BY LISA RIDER

The Future of U.S. STORE BRANDS A look at how European retailers are driving private-label growth provides valuable clues to what could be in store for the American market.

n the past 20 years, store regularly purchase store brands, European retailers have done and brands—otherwise known as seeing them as a good value for cer- are doing to drive growth can pro- I private labels—have come a long tain grocery and household goods. vide clues to what could be in store way in the United States. When The recent surge in store brand for the American market. store brands were in their infancy in sales has a number of retailers won- the 1980s, product quality was dering what’s next. What will the Investing in Packaging inconsistent and packaging was future hold for store brands in the Product and package innovation is either generic looking or designed U.S.? clearly one of the next frontiers for to mimic the leaders in a given store brands. One of the most obvi- product category. It’s a much di!er- The Future Is … Europe ous signs that store brands are ent story today. To see the future of U.S. grocery competing on a new level is that Over the past several years, store brands, we need look no fur- they are now regularly winning retailers have invested in quality ther than Europe. Thanks to European design awards for their improvement, product and packag- massive consolidation among retail- packaging. Retailers are recognizing ing development, and marketing ers and early investment in store that their store brands are an their store brands, making them brands, some European retailers important physical extension of one of the few bright spots in the already report over 40% of store their overall brands in consumers’ current retail landscape. At The sales coming from store brands, hearts and minds, and that con- Nielsen Co., we measure what con- according to Europanel. sumer research and packaging sumers watch and what consumers Consolidation has enabled com- improvements can pay o! in buy and our research shows that panies to invest in product increased sales. In Sweden, for store brands represented 21.8% of innovation, consumer research, and example, ICA Sweden relaunched unit volume in 2009 while only marketing, all of which has contrib- its organic range in March 2008, comprising 10% of items in stores uted to strong store brand growth. creating a complete line of organic (Figure 1). In contrast, economy In comparison, the retail universe products with updated packaging, national brands made up 21.3% of in the U.S. is much more frag- and a fresh and modern look and sales, while taking up 29.7% of mented, and the most successful feel. That year, the company won items in stores. Consumers, who retailers tend to have 20–30% of the Swedish Design Award for best might have thought twice about sales coming from store brands, packaging and the sales of ICA including store brands on their highlighting a signi"cant opportu- organic products increased more shopping list years ago, now nity for growth. Examining what than 50% year over year. pg 32 03.10 ´ www.ift.org To meet consumers’ demands, more European store brands highlight organics, local sources, fair-trade, sustainable practices, and/or ethics in their packaging and promotions. Photo courtesy Marks and Spencer

Gone are the days when retailers consumer need. That innovation liquid bottle. The result was a more attempted to copy the packaging of was quickly adopted by the national “eco-friendly” design and a cost sav- the leading national brands with the brands and today, consumers have a ings of 5 pence per bottle. In a hopes of capitalizing on national choice of tuna packaging. Likewise, similar vein, Asda researched alter- brand recognition. Today, store Plum, a European grocery manufac- natives for toilet paper packaging brands are developing well-designed turer, developed a baby food and discovered that packing rolls line packaging that di!erentiates package in a squeezable tube. side-by-side instead of on top of their unique brands and delivers In addition to design and deliv- each other enabled them to pack their own fully developed brand ery, European retailers are 25% more product on the shelves, promises. That focus extends leveraging package innovation to reduce costs by 7 pence per pack, beyond creative concepts and into achieve cost savings as well. and increase sales by 5%. While innovations around the packaging Grocery retailers are examining these two examples are household itself and the ways products are every single element of their prod- goods, similar strategies can be delivered to consumers. These days, uct packaging and how consumers applied to food packaging. packaging innovation is just as likely interact with it in the store. They’re to come from a retailer as it is a rethinking how they distribute their Value(s) Marketing consumer packaged goods company. products, the formulation, label Another area where European gro- In the U.S., Texas-based grocery design, and even down to the bottle cery retailers are leading the way is retailer HEB started the trend of cap. For example, Asda, a UK-based in the area of values marketing. packaging tuna in #exible pouches grocery chain, recently reduced the While the focus on traditional val- after recognizing an unmet size of their dishwashing ues of price, promotion, pack size,

03.10 ´ www.ift.org 33 pg and performance is still dominant, Meijer chain works hard to main- and 2007, retailers added more European retailers are increasingly tain its heritage and connection products than they delisted or aligning their store brands with the with consumers. Fred Meijer, who removed from the shelf, but for the values of their customers. European developed the chain into the super- "rst time in years, retailers delisted consumers are demanding a greater center powerhouse it is today, still more products than they added to emphasis on company ethics, sus- sits on the board. Meijer’s mid-tier their shelves in 2008. Retailers tainability, and transparency store brand products carry the delisted 9.1% of their products in regarding the origin of products. As phrase “quality assured by Fred 2008, while adding only 8.2% of a result, more European store Meijer” on their labels. The quality new products (Figure 2). Retailers brands highlight organics, local of Meijer Gold store brand products don’t necessarily need a bigger sources, fair-trade, sustainable are assured by Hank and Doug selection to succeed; they need to practices, and/or ethics in their Meijer, and that approval still car- have the right selection. To arrive at packaging and promotions. In the ries weight with Meijer customers. the right mix, they are relying more U.S., is o!ering more upon consumer research to deter- organic options and is much more in Assortment: Less is More mine how product changes could tune with the carbon footprint of There’s a general misconception in a!ect sales moving forward. each store, hoping that their con- the retail grocery industry that One new trend is that retailers sumers give them credit for their increasing the breadth of assort- are looking beyond sales to deter- e!orts to reduce their energy usage. ment will automatically drive sales. mine the incrementality of adding We expect to see other American However, numerous studies have and/or delisting products. Aisle by retailers follow suit and continue to shown that having a bigger and big- aisle, department by department, expand upon the values marketing ger assortment doesn’t necessarily European and U.S. retailers are trend. drive sales. In fact, it can have the looking at which categories occupy Another value important to opposite e!ect, overwhelming con- too much real estate or space and European consumers is heritage— sumers instead of encouraging them which categories have too little both in the history of the banner to buy. space. Rather than reducing selec- (store name) and the local region or After years of increasing the tion by a given percent across the nationality. Longstanding compa- variety of products o!ered to cus- board in all categories, more and nies understand their banner equity tomers, retailers are "nally more retailers are using sophisti- and what they stand for in the mind beginning to understand that some- cated tools (including Nielsen of the consumer. In the U.S., the times, less really is more. In 2006 solutions) that can model incremen- Figure 1. U.S. store brands grew their unit share and dollar share in 2009 to 21.8% and 17%, respectively. tality and illustrate the expected incremental sales increases driven Store Brand $ and Unit Share by adding a particular item or expanding categories. Conversely, it 25 can also guide retailers on where to cut assortment without impacting sales. Using consumer panel met- 20 20.8% 21.8% rics and competitive store sales, it’s possible to determine when adding more options isn’t expected to 15 16.6% 17.0% translate into increased sales, enabling retailers to get closer to the “ideal” product mix with

% SHARE 10 greater con"dence. Handheld yogurt pouches and children-oriented yogurt are good 5 examples of a new product that expanded the category. These new products initially drove sales 0 because of innovation that "lled a 52 Weeks Ending 12/27/2008 52 Weeks Ending 12/26/2009 unique consumer need. But after creating the category, the more Store Brands Unit Share Store Brand $ Share brands a store o!ered did not neces-

Source: The Nielsen Company; Total U.S. – Food/Drug/Mass Merchandiser Stores (including Walmart); UPC-coded items only sarily translate into continued new sales. pg 34 03.10 ´ www.ift.org The end result is that, in gen- store brands or private label prod- consumers are more educated, eral, retailers are getting more ucts do not do as well in highly making retailers work harder at sophisticated and more disciplined marketed categories where manu- product di!erentiation. Consumers in selecting which products to o!er facturers traditionally spend large are reading ingredients carefully to consumers. Sophisticated retail- amounts of money on advertising and they know that 100% aspirin is ers recognize the di!erence and brand promotion, such as car- 100% aspirin, regardless of the between a new product that bonated beverages. Retailers brand name attached to it. Unless expands a category and one that recognize that for a new product to there is some other di!erentiation adds costs to the category. Which succeed, they need to generate con- of the product, many consumers are #avors or forms are truly unique? sumer awareness around it. In no longer willing to spend the extra Which are not considered unique, categories with a lot of competing money for a name brand especially but simply a trade-o! with other advertising, it is more challenging in low-marketed categories. In cat- similar product o!erings? In the for store brands to make inroads in egories where they’ve tried the future, we may see more retailers consumer awareness. In low-mar- store brand and feel it’s equal to the asking for proof of category growth keted categories, manufacturers are leading name brand, consumers before agreeing to add a new prod- spending 40% less than average on recognize the value in store brands uct to their shelves. marketing, making it easier for and state they are not going back to store brands to stake claim to con- the higher-priced national brands The Marketing Support Link sumers’ hearts and minds. As a unless the national brand gives them By relying more on sophisticated result, store brands typically do the a compelling new reason to do so. metrics, retailers have been able to best and provide the greatest return National brands are "nding it more see that store brands behave di!er- on investment when there is little or and more challenging to come up ently, depending on their role and no brand marketing in a given with a valid reason. degree of manufacturer marketing category. support for the category. For exam- Just as retailers are growing A Fanatical Focus on Quality ple, Nielsen research shows that more sophisticated, today’s To remain competitive, retailers )LJXUH,QIRUWKHÏUVWWLPHLQPDQ\\HDUVUHWDLOHUVGURSSHGPRUHSURGXFWVIURPWKHLUVKHOYHVWKDQWKH\DGGHG growing their store brand must make sure that the quality of their Retailers Begin to ‘Simplify’ Selection products is equal or better than name brand competitors. If their store brands are not delivering on 20.2% quality, the consumer may choose it based on price for a time, but the 20% retailer will lose the consumer once 17.4% 17.3% his or her economic situation improves. More retailers are invest- 8.2% ing in market research to accurately 4.5% determine which of their products are ful"lling their brand promise 9.1% and which products are falling short. One such retailer is Wegmans, 10% which has conducted exten- sive consumer research with over 12.9% 12.0% 10,000 consumers. The retailer actively promotes its Wegmans 8.2% brand products that beat the name brands in blind taste tests. Perhaps more importantly, Wegmans and many other retailers are using 0% consumer research to identify 2006 2007 2008 poor-performing products and are reformulating them based on Listed Delisted consumer feedback. Similarly,

Source: Nielsen C360 Conference 2009 Walmart conducted research on several thousand of its Great pg 36 03.10 ´ www.ift.org Figure 3. A retailer having to choose between product (C) and (D) should authorize (D) but will tend to authorize (C) because of its Rate of Sales. Evaluate the Incremental Impact of Products Product ‘C’ has the highest Rate of Sales Product ‘D’ has the highest Incremental Impact Product A Product A

Product D Product C

Product B Product B

Source: The Nielsen Co.

Value items and are reformulating lines, but British grocery retailer consumers have tried store brands in those that failed to measure up. Tesco is testing a fourth discount recent years than ever before, and tier, which falls in between the value most have been pleasantly surprised Store Brand Dominant Formats Growing tier and the national brand equiva- by what they’ve found. In many As more retailers experience success lent. It’s a risky move for Tesco, in cases, they’ve found high quality at a with their store brands, we wouldn’t that it could move consumers to good price. As European grocery be surprised to see store-brand dom- trade downward, but it could also chains have proven, there is still con- inant formats growing. While move them up as well, depending on siderable room for growth in the and Supervalu have been in how consumers respond. It will be American store brand category. The this category for a while, we are now interesting to see how this experi- challenge for U.S. retailers is to capi- seeing a number of traditional food ment plays out. talize on their improved brand retailers, such as Walmart, Publix, We see retailers adding new lines recognition and to make sure that Food Lion, and A&P experimenting of store brands, including health and they keep their newfound customers with a more limited assortment for- beauty lines, baby lines, and healthy happy as the economy improves. mat with expanded store brand kids’ foods lines. While growth in Sophisticated retailers are utiliz- assortments. However, these store assortment is expanding most in the ing every tool available to them, brands are not as dominant as you premium/specialty tiers, the greatest including customer research, product would see in an or Sav-A-Lot. sales growth is at the value and mid- concept testing, branding, packaging, dle tiers. While the economy has new formats, and the use of metrics Moving Toward a Three-Tier Model hampered growth of the premium to determine the optimal selection to In Europe, like the U.S., store tier, this tier allows retailers to cre- drive sales (Figure 3). The retailers brands tend to be divided into a ate items that don’t exist anywhere that come out on top will be those three-tiered model of good, better, else, increasing their brand’s di!er- that take the best of what European and premium categories. The good entiation and appeal and driving grocery retailers have accomplished category represents the value tier, store loyalty. and pair it with a laser focus and com- better represents the name-brand mitment to innovation appropriate for equivalent, and the premium cate- An Exciting Future for Store Brands the American market. FT gory is reserved for unique, In summary, we are currently in the high-quality products. midst of an exciting period of poten- Lisa Rider is Vice President, Product Leadership, Most large U.S. retailers have tial growth for store brands. Due to The Nielsen Co., Schaumburg, IL, (lisa.rider@ three tiers, along with specialty the struggling economy, more nielsen.com)

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