Store Brands Flex Muscle in Weak Economy
Everybody, everywhere likes a good value, which is why store brands outperformed national brands in the United States on an average unit sales growth basis and has posted gradual gains over time in this country as well as in many European countries. Turns out, heavy store-brand buyers are good for sales overall, leading the charge on unit growth, unit spending and trip frequency criteria. Store brands have won favor among younger households, boding well for long-term store brand prospects.
Prompted by belt-tightening as consumers respond to the long-tailed economic downturn, store-brand offerings posted value or currency share gains in two-thirds of the 21 European and North American countries Nielsen studied, picking up an average of 1.3 share points during 2009. The U.S. trajectory was more pronounced, with store brands advancing to a 17.3 percent share of dollars and a 21.9 percent share of units by March 2010 — up 2.1 and 1.9 points, respectively, from 2007. Branded products, however, still drive the vast majority of dollar (82.7 percent) and of unit (78.1 percent) sales.
Even as store brands secured their spot on consumer shelves, branded offerings demonstrated consistent, gradual improvement over the last half of the year. During this time, store-brand average period unit sales grew by 2.5 percent, while brands realized incremental growth of 0.4 percent. Increases in promotional support behind branded products helped stabilize a declining trend.
A Force at Retail
Store brands demonstrated their power by capturing a 20-unit share or higher in 48 of the 117 categories analyzed by Nielsen. Store-brand share fluctuated widely by department, from a high of 40 percent for the dairy department, to a low of less than 1 percent for alcoholic beverages. This mirrors the typical pattern of store-brand strength in commodity categories like milk, eggs and sugar, as well as those with little “consumer-perceived” differentiation such as first-aid or wrapping materials.
In categories with a history of strong brand marketing support like beer and candy, or those with a high, demonstrated level of innovation such as deodorants and detergents, store-brand share remains relatively weak and undeveloped. The low-hanging fruit for store brands involves cherry-picking sales at the expense of smaller brands with commensurately smaller marketing support budgets.
The Price Point
Significant real price gaps between store brand and national brands present an opportunity to drive category sales by narrowing the gap in select categories such as those with a high consumer-value perception. Consider the upside of making a strategic pricing move to support store brands. To demonstrate the impact of a unilateral, almost imperceptible one-cent price gap decrease across categories, Nielsen calculated the yield at up to $400 million in incremental annual unit sales due to increased volume.
Other strategies available to compete successfully with national brands require that retailers adopt and adapt the branded playbook. That means investing in store-brand programs that highlight product innovation backed by aggressive advertising and promotion campaigns. However, don’t forget that branded products hold the majority share position in most categories. Retailers need to balance their efforts to ensure they give the proper focus to the national brands and regional brands that dominate most store shelves.
Super Savers
Heavy buyers made a bigger impression on store brand sales in 2009 vs. 2008. Comprising just 20 percent of households and 46 percent of store-brand unit sales in 2008, super-heavy buyers expanded to 22 percent of households in 2009 and chalked up nearly half (48 percent) of store-brand unit sales. Not only did super-heavy store-brand buyers ring up big store-brand sales, they also accounted for 34 percent of total purchases across the store in 2009.
To put super-heavy buyer clout into perspective, their all-category buying rate is three times that of the super-low store-brand buying segment, and they deliver twice as many buying occasions as super-low store-brand buyers.
Even as the recession amped-up super-heavy store-brand buyer activity, store-brand unit share also increased across the lighter store-brand buying households examined. However, brands dominate the overall share picture, as they commanded 91 percent of super-low buyer unit sales, 85 percent of low, 81 percent of medium, 77 percent of heavy and 68 percent of super-heavy user volume.
Buyer Profiles
In contrast to the manufacturer coupon model, where the heaviest users are the most affluent consumers, store-brand heavy users cluster in the middle-income range with annual household earnings of $30,000 to $69,999. While it’s logically consistent that bigger households, with more mouths to feed, would be focused on a savings-based shopping strategy, store brands also have a loyal following among two-person households looking for value.
Perhaps surprisingly, younger female heads of household have a propensity to shop store brands, which is contrary to the conventional brand management wisdom of targeting young buyers to secure their loyalty early on. At the opposite end of the spectrum, the lightest store-brand shoppers are men over the age of 65. Heavy store-brand buyers tend to be white vs. ethnic households that live in “comfortable country” or “plain rural living” areas with 3-plus person families. Brands beware — the demographic segment that experienced the fastest growth in store-brand unit sales among the heaviest store-brand buyers came from households with incomes of $100,000 or more.
Store Brand Buyer Profile (It’s Not Who You Think)
—Middle-income families (between $30,000-$70,000 annual incomes)
—Reside in “plain rural living” and “comfortable country” areas
—Larger households with 3-plus members
—Younger female head of household
—Fastest-growing segment is families making $100,000-plus
Tiered Offerings
Long gone are the days of generics with stenciled package labels. Today’s store-brand portfolio is multi-tiered and can include a value tier with a low opening price point, national-brand equivalents with comparable quality at a savings, and a premium or specialty strata such as a natural/organic label, one-of-a-kind innovative items or a line that doesn’t include the store name at all.
No matter which direction the economy takes, consumers have had a taste of life in the store-brand lane, and they like it! Expect store-brand quality to climb, along with price points, while the store-brand SKU list expansion continues offering premium and unique items never before available.
Store Brand-Boosting Strategies
1. Close the price gap
2. Enhance product quality
3. Advertise aggressively
4. Promote consistently
5. Shelve advantageously
6. Reward heavy buyers
7. Stimulate new user trial
8. Cross-promote complementary items
9. Retain high penetration, high frequency and strong niche brands
Concentrated Strength
In most countries, the concentration of a few dominant retailers correlates well with higher store-brand share, but there are exceptions. This is also true in the United States, where higher store-brand shares in markets are served by a few dominant retailers. With the likelihood of continued consolidation of U.S. retailing in the years to come, expect to see continued growth in store-brand shares.
Prompted by belt-tightening as consumers respond to the long-tailed economic downturn, store-brand offerings posted value or currency share gains in two-thirds of the 21 European and North American countries Nielsen studied, picking up an average of 1.3 share points during 2009. The U.S. trajectory was more pronounced, with store brands advancing to a 17.3 percent share of dollars and a 21.9 percent share of units by March 2010 — up 2.1 and 1.9 points, respectively, from 2007. Branded products, however, still drive the vast majority of dollar (82.7 percent) and of unit (78.1 percent) sales.
Even as store brands secured their spot on consumer shelves, branded offerings demonstrated consistent, gradual improvement over the last half of the year. During this time, store-brand average period unit sales grew by 2.5 percent, while brands realized incremental growth of 0.4 percent. Increases in promotional support behind branded products helped stabilize a declining trend.
A Force at Retail
Store brands demonstrated their power by capturing a 20-unit share or higher in 48 of the 117 categories analyzed by Nielsen. Store-brand share fluctuated widely by department, from a high of 40 percent for the dairy department, to a low of less than 1 percent for alcoholic beverages. This mirrors the typical pattern of store-brand strength in commodity categories like milk, eggs and sugar, as well as those with little “consumer-perceived” differentiation such as first-aid or wrapping materials.
In categories with a history of strong brand marketing support like beer and candy, or those with a high, demonstrated level of innovation such as deodorants and detergents, store-brand share remains relatively weak and undeveloped. The low-hanging fruit for store brands involves cherry-picking sales at the expense of smaller brands with commensurately smaller marketing support budgets.
The Price Point
Significant real price gaps between store brand and national brands present an opportunity to drive category sales by narrowing the gap in select categories such as those with a high consumer-value perception. Consider the upside of making a strategic pricing move to support store brands. To demonstrate the impact of a unilateral, almost imperceptible one-cent price gap decrease across categories, Nielsen calculated the yield at up to $400 million in incremental annual unit sales due to increased volume.
Other strategies available to compete successfully with national brands require that retailers adopt and adapt the branded playbook. That means investing in store-brand programs that highlight product innovation backed by aggressive advertising and promotion campaigns. However, don’t forget that branded products hold the majority share position in most categories. Retailers need to balance their efforts to ensure they give the proper focus to the national brands and regional brands that dominate most store shelves.
Super Savers
Heavy buyers made a bigger impression on store brand sales in 2009 vs. 2008. Comprising just 20 percent of households and 46 percent of store-brand unit sales in 2008, super-heavy buyers expanded to 22 percent of households in 2009 and chalked up nearly half (48 percent) of store-brand unit sales. Not only did super-heavy store-brand buyers ring up big store-brand sales, they also accounted for 34 percent of total purchases across the store in 2009.
To put super-heavy buyer clout into perspective, their all-category buying rate is three times that of the super-low store-brand buying segment, and they deliver twice as many buying occasions as super-low store-brand buyers.
Even as the recession amped-up super-heavy store-brand buyer activity, store-brand unit share also increased across the lighter store-brand buying households examined. However, brands dominate the overall share picture, as they commanded 91 percent of super-low buyer unit sales, 85 percent of low, 81 percent of medium, 77 percent of heavy and 68 percent of super-heavy user volume.
Buyer Profiles
In contrast to the manufacturer coupon model, where the heaviest users are the most affluent consumers, store-brand heavy users cluster in the middle-income range with annual household earnings of $30,000 to $69,999. While it’s logically consistent that bigger households, with more mouths to feed, would be focused on a savings-based shopping strategy, store brands also have a loyal following among two-person households looking for value.
Perhaps surprisingly, younger female heads of household have a propensity to shop store brands, which is contrary to the conventional brand management wisdom of targeting young buyers to secure their loyalty early on. At the opposite end of the spectrum, the lightest store-brand shoppers are men over the age of 65. Heavy store-brand buyers tend to be white vs. ethnic households that live in “comfortable country” or “plain rural living” areas with 3-plus person families. Brands beware — the demographic segment that experienced the fastest growth in store-brand unit sales among the heaviest store-brand buyers came from households with incomes of $100,000 or more.
Store Brand Buyer Profile (It’s Not Who You Think)
—Middle-income families (between $30,000-$70,000 annual incomes)
—Reside in “plain rural living” and “comfortable country” areas
—Larger households with 3-plus members
—Younger female head of household
—Fastest-growing segment is families making $100,000-plus
Tiered Offerings
Long gone are the days of generics with stenciled package labels. Today’s store-brand portfolio is multi-tiered and can include a value tier with a low opening price point, national-brand equivalents with comparable quality at a savings, and a premium or specialty strata such as a natural/organic label, one-of-a-kind innovative items or a line that doesn’t include the store name at all.
No matter which direction the economy takes, consumers have had a taste of life in the store-brand lane, and they like it! Expect store-brand quality to climb, along with price points, while the store-brand SKU list expansion continues offering premium and unique items never before available.
Store Brand-Boosting Strategies
1. Close the price gap
2. Enhance product quality
3. Advertise aggressively
4. Promote consistently
5. Shelve advantageously
6. Reward heavy buyers
7. Stimulate new user trial
8. Cross-promote complementary items
9. Retain high penetration, high frequency and strong niche brands
Concentrated Strength
In most countries, the concentration of a few dominant retailers correlates well with higher store-brand share, but there are exceptions. This is also true in the United States, where higher store-brand shares in markets are served by a few dominant retailers. With the likelihood of continued consolidation of U.S. retailing in the years to come, expect to see continued growth in store-brand shares.