Meijer Among Retailers Pursuing Gains from Brand Switching

Research by McKinsey & Co. suggests that retailers have more opportunity for private label development and growth, something retailers that are relaunching and repositioning brands recognize as arising from consumer openness to quality alternatives.

In its research studies, McKinsey looked consumer packaged goods product categories and found that 18 percent of consumers on average bought lower-priced brands in the past two years. Of the consumers who switched, 46 percent said the brands they tried performed better than expected, and the large majority of those consumers said the performance of such products was much better than expected. Given the satisfaction experienced, 34 percent of switchers said they no longer preferred higher-priced products they originally favored. An additional 41 percent said that while they preferred the premium brand, it "was not worth the money." McKinsey concluded that a significant number of consumers could be convinced to switch off premium brands. The percentage up for grabs varies by category. The research firm found, for instance, that only 12 percent of beer buyers switched to cheaper brands. Of those, 31 percent said that their experience was more positive than they had expected. So, McKinsey determined that only about four percent of beer consumers are in play. In contrast, among buyers of cold and allergy medicines, the firm found that more than 20 percent of users tried a lower-priced option, and 48 percent of those consumers said the experience was better than expected. In the cold and allergy case, McKinsey said 10 percent of purchasers are in play.

The numbers may not seem overwhelming in their proportions, but among the millions of consumers in the United States, they represent a lot of shoppers. Also, consider that McKinsey found only a small percentage of consumers had made the switch to lower-priced brands. The proportion that haven't represent opportunity.

Retail private labels represent a major, in many cases, the major, lower-priced alternative to shoppers. As more consumers consider brand switching, retailers are in a position to develop new private label customers. Friends who have switched and are satisfied essentially become advocates. In a slow recovery, many consumers who begin to pursue activities they've avoided in the recession yet determine to stay within disciplined budgets will consider brand switching.

When the economy got tough in Germany in the 1990s, consumers there left hypermarkets and started shopping cheaper retail brands such as Aldi and Lidl. Chains that continue to have enough confidence to add significant numbers of stores in today's economy, including Aldi but also Save-A-Lot, Trade Joe's, Costco, (Cost) Walmart (WMT) and Target (TGT) all have strong identitied backed by significant private label programs they haven't been shy about promoting.

Meijer, one of the biggest retailers in the United States even if regional in store distribution, recently relaunched its Gold private label with 80 new products ranging from crab puff pastries to apple cheesecake.

In the update, Meijer decided it wanted to create a product line that had something to say, so it contracted with family-owned manufacturers or those local to its marketing area, which stretches from Ohio to Illinois. It focused on suppliers that had earned a reputation for their unique recipes and for crafting rare variations on the product they made.

"Meijer customers have great taste, and it's our job to keep providing them with great-tasting food items," Ralph Fischer, group vice president, foods, at Meijer, said as part of the Gold line introduction. "But we also want to offer them products that they won't find anywhere else."

Ultimately, the idea is to bring consumers in an economically challenged section of the United States an affordable, everyday experience that combines a little luxury with a sense of family and community, which certainly resonates right now. Whether or not Meijer Gold succeeds, though, it demonstrates that retailers understand they have an opportunity to establish initiatives that can keep growing private labels in the post-recession economy, to further differentiate their operations from competitors and to take more effective control of what is sold in their stores.