What´s in Store for Store Brands
Store brands, also known as private labels, are mainstream in many markets and becoming more so, particularly in developing markets. As such they constitute legitimate threats to established brands. As retailers update store brand packaging and roll out premium lines of private labels, shoppers seem increasingly willing to try these products. How can the makers of major consumer packaged goods brands defend their market share in the face of this phenomenon?
In a trend that transcends categories, countries and retail environments, brands are under attack from private label products. According to Nielsen, private label penetration is estimated to be growing on a global basis by 5 percent per year, while the growth rate for manufacturers' brands is just 2 percent. Is it the value proposition alone that powers the growth of private labels, or are there other factors underlying the trend?
A private label - also known as a store brand, or a shop's 'own brand' in the United Kingdom - is one carried exclusively by a single retailer. For the purposes of this POV, I am referring specifically to store brands that compete with manufacturers' brands on retail shelves, as opposed to brands sold in stores that feature retailer brands exclusively (such as Gap, Victoria's Secret, Aldi, and IKEA).
Store brands may carry the store's name (e.g., Kroger or Sainsbury's) or a name unique to the retailer (e.g., Kirkland at Costco, or No7 at Boots). But even in one individual store, the situation on the shelf can be quite complex. A shopper may face multiple tiers of private labels: generics offered at substantially lower prices than brands; 'imitation' brands designed to emulate the quality of brands at a reduced price; and premium offerings at price parity or slightly above brand pricing. At retailers such as Tesco or Royal Ahold in Europe and the United States, there are organic and fair trade lines of products as well.
Private label products generate anything from 1 percent of All Commodity Volume (ACV) in Mexico to close to 50 percent in Switzerland (AC Nielsen, 2005). In Germany and the United Kingdom, private labels account for almost one-third of the value of goods sold. The United States has more room to grow, with private labels accounting for about 17 percent of goods sold and a strong growth rate of 7 percent. In emerging markets, sales of private label products are growing at about 10 percent per year, which is twice the overall global rate.
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