Store Brands Are Here to Stay

As American consumers continue to add private label products to their shopping carts, consumer packaged goods and retail executives recently surveyed by Deloitte agree: This is a trend that is here to stay.

In Deloitte’s new “The Battle for Brands in a World of Private Labels” study, when asked how market share of store brands will change in the United States by 2012, 77 percent of CPG executives and 90 percent of retail executives surveyed indicated it will increase or increase significantly.

While there is consensus by CPG manufacturers and retailers on continued growth of store brands, there is a disconnect between the executive’s perspective on shoppers and consumer attitudes towards store brands. Fewer than two out of 10 executives surveyed believe consumers view store brands as likely to be manufactured by the traditional national brands, while eight out of 10 consumers surveyed during Deloitte’s “2010 American Pantry Study” believe that most store brands are manufactured by the traditional national brands. In addition to the disconnect around manufacturing of store brands, 85 percent of consumers also indicated that they have found several store brands that are just as good as national brands and as a result have little reason to switch back.

“Though conventional wisdom has co-branding between retailers and CPG companies as a win-lose proposition, the results of our study indicate that nearly half of retail and CPG executives agree that working together may be the best way to win the wallets of the ‘new consumer,’” said Pat Conroy, vice chairman and Deloitte’s U.S. consumer products practice leader. “What they need to consider are variations on current brands and what new innovations should be brought to market so as not to overwhelm an already substantial marketplace.”

While price and product performance are table stakes, the executives surveyed feel consumers are much more likely to associate innovation with national brands, and local variants, such as taste and specific regional preferences, with store brands. Those areas that the executives felt consumers did not have either a strong national brand or store brand specific association were exclusivity, green (organic and environmentally friendly) and supportive of social causes.

Executives surveyed believe that retailers are more focused on store brands, premium offerings and building customer loyalty, and CPG companies should be focusing more on store brands. However, they also believe that consumer packaged goods companies need to develop retailer-specific portfolios and more low-end brands.

Furthermore, most retail executives surveyed believe that national brands would increase market share if they created local variations to better appeal to consumers in target cites, states or regions.

Deloitte offers the following strategies and recommendations:

- Shed homogeneity
- Be irreplaceable
- Make me-too strategies an onerous path
- Stop reckless promotions

“To compete in this new ‘store branded’ world, CPG companies must increase their direct-to-consumer efforts while simultaneously developing a product portfolio that reflects each retailer’s unique consumer base,” Conroy said.

Download Deloitte’s “The Battle for Brands in a World of Private Labels” here.