Current private label performance suggests that, while private label has made gains over time, share growth is slowing, but major revenue growth opportunities still exist for retailers to tailor their products and messaging to all income groups. Source: IRI Consumer Network, 52 weeks ending Dec. 27, 2009, vs. same period in prior years, all 297 CPG categories and outlets.

Ten years ago, store brands were like that shy, awkward kid we all knew in grade school: friendless and hiding in a corner. But just like those awkward kids, who often grow up to become star athletes or corporate CEOs, store brands have risen out of the shadows.

It’s no secret that store brands now enjoy an increasingly important spot in the shopper’s refrigerator and pantry. But understanding the details — why and where shoppers prefer to buy store brands, the categories in which store brands have been successful and unsuccessful, and what types of consumers tend to buy store brands — is critical to both retail managers (to continue this success) and national brands (to create new strategies to counter this growth).

SymphonyIRI just completed its fourth annual in-depth analysis into the growth and evolution of store brands. These studies represent ongoing and long-term analysis of the fundamental change in the relationships among manufacturers, retailers and consumers. Just as retailers have innovated and invested in store brands to generate new revenue streams and increase shopper loyalty, manufacturers are seeking out new strategies to reach and impact consumers directly, disintermediating the retailer in some situations. Consumers, too, have reassessed their relationship with both manufacturers and retailers, spurred by an ongoing redefinition of value.

Ongoing attraction of store brands
Store brand success reflects increasingly sophisticated strategies implemented by retailers, including tiered assortments, improved packaging, enhanced innovation and aggressive merchandising and promotion. Many store brands continue to offer a good-quality, lower-cost alternative to national brands, while other store brands are premium in quality and priced comparatively with national brands.

As a result, unit share of store brands, which had grown to approximately 21 percent prior to the last recession, continued to grow during the recession, reaching 23.3 percent at the end of 2009.

Store brands increasingly are behaving like national brands, reflecting their widespread acceptance by shoppers. During the recession, price inflation resulted in decreased consumer demand overall on the part of budget-strapped shoppers; more recently, prices have held steady and even decreased. However, store brand unit volume has not changed significantly, demonstrating that consumer acceptance of store brands is driven by more than just low price.

Success uneven across channels
Store brand success has occurred across all channels, increasing most rapidly in the grocery and drug channels, where retailers have implemented highly aggressive growth strategies. Among grocery chains, store brand unit share stands at 26.5 percent and grew 2.2 percent between 2007 and 2009. Conversely, Walmart’s “Every Day Low Price” emphasis for national branded products mitigated the retailer’s store brand growth; share increased just 0.3 percent between 2007 and 2009.

Dollar share growth has been more uneven, growing more slowly than unit share in grocery, but faster than unit share among drugstores, reflecting increased investment in store brand variety.

The strongest growth occurred within commodity categories where no national brand dominates and less innovation has occurred. In the second half of 2009 versus 2008, for example, refrigerated salads, gastrointestinal tablets and refrigerated entrees demonstrated the highest (unit) growth, at 3.6 percent, 3.5 percent and 3.3 percent, respectively.

But store brands underperformed in many other categories, especially as the economy improved and national brands fought back with increasing innovation and improved marketing. For shortening and oil, tomato products and cream cheese, for example, store brand (unit) share slumped 3.0 percent, 2.0 percent and 1.6 percent in the second half of 2009 versus 2008.

Store brand shoppers are us
Across all channels, store brand market share is strongest among lower-income shoppers, but the delta with middle- and upper-income shoppers is small. Multi-tiered quality and pricing assortments have attracted shoppers of all incomes.

Nearly three out of four shoppers across all income and age segments believe in the quality of store brands, although dollar share and unit share (averaged across all channels) remain below 20 percent. Many consumers still have longstanding emotional connections to national brands that store brands have yet to erode.

Retailer strategies for continued success
Concurrently, the weaker success of store brands in certain channels and categories shows that with aggressive innovation, merchandising and pricing strategies, national brands can compete effectively.

Retailers cannot take store brand success for granted. Shoppers have strong, longstanding emotional attachments to many national brands, built up over decades. Only by committing to continuous innovation and creativity can retailers maintain and accelerate the progress store brands have enjoyed to date.

Sean Seitzinger is senior vice president, Innovation and Consulting, for SymphonyIRI Group, Chicago. More information about SymphonyIRI’s New Report, “Understanding and Mitigating the Store Brand Threat,” and the company’s ongoing series of reports on the store brand phenomenon is available by contacting Brent Baarda at brent.baarda@symphonyiri.com.