In the wake of the recession that hit the U.S. economy hard and plagued consumer spending, private labels staked their claim in the consumer packaged goods (CPG) space. Also known as store brands, private-label share of retail sales grew from 16.2% to 17.4% between 2009 and 2011, with year-over-year sales growth outpacing brands by a significant margin.
But the U.S. economy has since been on the upswing, and consumers are looking beyond price. According to a recent Nielsen report on the global retail landscape, consumers called out the importance of quality, availability and convenience as key factors driving their purchase decisions. So while private label growth was comparable but slightly greater than that of brands since 2012, growth patterns reversed in 2015 and into 2016, resulting in flat to slightly declining private brand share.
Still, Nielsen research continues to illustrate high consumer interest in store brands. More than two-thirds of total U.S. households (70%) agree that store brands are a good alternative to name brand products. Nearly a decade after the recession, private-label products can be found in virtually all U.S. households. So what’s behind this trend of private and branded products leveling out and private shares slipping? Are brands out-promoting private label? Or with an improved economy, are fewer households turning to private label products in an effort to save money? What other factors are at play?
Through Nielsen Homescan data, it’s apparent that private brands have lower share among the top multicultural segments that are driving non-white population growth in the U.S. These groups—Hispanics, Asian-Americans and African-Americans—spend more on branded items and relatively less on store brands. In particular, while annual branded and store brand buying rates among Asian and African-American households are lower than total white non-Hispanic households, they’re especially low for store brands, where African-Americans households spend 18% less annually and Asian-American households spend 22% less.
Not only are multicultural consumers less likely to buy private label, they’re also more likely to have negative perceptions toward these products. These population segments are more likely to call out poor store brand packaging, question quality and believe that store brands are only for people on tight household budgets. These negative perceptions likely influence multicultural consumers’ purchase behavior and may contribute to private label’s recent share decline.
With the diverse population in the U.S. quickly growing, retailers and manufacturers may need to take a closer look at how they are marketing store brands to once again grow private label share. Without the critical component of effective in-store, out-of-store and online marketing, multicultural shoppers may bypass private label altogether if it does not reach them in a way that leaves a connected and lasting impression.
In an effort to reach a cross-section of multicultural shoppers beyond marketing, retailers and manufacturers can also identify areas to focus by looking at the top-selling private-label categories across all population segments. Fresh vegetables and herbs, eggs, water, fresh meat, bath tissue, nuts, household plastics, fresh desserts, disposable dish and coffee have had significant gains in absolute private-label dollar sales over the last four years. Are these categories important to multicultural households or should retailers look to other categories to fill their private label innovation pipelines?
Private label appeals to retailers looking to take ownership and set themselves apart from the branded products that co-habit their shelves. As many brick and mortar retailers continue to invest in private label and with some of the nation’s largest e-commerce retailers looking to capture a greater share of consumer spending, private label is here to stay. But as the U.S. population continues to diversify in the decades ahead, manufacturers and retailers must follow suit in order to resonate with multicultural consumers when they are shopping for products that bring value to their lives.
The information detailed was derived from Nielsen Homescan, Total U.S., for the 52 weeks ending April 2, 2016; Nielsen Strategic Planner (2009 data); Nielsen Answers, Total U.S. – All Outlets Combined (xAOC) for the 52 weeks ending April 2, 2016; and Nielsen Homescan Survey, January/February 2016.