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In a year when consumers were looking to cut back anywhere they could, private label made inroads in a lot of categories, but took the biggest slices from segments like baby food and frozen pizza.
According to a report compiled by The Nielsen Company, unit sales of private label baby foods grew 22.3 percent for the 52 weeks ended Oct. 3. (Data cited is culled from the food, drug and mass merchandiser channels, including Walmart. Nielsen execs said that since prices have dropped from their year-ago highs, units are a better measure of private label’s growth than dollar sales. Progressive Grocer is owned by Schaumburg, Ill.-based Nielsen.)
Other categories that were hard hit by private label include salad dressings and mayonnaise, snacks, and candles and incense.
Overall, unit sales of private label goods rose 5.3 percent for the same period. That compares with a 2.3 percent drop for branded packaged goods during that time frame.
Clearly, consumers are buying private label now more than ever, and retailers like Walmart, Target, 7-Eleven and even regional chains like the New York drug store Duane Reade are stepping up marketing of their private label products.
This year’s rise comes after private label grew at a calculated annual growth rate of 4.5 percent over the past eight years, according to London-based Euromonitor, but the recession set off the sudden spark, said Lynn Dornblaser, director of CPG trend insight at Chicago-based market research firm Mintel. Much of that growth spurt, too, is coming from existing, not new private label launches.
What that indicates is that consumers are “rediscovering or discovering private label that has been on the market that they’ve never noticed before,” she said.
Michelle Barry, senior VP at research and consulting firm the Hartman Group in Bellevue, Wash., said the food category has been hit especially hard because consumers are staying at home more and are more experimental when it comes to trying different food brands.
The consumer packaged goods industry, for the most part, has responded with marketing that plays up the value, familiarity and longtime appeal of their brands. Many of those companies now claim that private label growth is slowing.
(Private label is particularly dominant in highly commoditized categories like dairy and canned vegetables and fruits, but less prevalent in segments driven by image-based marketing, innovation and emotional connect, like gum, deodorants and alcoholic beverages, according to Nielsen.)
Northfield, Ill.-based Kraft, for instance, claims that it has fended off private label via value-driven advertising for its Kool-Aid, Macaroni & Cheese and processed cheese brands. “Overall, we view private label as we do any other competitor,” said Kraft rep Joyce Hodel, adding that “recently, we have seen private label growth trends slowing.”
David Mackay, CEO of Battle Creek, Mich.-based Kellogg, also indicated as much during a July earnings call with analysts. “While it’s a very tough economy, we have started to see the growth of private label moderate in the U.S. and around the world. The initial spurt of growth has begun to level off,” he said.
So, is the worst over? Perhaps not. The Hartman Group’s research showed that the majority of the 43 percent of Americans who tried private label products in the last year plan to continue purchasing store brands. (Starkist SVP marketing and research Joe Tuza also said 46 percent of shoppers using private label said these products actually exceeded their quality expectations.) The recession, Barry said, has resulted in a long-term shift of consumer buying patterns, and shoppers “aren’t just leaving the general brands; they’re leaving their favorite brands as well.” Penny-pinched consumers, for instance, have prompted Cincinnati-based Procter & Gamble to roll out a basic version of its premium-priced Tide detergent brand.
Indeed, consumers are forgoing even their favorite detergents for cheaper-priced alternatives. But Eric Schwartz, laundry care marketing VP at Rocky Hill, Conn.-based Henkel, which sells the value detergent brand Purex, said marketers can fight private label’s encroachment not just through marketing, but also with clearly defined product positioning.
“Well-positioned brands that cover the category well in terms of benefits and expectations will be far less vulnerable to private label, in good times and bad,” he said.