CHICAGO, Nov. 12, 2007 – Private label brands have long been a huge phenomenon in Europe, and now the retail strategies driving European private label growth are beginning to cross the Atlantic as major U.S. retailers invest more heavily in private label development. The latest IRI Times & Trends Report, “Private Label 2007—U.S. and Europe: Retail Branding Strategies Capture Market Potential,” explores private label trends across the United States and Europe and uncovers insights into what both retailers and manufacturers can do to achieve their private label objectives and meet consumers needs.
“Private label development varies widely by country, market, retailer and category,” says IRI Retail Solutions and Strategic Consulting President Thom Blischok. “Differences in industry structure and category dynamics account for some of these discrepancies, but retail branding strategies also play a huge role. High private label share among leading U.S. retailers, such as Safeway, Wegmans and Kroger, is a testament to the power of strong retail branding.”
In the United States, private label is significantly less developed than it is in several European countries, including Germany, the U.K., France and Spain, where private label share exceeds U.S. share by 50 percent or more. A higher retail concentration and a strong hard discounter presence contribute to the higher share in Europe, but sophisticated sub-branding strategies, including multi-tiered private label offerings and niche lines targeting specific consumer segments, have also been instrumental in building strong private label brands.
In both the United States and Europe, private label development varies dramatically by category—illustrating the ability of branded manufacturers to influence private label potential through brand investment, including advertising, innovation and merchandising.
U.S. Private Label Findings
IRI research found that total private label share in the United States has been flat for the past several years and is not likely to break out of the current holding pattern without significant household penetration increases across a broad range of categories. Currently, 20 percent of categories comprise 70 percent of private label sales. And, while all U.S. households buy some private label, penetration is low across most individual categories. As a result, private label sales are concentrated among the heaviest buyers with just over one-quarter of private label buyers driving 50 percent of sales. Private label sales indices increase as household size grows and decrease with higher incomes.
Despite flat share overall, sizable shifts have occurred at the category level. Categories with the largest private label share increases include butter, gastrointestinal tablets, pasta, cups and plates to name a few. Price increases are a contributing factor to private label growth in several categories as consumers seek less expensive alternatives. Private label lost share in some categories, including bottled water, internal analgesics and dog food, where innovative new branded product introductions were embraced by consumers.
Across channels within the United States, grocery and supercenters are private label channel share leaders; however, the growth award goes to club stores. Club store retailers have been private label innovators. For example, Costco has the highly successful Kirkland Signature brand, which extends across a wide array of CPG and non-CPG categories, enabling the company to extend purchases among satisfied buyers to new categories.
European Private Label Findings
Retailer concentration plays a significant role in Europe’s private label success. The top five retailers hold more than 50 percent of the market in Spain, the Netherlands, France and the U.K., but only 25 percent in Italy, where private label is not well developed. Dominant retailers in these markets leverage strong brand equities to gain consumer acceptance and have the scale required to gain operational efficiencies.
Hard discounters hold a significant market share in Germany, the Netherlands and France. Discounters, such as Aldi and Lidl, not only help to drive broader acceptance of private label given their strong private label focus, but also put pressure on competing retailers to offer entry price point brands.
Leading European retailers have extended their private label offerings through sub-brands, which are targeted to distinct consumer segments. This strategy has resulted in multi-tiered offerings and niche products that enable the retailer to reach a much wider base of consumers.
Action Items for CPG Manufacturers and Retailers
The IRI report outlines distinct opportunities and action items for retailers and manufacturers with respect to private label, including the following:
Manufacturers
- Evaluate private label threats and competitive opportunities at the account and store level
- Invest in product, merchandising and packaging innovation and ramp up advertising among categories with a growing private label presence
- Leverage strong company umbrella brands in product brand marketing and consider expanding existing brands into multi-tiered offerings, such as adding a value and/or premium sub-brand
Retailers
- Evaluate private label growth potential at the category and store level, assessing fit with core and target consumer segments
- Invest in store branding and leverage high-equity banner brands as umbrella brands in private label marketing and packaging
- Broaden private label penetration across categories and consumer segments through multi-tiered offerings and niche lines, such as kids, green, and organic
About the Report
The Times & Trends report is available from IRI, the leading global leading provider of consumer, shopper, and retail market intelligence and insights for the consumer packaged goods (CPG), retail and healthcare industries. The findings of this report were compiled based on information from IRI Consumer Network™, and IRI InfoScan®. To download the report, visit http://us.infores.com/page/content_access?t=2&i=38&saved=1.
About Information Resources, Inc.
IRI is the world’s leading provider of consumer, shopper, and retail market intelligence and insights supporting 95 percent of the FORTUNE Global 500 consumer packaged goods (CPG), retail and healthcare companies. Only IRI offers the unique combination of integrated market information, automated and predictive analytics, innovative enabling technologies, and domain expertise. With IRI, leading retailers and manufacturers are able to quickly discover breakthrough insights driving smarter decisions and actions across the enterprise for breakthrough results. Companies around the world depend on IRI for improved productivity, stronger brands, and dramatic revenue growth. For more information, visit http://us.infores.com.
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