Wal-Mart Moves Reflect Recognition of Middle Class Private Label Shift

Last Updated Jul 28, 2009 9:58 AM EDT

Although a lot off attention has been paid to affluent consumers turning to private label products in the recession, an analysis of the available data by Todd Hale, senior vice president, consumer and shopper insights at The Nielsen Co., demonstrates that it's really the middle-consumer that is increasing purchases of store brands.

Wal-Mart's recent private label initiatives suggest it recognizes the trend.

Hale noted that the two highest two income brackets in his analysis of private label purchasing, those with incomes of $70,000 to $99,999 and those with incomes of over $100,000, did demonstrate the biggest increase in store brand dollar sales, accounting for 32 percent of the total in 2004 and 35 percent in 2008.

Yet, when looked at in demographic terms, it turns out that the gain is a function of population growth in those demographics not an increased demand, Hale asserted. Dollar sales growth generated by the most affluent households was commensurate with their overall increase in population from 31.5 percent of households in 2004 to 34.3 percent in 2008.

Hale noted that private label growth lately has been slowest among the lowest and highest income groups, where real change â€" that beyond population growth -- has been minimal for the past four years. Indeed, the growth of store brands has been lowest in real terms among households earning less that $20,000 annually. Where it has been strongest in is households with incomes between $50,000 and $69,999.

To retailers, of course, sales growth is sales growth, even if population driven. Combined, the $50,000 to $69,999 group and the $70,000 to $99,999 group emerge as the biggest dual-echelon growth group for private label in the population. In 2004, the $50,000 to $69,999 group generated 16.3 percent of private labels sales while in 2008 it generated 16.9 percent. The $70,000 to $99,999 group generated 15.9 percent in 2004 versus 16.3 percent in 2008. Private label has somewhat universal appeal across all income groups, Hale said, but households with incomes in the highest three defined levels are the ones that have seen substantial sales growth, whatever the reason, for the past four years. All the lower income groups have generated flat or declining contribution to private label sales.

Although the numbers may be interesting in and of themselves, they become more illuminating when Wal-Mart's recent statements about remaining a national brand retailer, despite investment in redeveloping and expanding private label programs, are taken into consideration. The Nielsen numbers demonstrate lower income consumers aren't necessarily anxious to shift away from national brands to private labels despite the recession. In introducing the Better Homes & Gardens own-brand and upgrading product and packaging of the existing Great Value private label, Wal-Mart seems aware that middle-class consumers are its growth market, and it responded with names and aesthetics that might appeal to that demographic.

In his report, Hale noted that national brands drive most in-store promotions and account for almost 80 percent of unit sales in food, drug and mass-merchandisers. Although affluent consumers have shifted a degree of purchasing to bargain retailers including dollar stores, supercenters and warehouse clubs, they also are seeking out promotions. They are buying private labels but also shopping for deals on national brands, turning to new retail outlets if necessary to find them.

Similarly, the numbers suggest, lower income consumers are holding on to their national brand loyalties as well. Thus, Wal-Mart is well served by maintaining its status as a seller of national brands at discount prices both to maintain its core customer and to hold on to affluent consumers who are shopping it because of concerns related to the recession.