Losing the Label

customerbehavior

PRIVATE-LABEL PURCHASES

Losing the Label Private-label products have shaken lower-quality perceptions and gained a permanent spot in many American consumers’ consideration sets, a new study shows

BY CHRISTINE BIRKNER | SENIOR STAFF WRITER

 cbirkner@ama.org

P

rivate-label products used to be also-rans, goods that only the budget-strapped or shamelessly frugal would buy regularly. The recession changed all of that, of course, and consumers’ interest in private-label goods has stuck.

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According to the 2014 American Pantry Study, released in May by New Yorkbased Deloitte Touche Tohmatsu Ltd., name brands have been slow to regain their footing over store brands. Deloitte surveyed 4,000 American adults in four age groups (21-29, 30-44, 45-60 and

60-70) from May 2010 through January 2014. Participants were asked about their attitudes toward 376 brands in 30 product categories to gauge how packaged goods companies could grow amid enduring consumer resourcefulness.

“The premise, when we started this, was that this recession was going to leave a scar, not a bruise, on American consumers. It’s unlike previous recessions, when people hunkered down and once the economy got better, they kind of forgot hardships and went back to purchasing things the way they always had. Now, four to five years later, we realize that the hypothesis was true and that people really have changed,” says Pat Conroy, vice chairman and leader of the U.S. consumer product practice at Deloitte.

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PRIVATE-LABEL PURCHASES

The study found that 88% of consumers in 2013 said that they preferred store brands over name brands and that many store brands are just as good, or better than, their favorite name brands. The same percentage of consumers reported experimenting to determine which store brands are better in order to save money without sacrificing quality.

“We found that consumers had a tremendous amount of guilt and remorse about how they shopped. … The remorse was around the fact that they felt that these companies, especially the national brands, had duped them into buying things that weren’t as good or weren’t as advertised,” Conroy says. “Because of this recession, they started writing their shopping lists in pencil instead of pen and they did a lot of experimentation. If you fast-forward to today, they’ve gone back to writing those shopping lists in ink because they’ve figured out what works, what they can substitute for that nobody noticed the difference, [private-label products] that they’ve decided … are just as good, if not better, than some of the name brands they’d always purchased.”

Now, Conroy says, consumers no longer feel like they’re “settling” for private-label products. “They’ve moved beyond that and feel like they’ve found a viable, equalquality or better-quality option.”

In 2013, private-label sales in supermarkets rose in unit and dollar shares by 23.4% and 19.4%, respectively.

In drugstore chains, the unit market share of private-label products over

name-brands products increased 17.3% while private-label dollar share increased 16.4%, according to Nielsen and the New York-based Private Label Manufacturers Association (PLMA), an international trade organization for manufacturers and suppliers of store-brand products.

From 2011 to 2013, annual sales of store brands in supermarkets increased 3%, or $1.6 billion, and in drug stores, they increased 9%, or $700 million, according to Nielsen and PLMA. The recession isn’t the only reason for the private-label boom, says Brian Sharoff, president of PLMA. “At the end of the 1990s, there was the emergence of strong national retailers—Wal-Mart, Target, Trader Joe’s—that established a perception of high-quality private-label

customerbehavior

goods by putting products into the market that were innovative and interesting. That’s where the impetus for the current popularity of private-label comes from. As those retailers did that, the other retailers felt the need to imitate and replicate the same types of products at their stores.”

Deloitte’s study found that store-brand quality is increasingly perceived to be the same or better than name brands in most categories. Only 31% consider brands in certain categories as “must haves”: • Paper towels, dressings, sauces, meal kits: “Other brands are available on sale.”

• Food storage, frozen meals, soft drinks, deli: “I can’t afford to pay full price for these brands.”

• Beer, sauces, cereals, laundry soaps: “I found another brand that is less expensive.”

• Food storage, cereals, coffee, condiments: “I found a store brand that is just as good.”

• Energy drinks, soft drinks, gum: “I decided they were not worth paying more for.”

According to Deloitte, 71% of consumers believe that they’re spending less on groceries without sacrificing much. But when it comes to beer, soft drinks, pet food and coffee, consumers are committed to their favorite brand names, regardless of price.

“The implication for marketers is that consumers no longer buy into the ‘new and improved,’ ” Conroy says.

“Prior to the recession, all you ever read about was the time-strapped consumer.

Everybody just wanted convenience.

They didn’t necessarily want to shop.

Now that they feel like they’ve figured it out, they’ve re-set their brand map in terms of what they buy or don’t buy, and they want that time back. Marketers need to figure out how to convince them to come back to you, or make the case that what you’re offering is truly differentiated and better than privatelabel products that have improved quite a bit and upped their game.” m

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