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01.27.2010

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Private Label 2010: Redefining the Meaning of Brand

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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The Opportunity for National Brands in an Era of Private Label

The Untold Story

Many media sources will crown 2009 as the Year of Private Label (in fact, BrandWeek has declared it so). While private label seemingly has ruled the headlines throughout the year, there is another, lesser told story being played out at the category level throughout the store. There are categories where national brands (via brand heritage) dominate leaving little room for private labels to make inroads.

As a parable to understanding why these legacy national brands tend to dominate through brand heritage, we ask you to imagine a group of Baby Boomers (not unlike many you may know or may be part of). Today, if you peek into their kitchen cupboards you are just as likely to find iconic national brands of various food and beverage categories standing shoulder-to-shoulder with relatively new natural/organic private label brands (e.g., Yogi Tea, Trader Joe's Masala Simmer Sauce, Costco’s Kirkland Signature Balsamic Vinegar and Whole Foods 365 Peanut Butter).

We mention the presence of national brands in the households of Baby Boomers only to underscore the notion that while Boomers tumultuous youth was spent rejecting the values of their parents and the accompanying "establishment" of the times, many of today's Boomers, in fact, are living a lot like their parents. Today’s Boomers are just as likely to buy an array of the same iconic brands their parents bought. They now add to the mix an assortment of the aforementioned natural, organic and premium private label products.

Over the years, national brands dominated categories for obvious reasons: marketing and advertising superiority, familiarity, taste consistency, long history of purchase and usage, etc. Most of us can recite like a cultural mantra the name of an iconic national brand that rules its respective category: think Heinz Ketchup or Ritz Crackers. Despite the hype over our current transition to a market more highly populated with a range of private label brands, our Private Label 2010: Redefining the Meaning of a Brand report reveals a pattern that runs counter to this.

In households with children, for example, there are a select number of categories where there is a low or moderate opportunity for private labels products, as national brands are the dominant players in these categories. In our Private Label 2010 report, for instance, we see that households with pre-teen children (under age 13) tend to prefer national brands in categories such as large sizes of ice cream or cold cereal. Households with pre-school children (under age five) tend to prefer national brands in the shredded/slice cheese category. Households with teenagers (ages 13-17) are more inclined toward national brand block cheese.

Of course, there are any number of variables in addition to age and the presence of children in the household that influence purchase decisions, but it is clear that national brands have consumers’ permission to be the expert on food and food culture. National brands lead, private label follows.

Brand Heritage: From Predictable Products to Reimagined Experiences

From our recent study of private label products we learned that categories with dominant legacy brands exhibited very specific traits that we summarized under the term "brand heritage." Categories with strong, iconic brand heritage offer the least opportunity for private label, two extreme examples being cold cereal and carbonated soft drinks, both of which only 9% of consumers say they plan to buy as store brands in the future. Brand heritage is defined by a combination of purchase habit, shopper familiarity and predictable quality, and is often about comfort and risk aversion. Iconic national brands are typically steeped in brand heritage; such brands offer unique formulation, consistency, history of use (often nostalgia) and taste—all of which act as barriers to private label competition.

To illustrate both the power of brand heritage and its frequent connection to the presence of children in the household, no better picture can be painted than that of the cold cereal category. Cold cereal, as a category, is emblematic of others steeped in brand heritage (e.g., CSDs, frozen entrées, condensed soups, sauces, etc.), which currently offer little to moderate opportunity for store brands.

Figure 1 provides important insights for reasons why brands from General Mills and Kellogg’s dominate the category. For shoppers buying private label cold cereal, the top three reasons given for buying the store brand center on price, with 44% saying “they get the most bang for my buck.” Conversely, buyers of national brand cold cereals say they buy such products because “It’s the brand I grew up with” (42%), “It has a unique flavor” (39%), and “It’s of predictable (reliable) quality” (37%). Thus, as with other categories steeped in brand heritage, in cold cereal, key purchase drivers become habit, taste and predictable quality (and not price). In fact, cold cereal as a category provides the classic example of how a bad experience with one private label product impacts household decisions to experiment with another. As one consumer told us: “We tried a store brand version of Fruit Loops. I’ll never make that mistake again.”

While we often paint what we believe is a clear picture of the future of many iconic national brands (market erosion over time as new cultural tastes based on Savoring and Intellectual Eating Occasions take hold), it’s important to acknowledge that legacy national brands in the CPG arena were truly innovative and relevant to consumers' lives in the middle of the 20th century. In specific categories, this is still true today: how can we argue with hundreds of millions of dollars in sales of just Cheerio’s alone?

The role of brands has shifted as consumers’ expectations of quality have evolved. What does “quality” mean as a point in shoppers’ decision trees between private label and national brands? As Figure 2 depicts, we have identified four key drivers that motivate experimentation with private label products as well as loyalty to national brands in the foods and beverages arena (there are of course different characteristics for other categories such as personal care, fashion, etc).

Yet (and it’s a very big yet), one very difficult task ahead for manufacturers who dominate in brand heritage categories is to remain relevant with tomorrow’s shoppers who are heavily influenced by the changing culture of food and new quality distinctions offered to them at every turn. Quality distinction offers today’s (and tomorrow’s) shoppers one or more of the following characteristics: unique flavors, global inspiration, natural/less processed and differentiated form/texture. There is still a vast land of untapped potential for national brand CPG companies by reimagining predictable products and experiences and identifying eating occasions where their brands did not play before.

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