quarter as brand dollars pour in to support the retail trade for the holiday season; this doesn’t seem to be the case during other times of the year.
Taking this a step further, Spire segmented households based on the number of private label items purchased by quarter. We created seven private label segments based on the percentage of households purchasing 1-25, 26-50, 51-75, 76-100 and 100-plus private label items per quarter. Looking at the data this way, we uncovered certain cohorts of households that seemed to engage with private label more at the height of the economic recession and households that appeared to decrease their purchases of private label items in food stores.
Households purchasing 1-25 items per quarter decreased the number of items purchased year over year, while households purchasing 26-50 private label items seemed to increase during the recent recession. Other groups of households buying 51-plus private label items per quarter continued to make a steady increase.
Is private label’s rapid growth sustainable? In some respects, future success will be determined by retailers and their brand manufacturer partners. For some categories the answer is a definite “yes.” In other categories, many shoppers will revert back to branded items as the economy and household spending recovers.
Matt Germain is senior vice president of Spire, LLC, a Monroe, Conn.-based consumer-centric analytic services provider. Working with CPG manufacturers and retailers, Spire provides insights on consumer trends, shopping behavior, new product performance and the consumer impact of pricing and promotion.