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The Private Label Conundrum

By Tom Branna, Editorial Director | December 2, 2013

Times may be tough for many, but that doesn’t translate to widespread gains for store brands.

Times may be difficult for a lot of US consumers, but that doesn’t always translate into higher sales for private label products, according to Todd Hale of AC Nielsen. While some categories are growing, others are struggling—but a couple of health and beauty aids are making big gains, according to speakers at the Private Label Manufacturers Association’s (PLMA) Private Label Trade Show.
 
“The economy remains sluggish, which means there are opportunities in private label,” he noted. “But it’s not just about price. There needs to be more innovation.”
 
At $9 billion, milk is the biggest private label category, but demand is slipping as consumers prefer yogurt over cereal for breakfast.
 
“People are going out for breakfast,” Hale observed. “People don’t have time for milk and cereal anymore.”
 
In Happi’s markets, sales of private label women’s fragrances have fallen 21% in 2012 and laundry detergent sales have dropped 9%. In contrast, sales of deodorant have increased 18% and cosmetics were up 14%.
 
Overall, however, Hale noted that private label’s reputation has improved with consumers. He cited a study that consumers preferred Kirkland’s Ultra Clean unit dose detergent over national brands—and Kirkland’s product costs $8 less than Tide Pods. In another noteworthy note, three of the top four sunscreens are private labels, according to Hale. The category is set to become even more competitive when Walmart launches its Price First brand in the coming weeks.
 
As one might suspect, women make most of the buying decisions in the US, but men are gaining and in some categories, actually make the bulk of purchases.
 
“Guys know ice, beer and beef jerky like nobody’s business,” Hale joked.
 
And while men often just “grab and go” when it comes to shopping, women are more likely to study labels. Yet, the same percentage of each sex, 19%, say they buy private label.
 
The top spenders on private label are households with children; they spend $1530 a year on private label products compared to $506 for all households.  With this data in mind, Hale urged retailers to create strong loyalty programs and to cultivate African-American and Asian consumers.
 
“The Great Recession created a new normal for private label, but national brands are hanging tough,” Hale concluded. “Find the white spaces for the next growth opportunity.”
 
What Works—And What Doesn’t
 
Just as categories have winners and losers in the private label space, so too are their winners and losers in retail, said Harold Lloyd, a retail specialist. While Krogers, Trader Joe’s and Costco excel with store brands, too many retailers miss mightily, Lloyd insisted. To remedy the situation, he offered PLMA attendees several ways to build store brands. It starts at the top, explained Lloyd. Company executives and store executives must believe in the brand and make improving store brands a priority. That means spending time, each week, each day, thinking about private label and coming up with ways to sell more of it.
 
It starts at home, and Lloyd wondered if retail leaders themselves spend at least 19% of their household shopping budgets on private label. Back in the workplace, he called for weekly product comparison tests in employee lounge areas so everyone has buy-in to the merits of private label. Once there’s buy-in from the staff, they should be rewarded for promoting store brands with monetary bonuses.
 
Like in real estate, retail depends on location, location, location. Lloyd said varying private label categories should have a prominent spot in the front of the store, with plenty of promotion. He suggested putting a tub in front filled with ice and PL beverages for consumers to take for free—provided they purchase another private label item.   
 
“Somebody who eats or drinks while shopping takes longer to shop,” he reminded the audience. “We know that every extra minute in the store means $2 extra in your drawer.”
 
Similarly, he reminded the audience that a shopper with a cart spends $41 per visit, vs. $20 for someone with a basket and just $10 for a bare-handed shopper. Try before you buy can be encouraged with in-store demonstrations of private label products that change weekly.
 
“The customer will see that you believe in your brand. And why not stock your salad bar with private label dressings? And when the local community asks for help, don’t donate money, give them private label products!”
 
All these tactics encourage trial and may attract new customers to your brand, noted Lloyd.
Promotion plays a big role in the success of a store brand and Lloyd urged attendees to put private labels on endcaps in a strategy called “shielding.” Another method is a buy one national brand and get the private label product for free. Kroger, a forward-thinking retailer, devotes a large space featuring five or six of its store brands that makes for a big visual impact with shoppers, according to Lloyd. He suggested retailers put a greeter out front and have him or her promote store brands as customers walk in the store. At the end of the shopping experience, customers can be encouraged to try store brands by cashiers.
 
“That space by the cash register isn’t just for gum and girlie magazines,” said Lloyd.
 
He called for more retailers to tell the benefits of their store brands with in-store signage (like Trader Joe’s) and to promote specific brands with floor signage.
 
“Shoppers don’t look up; they look down,” he insisted.
 
And when they do finally look up, customers should see a new product showcase of both national brands and private labels—but he reminded the audience to make sure that in side-by-side shelving, the private labels should be on the right, since 91% of the population is right-handed.
 
Finally, Lloyd urged attendees to devote end-cap space to private label brands, noting that today’s store brands are attractively packaged. But end caps should be rotated often to hold the shoppers’ interest, something to remember since so many consumers consider shopping to be tedious.
 
The Wall Street Journal asked people what household chores they hated most,” he recalled. “Vacuuming scored better than shopping. We lost to vacuuming!”
 
The New Consumer
 
Who are these consumers who hate shopping and vacuuming? Brad Edmundson, former editor of American Demographic, provided some insight on shoppers both young and old. For example, while Baby Boomers are more likely to join a health club than older generations, they are not healthier—in fact, they’re more likely to be obese, suffer from high blood pressure and have diabetes.
 
Americans might be getting fatter, but they’re also getting more education at the same time, as 60% of those ages 25-44 have some college education, which usually translates into greater household income.
 
“College has become the norm,” noted Edmundson. “That’s why private label brands are getting into high-end categories such as chocolate.”
 
But not everyone is doing well, of course. He noted that the US employment rate has been dismal since 2007 and, as a result, the US birth rate dropped to 1.9 births per woman of child-bearing age (the rate must be 2.1 to maintain the population). One reason for the decline is that young people struggling which means delaying parenthood, driving less and ultimately making thrift fashionable.
 
“Young people have lost so much buying power,” he noted. “Plus, they’ve watched their parents struggle, so this downturn will have an impact on spending for decades to come.”
 
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