By Todd Hale, SVP, Consumer & Shopper Insights, Nielsen
Private brands are a significant player in today’s U.S. retail landscape, reaching $112 billion out of $643 billion in total retail sales in 2013. But given the perfect storm of a struggling economy, rising consumer perception of quality and new lines hitting stores daily, private brands’ growth has not yet reached the potential many expected. Sales in this segment increased just 1 share point between 2009 and 2013.
Amid the sluggish growth, however, some retailers have successfully tapped into private brands’ potential. And in an environment where retailer and manufacturer collaboration has never been greater, understanding the private-label landscape will become even more critical to manufacturers that must coexist and collaborate to drive total category success.
To understand how private label can be successful, we examined the top 10 U.S. store brand retailers. The average private-label dollar share for these retailers is 35 percent, and each of them captures a greater store brand share than the average in the retail channels where they reside. So what is it about these 10 retailers that make them so successful? Is there some commonality in the successes for each on the list?
Among the top 10 store brand retailers, Aldi, H-E-B and Kroger are best at converting U.S. store brand buyers to purchase in their stores. And only Dollar General, Safeway and Stater Bros. convert less than 90 percent of the store brands buyers. We use buyer conversion to measure how well retailers are able to convert buyers of a particular item or category (in this case, store brand sales at the department level) to actually buy in their stores.
Aldi is best at converting total store brand buyers to buy in its stores, and this reflects the dominant position it holds in converting dry grocery store brand buyers to buy in its stores. H-E-B is No. 1 when it comes to converting buyers across the most departments; in seven of the 10 departments examined, it garnered the highest store brands conversion rate. Kroger was second best with the highest overall store brands conversion rate in fresh produce. Costco, with its private label wines under the Kirkland Signature label, was No. 1 in buyer conversion in alcoholic beverages.
Most top 10 store brand retailers outsource the production of store brands, but some retailers like Kroger and Safeway invest heavily in manufacturing their own store brands. Many of these top store brands retailers also invest in marketing, merchandising and analytics to further drive their sales, but these companies' actual engagement in these activities varies widely.
Many of the top 10 retailers use their websites to drum up online engagement and support their store brand offerings. Some–including H-E-B, Aldi and Kroger–have gone as far as incorporating unique sections devoted to their store brands on their websites. Others, however, make users search for rather limited information on their store brands.
We also reviewed the quality of promotions each top 10 retailer used, including the multi-media promotion support. Most of these retailers support their private brands with brand-level promotion support. While temporary price reduction promotions are most commonly used, TV and digital ads are becoming more commonplace, and online coupons and recipe ideas are easy to find. H-E-B, Kroger, Safeway and Wegmans were the most successful at engaging through promotions.
In light of the success of the top 10 store brand retailers, as well as increased focus from many other retailers not on the list, how should branded manufacturers respond to current and future store brand pressures? The first step is not to turn a blind eye. Stay current in branded versus store brand pricing analytics and be proactive in assortment analytics to show how your brand assortment aligns well with store brand assortment. And providing retail partners with analytics can show which of your branded offerings make good promotional partners with store brands.
Looking at store brands as collaboration opportunities can shift a competitor to a teammate. Have you tested the impact of integrated shelf sets with your brands and private brands? Consider helping retailers migrate to digital communication and providing recipes or “how to” solutions for their websites. Then take it one step further—explore options for using your excess production capacity for store brand production.
Want to learn more? Download the materials from our recent private brands webinar here.