This blog post at Marketing Daily‘s website has some interesting statistics about the continuing wrestling match between store brands and national brands (Marketing Daily frequently quotes Broad Street Licensing Group in its stories about the food & restaurant business).
The post references this article in The Wall Street Journal about the rise of private label products, and their ascendency over national brands. Some of that is just the WSJ waking up to what those of us in the business have known for years. It fails to understand that the see-saw, back & forth dance of death between brands and PL isn’t a destination but a process. At the height of the recession, national brands found they had to fight back against consumers switching to cheaper store brands. That fight has cost them margin and profits, but they’ve regained share or exceeded it in some cases. PL products will likely ebb & flow as the economy shifts.
While PL products cost, on average, about 30% less than national brands, their prices have been rising at three times the rate of the big brands (5.3% v. 1.9%) with perishables up 12% (vs. 8% for national brands). The article gets all squishy about some PL products being positioned at premium prices. Wow, that’s only been going on for years, especially in Europe where retailers like Tesco have “good,” “better” and “premium” lines.
The competition from store brands is good for national brands, both the innovation some products bring and the product offerings that aren’t cost-effective for large package goods houses. With CPG houses like Kraft needing $100MM annually in sales to make a line worth their time means that store brands can fill a niche the bigs won’t bother with. However, articles that tout this or that innovative product like Safeway’s resealable bags for their Snack Artist line of chips make it seem like this is an across-the-board development, when in fact most store brands are still just copy-cat products at (somewhat) cheaper price points (but higher profit margins for the retailer). And with several large CPG houses producing store brand products quietly, the products in many cases aren’t even copy-cat: they’re the same.
It’s a business practice we find insane, but we don’t run the CPG houses.
Finally, the myth that PL products are “just as good as” or even “better than” brands is just that: a myth. I recently tried the Shop Rite nonfat yogurt, and it was significantly inferior, both in terms of taste, mouthfeel and fruit to the Axelrod product I have been purchasing for years. The price difference? About a nickel per container. I’m worth a nickel for better yogurt.
Posted in Consumer Package Goods (CPG), Grocery Stores, Private Label, Retailing | 2 Comments »
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