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10.28.2009

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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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Today’s Private Label is a Lesson in Branding

Private label is at something of a crossroads. Rising out of the shadows of its humble, “no-name” generic past, private label today has blossomed into a $100 billion industry. While the media and analysts are fixated on sales numbers and growth expectations another story frequently gets little air play: Private label has the freedom (and not the baggage) to seize opportunities to leapfrog name brands in such critical areas as ingredients, flavors, preparations and even packaging.

Looking through the lens of contemporary consumers and shoppers, we see that the rapidly changing private label landscape is far too complicated to be adequately explained by aggregate sales or customer transaction sales data alone. Our Private Label 2010: Redefining Meaning of Brand report moves beyond simplified discussions of sales data to present a holistic consumer and shopper perspective on private label that accounts for the role of the economy, new meaning of value, distinctions in retail formats, product categories, name brands and, of course, private label brands.

A Bit of Context

Private label really is a story about today’s emerging brands cultivating a redefinition of quality and reimagining their brands, retail experiences and categories within the larger driving force of this change, the Culture of Food.

The market has shifted from a traditional culture (which peaked in the 80s and saw the rise of retail, packaged foods and brands—brands in this era were viewed as unique alternatives to homemade and carried great symbolic power) to a consumer culture. Consumers are seeking to redefine the very essence of quality; therefore, selling on status alone isn’t enough. This dominant orientation is a continual search for more nuanced distinctions regardless of the brand. In fact, we’ve even seen a compelling shift away from brands altogether in some instances, particularly among Millennials.

As the market shifted from a traditional to a consumer culture, the role of brands has shifted over time as well and the level of desirable qualities has gradually diminished as consumers’ expectations have evolved. A brand must be more than a consistently high quality product; a brand must now also be distinctive, well differentiated, experiential, authentic, specialized and relevant to consumers and shoppers within the context of their changing lives and lifestyles (Figure 1).

Retail is the Dominant Player in Food Culture

Brands are under tighter scrutiny than ever before as consumers realize increasing levels of choice and more highly differentiated experiences. Retail becomes theatre rather than warehouse. This is where we see a dramatic paradigm shift happening as retailers have the upper hand in controlling quality perceptions and experiences, thus controlling brands. In fact, our 2006 research showed that 46% of consumers reported store brands to be equal to or better than national brands. That perception has only improved over the past 3 years as retailers begin to gradually satisfy the gap of consumer and shopper expectations in quality experiences.

Given this new market reality, retail has become the dominant player. Retailers are in an upward trend in creating high quality products as well as reimagining food experiences for consumers and shoppers. We see new brands and specialty brands gaining market share and consumer imagination as traditional and iconic brands face significant challenge as they struggle to reinvent themselves (Figure 2).

The lines between private label and national brands are blurring in that shoppers often have difficulty determining whether or not something is a store brand or a national brand. This is obviously less true with iconic or legacy brands than it is with newer or specialty brands. What’s interesting is not so much the fact that it’s happening, but that consumers don’t really care that they don’t know the difference. The importance of branding, and to some extent, the badge value of brands in the past is, is quickly giving way to a greater emphasis on the product and overall experience controlled by the retailer!

Key Drivers of Quality

What does quality as a distinct point between private label and national brands mean with regard to shoppers’ decision trees? 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.). They are (in order of importance):

• Unique Flavor
• Globally Inspired
• Natural/Less Processed
• Differentiated Form/Texture

The most important criteria in choosing a private label brand over a national brand is Unique Flavor. This includes flavors new to the typical American palate (i.e., flavors that most adults today didn’t grow up with such as kombucha), differentiated flavors that are difficult to replicate (i.e., root beer or cream filling in a sandwich cookie), or artisinal reimaginings of traditional flavors (e.g., rosemary cheddar).

The second dimension, Globally Inspired, is whether or not a product is viewed as on trend with global food culture. This includes ethnic, fusion, and imported products. These types of products inspire a sense of discovery that doesn’t challenge an individual to have to make a serious departure from their everyday foods or beverages. It also creates a halo of forward thinking and authenticity that is often difficult to generate for many brands. We find private label excels in this particular space.

Next, we find that Natural/Less Processed can be a significant driver of interest. Natural, as a decision criteria, is specific to naturally derived ingredients and flavors often described as “simple” or “real”. Consumers’ interest in natural and less processed products continues as a driving trend and serves as a point of distinction when comparing national brands to analogue private label brands. We find this to be particularly true with regard to center store products such as soup, cookies or yogurt.

The last significant driver is Differentiated Forms and/or Textures that make it difficult for consumers to compare products such as baked garbanzo bean “chips”.

There are additional drivers of quality within food and beverage beyond these 4 dominant drivers – however, they vary according to discrete categories…

What’s the Lesson?

While private label has come far as a brand, there are seemingly boundless opportunities that lie ahead. What does this mean for manufacturers and retailers?

For retailers:
A lot of retailers want “credit” for their private label brands which many are not receiving. However, this clearly points to new opportunities for private label brands to dominate newer categories such as natural/organic, sustainability or functional foods. The ultimate success here will be in retailers’ ability to manage private label as “brands” rather than as a product with the store’s name slapped on the label. In other words, work to shift the numbers further where store brands are misidentified as national brands—then you know the job is well done.

For manufacturers:

Not all is gloom and doom for national brands. In fact, we believe the future can be quite rosy. As national brands contemplate future competitive strategies, keep in mind that you, not retailers, have consumers’ permission to be the expert on food and food culture. Consumers want national brands to become more relevant and reclaim their expertise in food: Be the expert in cheese, be the expert in cookies, etc. So, go back to your roots. Do what you have always excelled at: innovation and shopper marketing. A vast land of untapped potential awaits CPG companies by reimagining eating occasions and identifying new ones where brands, products or categories did not play before. Within these new or reimagined occasions are many instances and categories CPG companies have yet to recognize. One occasion at a time, this is the pathway to capture incremental growth opportunities.

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