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home : hartbeat : private-label-a-consumer-perspective-on-store-brands

08.30.2006

“HartBeat” is The Hartman Group's FREE online newsletter, providing insight, analysis, information and strategy to give business leaders the knowledge and vision to build sustainable brands.

NOW AVAILABLE» Pulse Report PRIVATE LABEL FROM A CONSUMER PERSPECTIVE The Pulse Report examines the notion of brand parity and tension at the shelf, where the battle for private label dominance is played out. Private Label from a Consumer Perspective presents current insights into whether private label brands have come far enough in the minds of consumers for these brands to compete as legitimate brands in their own right. Click to learn more...

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Private Label: A Consumer Perspective On Store Brands

For years, consumers arguably have shown a decided preference for name brands. A select number of these brands have come to symbolize American culture itself. Iconic brands, such as Coca-Cola, Disney, Levi's, Nike, Volkswagen, Budweiser, Heinz and Harley Davidson, are used as much for what they represent (i.e., a means of self-expression; shared values, etc.) as for their functionality.

While big name brands have long been regarded as trendsetters, their strangle hold on consumer consciousness and retailer shelf space is changing - in a big way.

Retailers across all channels and segments, particularly food, are exploiting key private label categories as tools of differentiation, not merely to attract and retain consumers, but as a means to ward off advances of competition. One such example is the apparel line Joe Fresh, created by Loblaw of Canada.

NOW AVAILABLE Pulse Report: Private Label from a Consumer Perspective Click here to find out more...

But have store brands come far enough in the minds of consumers for them to shoulder the mantle of differentiation? We address the issue of brand parity in our Pulse Report: Private Labels from a Consumer Perspective. When asked the question, "All things considered (value, price, taste, appearance, etc.), how similar are store brand products to national brand counterparts?" As Figure 1 illustrates, store brands have definitely closed the gap with national brands. For many (82%), store brands are identical (33%) or close to national brands (49%). For slightly more than one in 10 respondents (13%), store brands are better than national brands. Only 5% of consumers responding to our survey believe that store brands are still "inferior" to national brands.

The Retailer Brand Advantage

Retailers have many advantages over national name brand manufacturers that simply did not exist a few short years ago. Perhaps because these same name brands introduce a staggering number of new products and line extensions each year, shelf space real estate is limited with steep leasing terms and conditions. Consider the prevailing (albeit somewhat changing) practice of slotting fee requirements and fees for prime real estate locations for in-store displays, combined with additional costs for advertising and in-store promotions and marketing, name brands becomes a very expensive proposition.

Although consumers say they wish private label products were easier to find in stores, some retailers do give their store brands preferential treatment with prominent shelf space and in-store displays. Consider Loblaw, the Canadian supermarket chain, whose President's Choice line is so successful that Loblaw's licenses them to non-competing retailers around the world. President's Choice is now a store brand that is an international name brand in its own right.

In recent years, national name brands realized that they do not have to be dependent solely on other retailers; they too can have their own retail space. There are many more examples in apparel than in food where national brand manufacturers have extended their brand presence beyond the walls of department stores to explore retail possibilities of their own. In addition to selling their wares in traditional outlets, big name brand apparel manufacturers such as Armani, Coach, Nike, Puma, New Balance, Polo and Adidas operate their own retail stores.

Yet while name brand manufacturers have made great strides in creating their own retail space, a dedicated retail shopping environment that sells only proprietary retailer store brand products, such as Trader Joe's, remains largely unexplored territory. Overall awareness for stores selling only private label products and not name brands is extremely low. As Figure 2 reveals, nine in 10 consumers (90%) are not aware of and, therefore, cannot name any stores dedicated solely to selling their own branded merchandise. Among respondents aware of retailers selling only their own store brands products Aldi's, Save-a-Lot and Trader Joe's were the stores mentioned most often.

The new brand opportunity (hint: it's not about products)

We contend one of the most important features of the future of private label brands is only recently coming to the attention of forward-thinking marketers. Over the past several years our ethnographic research has identified a clear trend occurring at the intersection of retail and private label whereby critical components of the retail and brand experience (in this case, we're speaking of the retail brand) appear to be working synergistically to create a highly differentiated private label brand worthy of premium brand status - and beyond.

In the case of Trader Joe's, for example, highly specialized components of the retail experience - authenticity, community, knowledge and so forth - all contribute to heightened perceptions of the associated private label products that go far, far beyond simply what is in the package. Moreover, in the case of Trader Joe's the noted absence of competing premium branded products in many categories even serves to further enhance the quality perception and perceived value of private label selections. If they only have Trader Joe's black beans, the thinking goes, then that means they don't believe a better option exists anywhere...

While private label offerings by the likes of Trader Joe's, Central Market, Wegmans, Wild Oats and other retailers with a noted brand halo do not yet command the same market attention as conventional private label selections by the likes of Costco, Wal-Mart, Albertsons, Safeway and the like, we believe that the future of private label can be found in these retailers. Indeed, 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 retail.

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