Private label vs. national brands

Long a grocer’s top growth strategy, private brands are apparently starting to lose their momentum. Consumers are finding them less than desirable replacements for their national-brand counterparts, according to a recent survey by Ipsos Marketing. And that perception is showing up at the cash registers. Nielsen says that overall private-label sales were relatively static in the year up to March 12. Unit sales rose three per cent, but the revenue generated from those sales was flat at $11.4 billion. Meanwhile, national brand unit sales and revenues rose one per cent and two per cent, respectively.

But grocers shouldn’t mothball their private-label inventories just yet. For one thing, both the Ipsos survey and Nielsen research were completed at a time when the economy seemed to be improving, particularly in Canada, and consumers were feeling relatively confident. The more troubled the general economy, the more likely consumers are to save a few pennies at the expense of niceties such as innovative products, environmentally friendly items and even taste.

“When there’s some nervousness–and it may not reflect in their own financial situation–people look for ways to create a sense of savings, a sense of safety. And where we see that happening is cutting back on indulgences,” says Jordan Levitin, senior vice-president at Ipsos-Reid Canada. “Buying the 79-cent can of beans instead of the $1.25 can of beans looks like a good place to cut back and nobody would really suffer from it in the family.”

Consumers, Levitin says, still want to do right by their families, but they’re willing to let go of things like branding, sustainability and nifty packaging as long as a private-label alternative can deliver on the core needs of the consumer, something the Ipsos survey found Canadians still believe.

Stewart Samuel, a senior business analyst at grocery consultant IGD in Vancouver, says private labels will remain an important part of the mix within grocery stores for a number of reasons. For one, they are a key part of a retailer’s program to establish value credentials, because private labels are often the opening price point within many categories. And they give retailers “greater control over the pricing and promotional strategies of a core group of products, reducing their dependency on national brands in these areas.” A good example is UK chain Asda’s relaunch of its core brand, called Chosen by You, after more than 40,000 consumers tested 3,500 individual products over a nine-month period.

In general, Canadians view store brands more positively than others around the globe. That’s because Canada has strong consumer protection laws and a grocery sector that has enough quality chains that Canadians trust. "That elevates the perception of everything. If the produce in the produce section is fresh, you’re going to have more confidence in what’s in the cans as well,” says Levitin.

Canadians’ positive perception comes even though store brands are often less well-known than in other countries where such brands have a longer history–a notable exception being Loblaw’s President’s Choice line. Levitin, however, points out that the individual store brands are known by their customers and the good perception of President’s Choice actually helps those other store brands.

But grocers have their work cut out for them in continuing to develop their own lines. The Ipsos study concludes that manufacturers have done an exceptional job in innovation and sustainability. In a number of cases they’ve even repositioned brands as good value, appealing to the penny pincher lurking in everyone. “Consumers are still demanding national brands,” Levitin says. "They have a positive image of that 79-cent can of beans but they also want to see the national brand can of beans as well.”

Stores walk a fine line, Levitin continues, “between putting their own brands on the shelves and getting the margin that comes with that and satisfying the relationships with the manufacturers and the relationship with the consumer.”

It’s a fine line that will only get finer.