10.14.2009

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Private Label 2010 delivers a consumer-up, rather than industry-down, approach to building private label brands. It offers a glimpse into what the future holds for national brands competing with the new realities of private label products, brands and marketing

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Battlefield of Brand Opportunity

The epic conflict between private label and national brands reaches new heights

The media and industry analysts have been quick to jump on the current economic crisis bandwagon as the impetus for the recent heightened interest in private label (a.k.a. store brands) sales. They have gazed into their crystal balls to predict the success of private label and, thus, the threat to national brands. The question at hand: is private label a panacea for retailers or a flash in the pan? The fact is, however, that shoppers have been making a significant outmigration toward private label goods long before the recession took hold. Spurred on largely by overall improvements in product quality and improving retail experience, private label is redefining the relationship between retailers and name brand manufacturers. It is of critical importance for brand manufacturers, marketers and retailers on all sides of the private label equation to understand where consumers and shoppers are heading with regard to private label purchases and where they will likely end up on the other side of the recession.

While it is clear from public sales data that improved private label quality is paying off, little is understood regarding which categories offer the greatest private label opportunity and which quality criteria are the most meaningful for each category. In other words, category data has largely been absent to adequately understand the “why behind the buy” in order to assess the threat to national brand manufacturers.

As our Private Label 2010: Redefining Meaning of Brand report clearly highlights, the real battleground for private label and national brands is in the retail space at the category level. Our research finds that the tug of war over who garners the greater share of shelf space is being waged on the basis of two criteria: the level of quality distinction and the strength of brand heritage (aka, national brand loyalty). For example, in food and beverage categories, quality distinction includes one or more of the following characteristics:

• Unique flavor
• Globally inspired
• Natural/less processed
• Differentiated form/texture

Another driving factor is brand heritage. This is not about nostalgia, rather it is defined by a complex combination of cultural attributes, including customary habit or tradition, shopper familiarity and predictable quality. Predictably, legacy brands are typically steeped in brand heritage offering unique formulations, consistency, history of use and taste—all of which act as barriers to private label competition.

National brand manufacturers are heavily favored on the battlefields where categories are characterized by both strong brand heritage and high levels of quality distinction (e.g., laundry detergent, cereal, CSDs, diapers, personal care products). Although it is possible that national brand manufacturers in these categories may lose some market share to private label in the current economic climate, most of that share should be regained once the economy improves.

The most heated battles between private label and national brand manufacturers will occur in two very distinct sets of categories: 1) commodity-like categories and 2) emergent categories. Commodity-like categories are generally those with less developed quality distinctions (e.g., spices, baking ingredients, OTC, bottled water). Although some may include a strong brand heritage, (e.g. C&H sugar) consumers distinguish these categories according to their homogeneity or singularity: “sugar is sugar!” and tend to think in terms of the lowest price per unit.

What Lies Ahead

Because national brand loyalty is not as intense in emerging categories, the battlefields will be the fiercest as retailers and national brand manufacturers jostle for market share. Emerging categories are categories (or ingredients) with more developed and nuanced levels of quality distinction, but lack deep brand and/or product heritage (e.g., specialty water, ethnic foods, as well as organic, healthy, and “green” products).

The shift in culinary habits in the US means that most food categories have experienced the growth of subcategories into segments such as ethnic and specialty foods (e.g., Safeway Select), organic (e.g., Safeway O), and health and wellness (e.g., Safeway Eating Right). Most of these categories have no brand analogues that consumers can associate with their childhood and loyalty seeped in habit has yet to be firmly established in the American cultural landscape. In the personal care and household product categories, the interest in sustainable or “green” products has bred emergent categories for which both retailers and national brand manufacturers are jostling to control the high ground. Retailers are often able to enter these niches before legacy brands. Thus, we believe that the private label success stories of tomorrow will be found in those retailers who are able to stage the most compelling experiences in food retailing.

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