Nielsen released a Global Private Label Report this month that states that the value conscious consumer is driving private label share up around the world in consumer packaged goods. This is due to what is now several years of economic downturn and the resulting consumer sentiment to save money on the purchase of staple items in the store.
Importantly, 90+ percent of shoppers report they will continue purchasing private label even after the downturn.
In many categories in the grocery store and mass merchandiser, private label is now the number two brand and retailers are getting rid all but the strongest brands and private label counterpart. In some categories, this means that only one or two brands remain.
Private label overall share of all categories in the USA is 17%, far lower than the big markets of Europe where private label is closer to 30%. But in Europe the retail strength and dominant share of supermarket chains such as Tesco and Carrefour allow growth of private label with greater ease. US supermarkets shares are more fragmented across many more retailers thus lacking the market dominance to boot out national brands. An indication as to what is to come can be found in the drug channel, where the big 3 payers (Rite Aid, Walgreens and CVS) are quickly replacing branded offerings that are not the clear market leader and replacing that shelf space with significantly improved private label.
Private labels here in the US will continue to gain more share if they are managed correctly by the retail chains and if consumer sentiment stays in their favor, which leaves number 2, 3, 4 national brands in any category in a predicament. Instead of jockeying for share growth against the market leader, they are now fighting not to get delisted from the supermarkets altogether (and in many smaller categories they are not winning that fight). Ultimately the number 2,3, and 4 player must have a unique offering, generate category growth, or be delisted. The value brand strategy is no longer viable as private label moves in. When the little guys do get delisted, private label generally picks up their share rather than the branded market leader that is priced higher.
Private Label does compete very effectively on price as well as quality. The growth strategy of private label, after the recession, will certainly be to grow further with innovation and product upgrades. This will require new investment and infrastructure into the retailer organization. But the watch out for the branded players is that once supermarkets have eliminated all but the lead national brand and private label, private label can then expand margins to build that infrastructure growth.
