Although private label brands have been slowly growing in the marketplace over the past decade, the recession in recent years has spurred the sales growth of these brands, creating yet another concern for branded food companies.
When the economy took its most recent downturn, consumers at all income levels reevaluated their spending and opted to not only eat at home more often, boosting supermarket sales in general, but to also purchase more private label goods instead of name brand goods.
The economic downturn did not only affect less affluent shoppers. A recent survey published in Supermarket News revealed that more than 50% of more affluent shoppers (defined in this survey as having household income greater than $75,000 annually) are purchasing private label brands. The same survey also indicated that 51% of all consumers are now more aware of store brands than they were a year ago. This awareness was especially high among younger consumers (18-35) as well as consumers older than 65.
This increased interest in private labels is the result of multiple factors coming together in the marketplace:
- Increased product costs, spurred in part by the increased cost of raw materials and the cost of fuel to transport those goods.
- Decreased earning capacity. Even those households whose income has not been diminished during this economic downturn are still faced with higher property taxes and other increased costs, such as heating fuel, in many regions of the country. Intense media interest in stories focusing on how families can save money. These stories often focus on buying private label goods and couponing.
With increased purchasing of private label brands, the perception about these products have also changed. In recent polls with consumers who purchase private label items, 80% of the respondents say that the items are either equal to or better than national brands.
The survey released by Mintel (January, 2011), a leading market research company, broke down the comparison between private label and name brand items by department. This poll showed:
- 62% of consumers believe there are no differences between store and name brand dairy products.
- 61% believe there is no quality difference in canned or shelf-stable food products.
- 60% purchase private label bread or baked good over branded items.
- 58% purchase store brand cheese.
Besides the adjustment in consumer spending, the private label industry has made efforts to entice consumers to purchase the private label brand by focusing on more attractive packaging and creative product concepts.
In addition, retailers have also made a concentrated effort not only to upgrade the quality of private brands, but to expand into new "hot" products, such as natural and organic market, in order to reach a larger audience. Whole Foods, for example, has a tremendous variety of products now packaged under its Everyday 365 label. The campaign is designed not only to promote the house brand, but to emphasize that these products are comparable values 365 days of the year.
As the economy begins to rebound, it is believed consumers will continue to buy private label merchandise, but the growth of this industry will not increase as rapidly as it has during the recessionary period. Name brands will need to be innovative and continue to connect with the consumer through product placement, advertising, superior quality, and competitive pricing.
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