Private Label Programs Take Off

Recent research on a number of fronts all point in one direction: difficult economic times have bolstered the rollout and expansion of many retailers' private label lines -- including c-store operators.According to The NPD Group's "Private Label Perceptions, Usage Patterns and Intentions," 24 percent of all food and beverages served in American homes last year were store brands, up from 18 percent in 1999. Today, 97 percent of all households consume private label foods on a regular basis. "There is no question that private label foods have become an integral part of American life," said Harry Balzer, chief industry analyst at NPD and author of "Eating Patterns in America." He added: "Furthermore, we do not hide private label foods as an ingredient or as an additive to another dish. Today over half of all store brand food eatings are the end dish."Price and value are the chief reasons consumers purchase private label or store brands, according to an NPD survey of grocery shoppers. Most respondents, however, also feel the quality of store brands is often equal to, or in some cases better than, name brands. Users of private label foods and beverages span all income levels and demographic profiles, according to the report.This wave of acceptance supported 7-Eleven Inc.'s expansion of its private label line in recent months. Now with more than 200 private label products, the chain is working to add nearly 100 more items to its 7-Eleven and 7-Select brand lineup by the end of the year."We started with product categories that offered the most potential and are now offering private label in just about every category," said Tom Gerrity, 7-Eleven's senior product director, who has been at the forefront of the private label program.While not walking away from national brands, the chain initially was aggressive in finding space for its store brands on the shelf and in primary store real estate. "We look at it from a total category perspective -- can we grow total units, sales and gross profit? Some suppliers will win, and some will not do as well as we roll out more private label items, but the customer makes the decision at the point of purchase, looking at the branded product and our high-quality private label, which offers a substantial savings," said Gerrity. "Of course, the price is what gets them to try a product, but value, taste, usability and convenience of the product will keep them coming back to it."Strong brands will continue to dominate their categories, Gerrity said, but 7-Eleven will offer a great value and give store operators and franchisees products and data to help them make informed decisions on assortment, rather than relying too heavily on suppliers' picks.Initially, 7-Eleven offered private label products comparable to the national brands' key items, "but as we get deeper into it and understand the business, we are making adjustments and our goal is to develop products unique to 7-Eleven with new flavor profiles and unique packaging that is more designed for customers on the go," Gerrity said.The team at 7-Eleven doesn't expect to bring down a brand like Doritos or Snickers, Gerrity said, "but that's okay. We need those customers too."And the retailer doesn't expect private label products to lose their appeal as the economy rebounds. "That would give us an opportunity to take our program to the next level," he said. "Some retailers offer three tiers of private label -- economy, mid-tier and premium. Our private label program will continue to evolve beyond the basics we offer today."Gerrity's theory is well supported by a poll of more than 800 main household grocery shoppers conducted this spring by GfK Custom Research North America for the Private Label Manufacturers Association (PLMA).As the economy recovers, the overwhelming majority -- 91 percent -- of U.S. shoppers will continue purchasing store brand products, according to the poll. Conversely, only 8 percent of the consumers polled said they would stop buying these products.The quality of store brand products is a big factor in convincing shoppers to keep buying them. The GfK poll found nine out of 10 shoppers agreed the store brand products they buy are just as good as or better than national brand products.7-Eleven currently offers a broad spectrum of items, from lunch and sandwich bags to coffee filters and olive oil. One huge success for the chain is single-serve kettle chips. The chain introduced nine varieties, and seven are now in the retailer's top 10 selling SKUs in the category."We have had great support from our franchisees and our customers have really accepted the product over the branded items," Gerrity said. Now in the works is a line of baked chips.Among the products 7-Eleven will not take on with private label items are colas, cigarettes and beer, which the retailer tried in the past. Two private label wines, however, one a premium product and one a value brand, are doing very well.An important component of the program is packaging and labeling. "We spent a great deal of time designing our labels and ended up with a logo we could use domestically and internationally," the retail executive said. 7-Eleven's store brands will soon enter Canada.Meanwhile, at San Antonio-based Valero, spokesperson Bill Day said the c-store operator "has a lot of success" with its Fresh Choices products. "Our bottled water is doing very well, and we have introduced a line of [enhanced] water," he noted. "Our Fresh Choices bottled sodas sell alongside brand-name bottled sodas, and the Fresh Choices chips are also doing very well."Still, IRI's Sally Lyons Wyatt warns retailers the right balance between branded products and private label items is crucial. "If the private label products start impacting sales in the category overall because of a heavy push of those items, that's bad," she said.According to one IRI report, 46 percent of shoppers have increased private label purchasing activity in response to economic hardship. Private label's share of snack sales, in food, drug and mass market rose from 10.4 percent to 11 percent in 2008, and volume increased from 15.5 percent to 16.3 percent in 2008 vs. 2007.Indeed consumers are becoming very aware of the value of private label programs, especially in the grocery and mass merchandiser channels, which Gerrity said helps 7-Eleven in its efforts.Consumer research by PLMA revealed shoppers could save roughly 30 percent off their grocery bill by purchasing store brand products on weekly trips to the supermarket. On a typical trip to a supermarket to buy 43 basic grocery and household items, the research indicates consumers saved an average of $46.39, or more than 30 percent savings when compared to purchases of national brands in the same categories.The top five products in the study found to have the largest gaps in pricing by percentage were aspirin, sinus spray, soda, saltine crackers and body lotion. That price differential saved consumers between 50-60 percent, while items such as cereal and ice cream saved consumers more than 30 percent. Store brand frozen pizza had a price differential of 23 percent, and dog food saved shoppers 25 percent over competing brands."Prices may vary from market to market, but the savings that consumers will achieve will follow the same pattern across the country," said PLMA president Brian Sharoff. Nielsen Business Media

Brand Marketing

Private Label Programs Take Off

Barbara Grondin Francella

About

Subscriptions

Events

Publications

WORK SMARTER - LEARN, GROW AND BE INSPIRED.

Subscribe today!

Barbara Grondin Francella