Private Label growth in US grocery retail and branded goods impact

Posted on November 26, 2011 by aviyer2010

An article in Bloombergbusinessweek (Nov 28,2011) describes grocery retailers like Safeway and Kroger rejuvenating private label products for antibiotic free meat, frozen pizza, pasta etc. Consultants such as Mckinsey estimate that 75% of customers who try private label brands are retained, while Deloitte researchers claim that under 30% of current branded goods consumers a brand loyal. Will the 30% lower price for private label cause this demand to be lost even when the economy recovers ? Given that branded manufacturers absorb the cost of advertising, how would they react to compensate ? Will manufacturer appeals to consumers increase to build btand loyalty? Will the internet build different communication links across the grocery supply chain?

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This entry was posted in Operations Management, Supply Chain Issues and tagged competition, Consumers, Cost, grocery, Loyal Customers, private label, Retail, Supply Chain. Bookmark the permalink.

18 Responses to Private Label growth in US grocery retail and branded goods impact

Rahul Srinivas Sucharitha says:

September 29, 2015 at 1:57 pm

I think that the growth of private labeling is growing in the United States as the grocery retailers hope to get more consumers such that they buy all their groceries from one single place. By having private labeling, in some retail outlets, the cost of certain private brands are cheaper and equally efficient than the branded goods thereby ensuring more demand. Also, the allotment of slots in the retail stores would be for the private brands first thereby ensuring more competition and more demand from the other brands.

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Qidi Cao says:

September 29, 2015 at 2:40 pm

In my opinion, the private labeling in US grocery stores will increase. One reason is that the grocery store wants to keep variety goods in their store so that costumers will continuing go to their store and buy staff. I think the 30% lower price for private label will not cause this demand to be lost since there are customers will stick to their brand loyal.

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Xiaowei Shao says:

September 29, 2015 at 3:14 pm

What the customers care about when choosing a brand is the price and quality of the certain product. So the 30% lower price may possibly attract more people buying private label products if they are high-quality assured. When a long-term buying habit is cultivated, customers will consistently choose this brand regardless of convenience or price. That is a way to earn customer loyalty.

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blake osborn says:

September 29, 2015 at 5:01 pm

I think retailers have to focus on getting consumers to switch to the private lables. I think consumers already think they are giving the retailers their margin and don’t want to take away from the competition in the market place. Whenever individuals think the middle man is being cut out some worry that if the majority of the savings is not passed on to the consumer that it can have a negative impact on competition in the market.

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Kairui Jia says:

September 29, 2015 at 8:28 pm

As an important method of marketing, advertisement has its special effect on potential customers.Thus manufactures should improve advertisement quality to model its unique image in order to fascinate customers. For example, a tea beverage named Wang Lao Ji succeeds for its unique characteristics in China. The advertisement emphasizes its function of preventing ‘Shanghuo’, a certain kind of disease in Chinese culture, which most beverages lack of. Then customers are attracted because they can enjoy its taste as well as keep healthy. Private brands can’t lead to such impression on customers without ads. What’s more. you may like Coca cola or Pepsi cola, but you hardly try Walmart’s cola or Kroger cola even if they had their brands. In summary, taking full advantage of ads is the key for manufacturer enlarging market share.

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Aaron Johnson says:

September 30, 2015 at 9:58 am

I think private labels will continue to grow even though the economy continues to come back. In an attempt to save money during the economic downturn, many consumers started buying private label products, and as the blog post states, 75% of those customers are retained. The average consumer realizes that the difference in quality between many of the private label and national brands is minimal, so buying private label products is an easy way to save. If retailers continue to price lower than the national brand (even during promotional periods), many consumers will continue buying private labels. Also, the competition could be good for the end consumer because prices will continue to be driven down on many grocery items in an effort for companies to stay competitive.

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Ryan Case says:

September 30, 2015 at 10:48 am

I believe that private label will continue to increase in demand, even as/if/when the economy recovers. Many consumers are realizing that these products are similar in quality, so why pay higher prices for branded foods. Aside from eating out at fancy restaurants or cooking for trendy parties, the higher priced brands do not promote image from the privacy of ones residence.
If retailers want to capitalize on a recovering economy in the future, they will slightly increase their prices but still remain below that of higher priced brands. With equal quality, most consumers will be price conscious in spending.
If the internet can capture the appeal of online shopping and delivery, while ensuring freshness and quality there will be even greater change in the future. Customers may be willing to pay more for convenience, therefore purchasing private labels would allow for better management of the consumers overall spend. Private labels may utilize this convenience to transfer some of their absorbed cost of advertising.

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- Joseph Mista says:
  
  September 30, 2015 at 4:50 pm
  
  I agree with Ryan, as the retention for those who try a private label good is very high, more and more consumers will find that they can get the same quality if not better for a lower price. As long as the private labels keep their prices below the branded goods there is an inherent value for the consumer. As a different generation is taking over consumer goods, I think there will be a shift away from branded loyalty, as more and more people care about the quality of a good as opposed to the name on it.
  
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- Tyler Bond says:
  
  October 1, 2015 at 9:14 am
  
  I also agree with you Ryan, especially on the basis of online delivery. Both Amazon and Walmart are two huge players who are going to begin to push home delivery more and more in the future. The issue I see with this is that people get into a routine and it’s hard to change their lifestyle. Going to the grocery has become a weekly ritual for a lot of families and may be hard to break that trend. Although it will for sure save time, I question if convincing consumers to start shopping online will be an easy task.
  
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WeiShao Chen says:

September 30, 2015 at 1:21 pm

From my point, private labels sales will increase even the economy recovers. I would like to split the branded products into 3 categories, 1. Cheap and low quality; 2. Fair price but might features some nature ingredients added in; 3. Strong branding and has special features. When the economy recovers, some of the first category’s customers might transfers to the 2nd category, but not too much cause customers in this category are extremely price sensitive. In the 2nd category, also the private labels are targeting in, customer would realize that the quality of private labels and branded manufacturer is comparable. Finally, lots of customer will switch to private labels. In the 3rd category, I think customers in this category is quite loyal. Therefore, results in branded manufacturer must take more actions to mitigate their sales decreasing, such as more features, more advertising, or even lowering price. Might some branded manufacturers will try to switch to the 3rd category.
With internet communication facility, branded manufacturer could know the products consumption
on good time manner, forcing branded manufacturers to specify on their efficiency on forecasting, marketing and researching. In thin plot, internet communication will bring more customers for retailers.

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Kevin Morrisroe says:

October 4, 2015 at 3:59 pm

As Mckinsey found, 75% of those who try private label brands are retained and I do not foresee that changing even when the economy recovers. It is the perception of cheap versus quality that consumers have but when forced to cut on budget and try the private labels, they see they have the same quality. The issue is how to get more consumers to try the private labels as the economy picks up. I believe branded goods could increase their brand loyal customers but it requires a large investment in advertising and a reason to stay to that brand. As private label quality increases, it is harder and harder for a consumer to stay loyal.

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Gautam Hardikar says:

October 4, 2015 at 9:06 pm

The perception that lower price follows lower quality is slowly changing and in times of economic slowdown, consumers perceive great benefits in switching loyalties to private labels. The key challenge for manufacturers is to appeal to consumers to retain their brand loyalty. A good way to do that is to collaborate with retailers for better shelf space and higher visibility and utilize the advertising benefits they have over private labels to improve sales. The increased marketing cost can be used to build long term trust with consumers and gain more sales. With growing internet access, the cost of advertising has come down thereby helping manufacturers to compete against the low cost private labels.

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Kyu says:

October 5, 2015 at 12:17 am

Based on my personal experience, I never enjoyed private labeling products. One of the reasons is because most of them had low quality if I compare it with the products supplied by branded manufacturers.One of other reasons is that there are not much difference in unit cost between two products. for example, branded clothes tends to last longer when treated equally. 30% lower price is definitely tempting to customers, however, they may beat branded products only upto a certain point. However, as customers become more wise, private labeling products will lose customers’ interests.

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Eric Mirro says:

October 5, 2015 at 8:12 pm

I agree a lot with Kyu said, especially the point about long term usage. A lot of people see the lower price and go with that product (such as clothing or food) thinking they got a better deal. With clothes, usually higher quality brand labels end up being more cost effective on a per usage basis (which most people don’t think about when they first buy it). Food is similar in that I find that if I’m going to invest in food for my personal consumption and to share with family and friends, I want it to be worth my money in taste. Sometimes the private labels are just as good as the brand labels; sometimes the brand labels are better. The type of grocery product I have found to often play a role in that distinction.

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Ankita Singh says:

October 6, 2015 at 9:22 am

In present day scenario,most of the private labels are maintaining the quality standards followed by branded labels.Gone are the days when low price was seen as an indication to low quality. Customers are informed. At times they also know that the manufacture for a product is same, after which the branded labels and private labels, package and sell the same product under their names. For example, the multi vitamin tablets sold in Walmart under private label has same composition and manufacturer as the branded label.
The recovering economic conditions, wont have a negative effect on the market share of private label, as once the customer is satisfied that he is getting the same quality for a better deal, he would always return for the private label.

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Tanuja B says:

October 6, 2015 at 9:00 pm

I believe the demand for private label will not go down even when the economy recovers. This is because if the same quality is offered for a better price then people would surely opt for that.There will always be a section of people who would stick to branded product and the price difference does not matter much to them. This kind of competition in the pricing will eliminate major price differences in the future and the main focus will be solely on quality.For example , Aldi has a lot of private label but they still give a money back guarantee on their products as they are confident about the quality of their products.

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Xiaofan Li says:

October 10, 2015 at 7:51 pm

I think the demand of private label would still be increased when the economy recovers. As Mckinsey estimated that 75% of customers retained the private label brands after trying them. The main trade-offs to customer decision the price and quality to products. When one private label brand maintains a good quality and label a lower price compared with other brands, brand loyalty is easily built. Even when economy recovers, advantage is still there.

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Jiawei Zhang says:

October 11, 2015 at 10:37 pm

Obviously, grocery private label decrease the sale of branded goods. Grocery want to benefit more from its selling and take a good advantage of its direct contact with customers. If grocery create its private label and sell the goods in their own store, it is easier for the grocery store to promote its products. The marketing cost will be significantly lower than branded goods. Thus, grocery private label goods will gain competitive advantage in price with its low cost.

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