Private label’s highs and lows

A study about to be released by PLMA reveals some interesting facts about the world of private label.

It all depends on how you look at the private label category to figure out how it is performing at mass retail outlets and supermarkets in particular.

According to information presented in the Private Label Manufacturer’s Association (PLMA)’s 2012 Yearbook, which will be released in June, dollar volume for private label again showed a healthy increase in mass retail stores and supermarkets. On the other hand, unit volume for private label decreased in both channels.

The study, which was conducted by The Nielsen Co. and PLMA, both based in New York, shows that private label dollar volume grew by 3.9% in all mass outlets and by 5.1% at grocery stores. Unit volume, however, decreased by 1.5% in all mass outlets and by 1.1% at supermarkets. Overall brand dollar sales grew by 2% and unit sales fell by 1.4% at supermarkets.

Interestingly, private label share of market, in both dollars and units, were flat in 2011 from 2010 levels, though they are more than 2% higher than 2007 levels.

The statistics seemed to catch many in the mass retail industry a bit by surprise. With more consumers seeking to stretch their budgets, private label has become a key part of many shoppers’ buying patterns. At the same time, more retailers are eagerly adding new categories to their private label merchandising strategies as consumers look for alternatives to national brands.

“I would think that both units and dollars were growing for private label,” says a food buyer for a West Coast chain. “Having dollars up and units down shows that retailers are raising the price-points of private label products and that is counterproductive in the long haul.”

Other industry officials agreed that the acceptance of private label has allowed many suppliers and retailers to raise price-points of these items as well as make some other changes.

“Many retailers are decreasing their number of SKUs in order to focus on the products that have stronger sales and better margins,” says Daniel David of Medford, N.Y.-based Global Tissue Group, a maker of private label paper products. “Also, the new items are added to meet specific retailer sales price-points while also meeting consumer needs, allowing for higher total rings at the register with lower numbers of units.”

These trends could eventually hurt private label sales as their prices get too close to the price-points offered on comparable national brand products, say observers.
However, Brian Sharoff, the president of PLMA, says he is not at all surprised by the results. “You have to put the statistics into the context of the last three or four years,” he says. “This is a slow motion movie and the statistics show that more and more consumers are remaining loyal to private label items compared to national brands.”

As Sharoff notes, private label market share historically goes up during recessions. He says things may be a little different this time around as the country recovers from the recession. “With unit sales essentially steady for private label, I think this shows consumers may stay with private label as the economy improves,” he adds. “I think it is important that retailers take note of the difference this time and react to it.”

So it makes sense that Sharoff is positive on the future of private label, at least for some retailers. “Private label will continue to gain,” he says. “The picture is good for those retailers who are devoted to the private label and make it a part of their merchandise mix.”

What should retailers do?
A study by Daymon Worldwide, a Stamford, Conn.-based consulting company, suggests that retailers initiated many things to build their private label business. Here are some ideas:

  • Maintain a brand building mentality and strategic brand management of their portfolio.
  • Continue to focus on innovation and quality.
  • Innovate in opportunistic growth categories such as HBC, fresh and dairy.
  • Continue to leverage consumer insight to sustain understanding of their shoppers and increase their ability for targeted offerings.
  • Move beyond price to improve the value equation with a total lifestyle solution.
  • Ensure connection with consumers at every point along the path to purchase.
  • Invest in technology, such as updated websites and social media pages, to maintain a connection with shoppers.
  • Manage the price gap between private label and national brands.
  • Collaborate with supplier partners to deliver a stronger value proposition to consumers.
  • Leverage the scale that private brands provides across the store and use the perimeter to establish a stronger point of difference and emotional connection with consumers.
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