The Supply Side: Private label brands resonating with consumers

U.S. consumers are reaching for more private label products from bottled water to salty snacks as they push their carts past many of America’s national brands, according to Deloitte’s American Pantry Study released earlier this month.

The study, based on 4,025 American adults, looked at 375 different brands in 30 categories. It also repored that 71% believe they are spending less on their grocery bills, without sacrificing much. And only 31% said brands are a “must have.”

“National brands are pressured on all sides, from persistent consumer frugality and low brand loyalty to rival and store brand competition,” Pat Conroy, vice chairman, Deloitte LLP and U.S. consumer products leader, said in the report. “While consumers initially resented buying less-expensive products out of necessity a few years ago, they have changed their tune. They have shifted from a feeling of settling for lower-priced brands to settling in to store brands distinguished by high quality.”

Nearly 88% of respondents said they have found several store brands that are just as good as national brands and allow them to feel as though they are saving money without giving up anything.

Across 28 of the 30 CPG (consumer packaged goods) categories studied, Deloitte found that most consumers perceive store brand quality to be the same or better in most of them. Four categories where consumers find the highest private label quality is bottled water, tabletop disposable paper products, food storage, deli meats, condiments and salty snacks.

That said, the study also revealed that in certain categories such as beer, pet foods, soft drinks and coffee, consumers still prefer name brands and are less likely to switch regardless of price.

SHOPPER APPROACH
Some 91% of consumers in the survey noted that they have become more resourceful. Deloitte's analysis categorizes consumers into four groups, three concentrate on savings:
• Super savers (26%) enjoy the hunt, use coupons, visit multiple stores seeking deals and use price comparisons through mobile and online channels.
• Sacrificers (19%) are the least brand loyal, have the lowest income, and seem more resentful at “having” to buy store brands.
• Planners (23%) are focused on resourceful pantry management and save by thinking ahead.
• Spectators (32%) are the least affected by economic conditions and are more likely to buy higher-priced products by a brand they trust rather than cheaper or store alternatives. Convenience is more important than price when selecting a retailer. 

“Traditional thinking that targets consumers at multiple price points with good, better or best offerings often misses the mark,” Conroy said. “Given the bifurcation of consumers between higher and lower income levels, brands should instead address different shoppers’ ability and willingness to spend by moving to an OK, better and excellent brand portfolio.”

TRUST FACTOR
Deloitte’s study found a narrow set of brands winning the loyalty game primarily on trust, but also on price and product positioning.

Trust also trumps other brand qualities when convincing a consumer to pay a little more, though health and convenience also earn points with consumers, the survey notes. Nearly 8 in 10 consumers in the survey indicated they have purchased a higher-priced newly-launched product in the past year. Among those respondents half said they selected a more expensive product because it was a brand they trust, followed by healthier option (38%) and a company they trust (30%). Another 28% skipped a lower-cost alternative for one that was easy to prepare or use.

“CPG brands are suffering from a crisis of the similar, where consumers don’t see a lot of difference between branded products on the shelf. Rather than exit a crowded category, brands should consider new growth opportunities where categories are beginning to blur — such as extending their products into new meal times, form factors and store aisles, or making a move to support from-scratch cooking or prepared meals,” Conroy said.

PRIVATE LABEL SHARE
The Private Label Manufacturers Association, reported in December 2013 that store brands are making up a larger share of shopper’s basket. In grocery stores, private label brands’ unit and dollar shares rose to 23.4% and 19.4%, respectively.
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Across all outlets combined, which includes Wal-Mart and other mass merchandisers, club stores, dollar stores and military exchanges, shares moved up to 21.2% in units and 17.5% in dollars.

The trade group says that since 2011, annual sales of store brands in supermarkets have advanced 3%, and risen 9% in drug stores. Across all outlets, annual sales have added 5%.