Looking back, retail observers and pundits will identify the current recession as a tipping point when private label products emerged from alternative status and into the mainstream, a development that already is reshaping business relationships.
Price is critical to that emergence but so is innovation. Target, Trader Joe's and Whole Foods private label products have brought fresh flavors and exotic designs out of specialty and even international sectors, and put them in front of typical American shoppers in a way that has prompted trial of items that might have been ignored previously.
Nielsen Co. director of industry insights Tom Pirovano noted that, after many years, it's the turn of national brands to play catch up. By the middle of 2008, dollar and unit sales growth figures demonstrated that consumers had began replacing national brand products with private label equivalents as concerns about a recession deepened.
Since then, store brands are up 10 percent to $84.4 billion in annual sales across categories reported by Nielsen. Marketers of national brand packaged goods concede that private label switchers will be reluctant to return when the economy improves, Pirovano observed. That should encourage new thinking among retailers and even national brand producers, many of which also manufacture private labels, to build on what will be an ongoing shift in consumer behavior.
Retailers need to commit resources to more firmly establish their private labels, but they also can build alliances with national brand producers, even if they might not be easy to forge at this juncture. Through partnerships, though, national brand producers can protect key brands by tying them into private label promotions, while retailers can retain the manufacturer marketing support â€" including dollars that pay for store circulars and other advertising -- they have become accustomed to receiving. Pirovano detailed how the relationship between national brands and private labels might evolve in a Bnet interview.
Bnet: What are the most critical factors retailers need to consider when developing a private label?
Pirovano: This depends on the intended role of the private label products in question. Many store brands are less expensive versions of top-selling brands. In this case, the focus is on developing a product extremely similar to the targeted category leader, and then determining the optimum price gap. When developing a premium store brand, the role of the product can shift from a cheaper alternative to a destination product. While premium private label offerings can build retailer loyalty, they require significantly more research. This includes a much deeper understanding of consumers, how they shop, how they use/consume the product and how they perceive brands.
Bnet: How can retailers ensure that their private label products will gain trial among the widest range of consumers possible?
Pirovano: Getting shoppers to try a private label brand -- especially premium private label -- is a huge missed opportunity for many retailers. If a store brand is really as good as the national brand, or better, retailers need to get shoppers to try it. Retailers can offer a free package with a $50 purchase. They can also consider a trial size or in-store product demos.
Bnet: Can retailers and national brand manufacturers tailor their individual product programs to be complementary of one another and create a win-win?
Pirovano: Yes. We already see this at some retailers with cross-category promotions on products like branded cereal with private label milk or branded hot dogs with private label buns. These partnerships can help retailers gain trial usage for their store brands while consumer product goods manufacturers may gain additional facings [shelf space] or displays. The next step may be holiday recipes that call for specific brands, including a mix of national brands and store brands.