Canadian Private Label:

Transcription

1 Canadian Private Label: The Value Alternative 2011

2 Canadian Private Label: The Value Alternative Carman Allison Director of Consumer Insights, Nielsen Overview Open just about any cupboard in Canada, and you ll find a private label product on the shelf. Despite posting $11.6 billion in sales and achieving nearly 100 percent penetration, Canadian private label products lagged behind total market growth as of August National brands managed to fend off the private label onslaught in Canada thanks to a savvy pricing strategy coupling regular price increases with dramatic temporary price reductions that narrowed the gap between private label pricing and promotional national brand pricing to less than ten percent. In some cases, aggressive national brand promotional prices lasted for extended periods of time, sometimes two or even three months, with the unintended effect of teaching consumers to wait for deals. Value-oriented Canadian consumers deployed an entire portfolio of penny-pinching strategies, with buying private label relatively low on the list, behind shopping sales, using coupons, stocking-up during promotions and store hopping for best prices. Highlights The universal drive to stretch every dollar prompted Canadians to buy more national brands on deal rather than switch to private label products Private label 2011 sales may be rebounding to 2009 levels, although a front-loaded pattern of heavier Q1 and Q2 sales may obscure the actual trend Deep price cuts and extended discount timelines have enabled national brands to hold their own at retail despite the recession Private label products have migrated from their foothold in the grocery channel to drug stores and mass merchandisers Canadian private label consumers trend toward smaller, older, high income households that spend an average of $833 per year on store brands purchased during 67.7 trips annually 2 Copyright 2011 The Nielsen Company.

3 Discussion Early indicators suggest Canadian private label products may be re-gaining some momentum in 2011 with dollar and unit sales up slightly (one percent) as of June The reported store brand dollar share of 18.3 percent for the first two quarters of 2011 registered well above shares for the preceding two quarters. One possible explanation behind the nudge upward may be the increase in commodity food costs that has triggered price hikes across the board for both national and store brands, raising consumer consciousness about the need to scrutinize spending. Chalk up the fact that almost one-third of all sales at checkout represented a price deal to the brand protection strategies employed by Canadian consumer packaged goods [CPG] companies. Deep, extended price cuts enable Canadians to avoid compromise and afford their favourite, established brands in tough economic times. Price Gap Narrows To illustrate the narrowing gap between national and store brands in Canada, consider the case of national Brand X. The Brand X temporary price of $3.49 per unit was just pennies more than the store brand regular price of $3.41. Given consumer quality perceptions and brand preferences, shoppers who could stock-up on sale or wait for the promotion opted for the salepriced national brand. However, the store brand sales price was so dramatically lower at $2.84 than either national brand price [regular or reduced], that cash-strapped consumers sometimes chose to wait for this ultimate deal. On average, Canadian private label products were priced 28 percent below national brands, almost 36 percent below regular prices and just 19 percent less than national brands at temporary price reductions. The gap between national and store brands varies depending on a product s placement within the private label quality hierarchy. Super premium tier store brands sometimes price even higher than national brands. Premium tier store brands price the closest to national brands. Mid-tier products deliver good value just under national brand pricing and the lowest tier, lowest-priced generic private label goods represent a real bargain. Copyright 2011 The Nielsen Company. 3

4 Regions and Retailers From a geographic perspective, Western Canada and the Maritimes demonstrate the strongest interest in private label, with the highest brand development indices, while Quebec store brand share trails significantly. From a channel perspective, private label has the greatest share in grocery accounting for almost one-quarter of sales, followed by drug stores at a distant 17 percent. However, mass merchandisers are emerging as a viable distribution channel, registering a 22 percent increase in dollar share for the year ending July 2011, roughly equal to the warehouse club private label sales contribution. Much of that increase can be attributed to the number of stores opening across Canada. Private label sales in Canada remained relatively static overall for a typical basket of grocery items, with discount store gains offsetting conventional format losses. 4 Copyright 2011 The Nielsen Company.

5 Department Patterns While the store brand dollar share varied by department, private label results only trumped the national brand sales rate in a single area: the grocery department. Store brands accounted for roughly one-third of total deli and produce department sales for the year ending August 2011 and more than one-quarter of bakery, meat and seafood department results. Grocery was the only other department where private label dollar share exceeded the 18.2 percent total CPG average. National brands achieved a higher dollar sales growth rate on an annual basis than private label offerings in the non-grocery and health and beauty departments [four percent], the deli and produce departments [three percent], the bakery department and aggregate all-department total [one percent]. Meat and seafood department national and store brand sales increases stood at parity. In the grocery department alone, private label dollar sales increases outpaced the national brand rate by one percent. Those results flipped at the sub-category level for certain sectors such as confectionery, where the private label dollar share bettered national brand performance by a sweet 12 percent margin. Oral hygiene private label products brushed off national brands with eight percent greater share growth. Store brand cosmetics and snack foods attained six percent greater share growth than competitive national brands, followed by baked desserts at four percent, baking needs and desserts at three percent each. Poor private label share performers reversing that trend include the baby care department at 13 percent below the national brand share, household products with a 12 percent differential, hair care at nine percent below, shaving and over-the-counter products at a negative four percent, followed by home meal replacements, condiments/ sauces and paper products at minus three percent each. Copyright 2011 The Nielsen Company. 5

6 Basket Case Canadian shoppers logged total shopping trips per buyer last year, purchasing private label goods on 41 percent of those trips. The average basket cost $34.87, and when the shopping cart included a private label product, those items accounted for more than 35 percent of the total register ring. Typically, shoppers picked up 9.1 items and when the basket included private label, roughly 43 percent of those items were store brand goods. Based on household penetration and buying rates, the top 10 private label departments in Canada were: refrigerated and dairy [$134 per household per year], frozen food [$121], prepared food [$58], condiments/sauces [$45], bakery [$56], snacks [$55], UPC-coded produce [$49], beverages [$57], paper products [$32] and baking [$29]. The relatively low penetration and buying rates associated with image products like hair care and cosmetics indicate reluctance among shoppers to switch brands when it comes to personal appearance. Private label isn t just for very young, very large or very frugal families anymore. There has been a marked uptick in the number of one to two person households, those with a head of household aged years [think empty nester Baby Boomers] and households with incomes between $70,000 and $99,000 per year who all purchase more private label goods than the average family. 6 Copyright 2011 The Nielsen Company.

7 Super Segmentation Nielsen created a private label usage segmentation that placed Canadian private label consumers into one of five segments, each comprising 20 percent of the store brand universe: super heavy buyers, heavy buyers, medium buyers, low buyers and super low buyers. The super heavy [41 percent] and heavy buyer [25 percent] contingents together account for two-thirds of total private label sales on a dollar basis. The super heavy segment private label sale of $1,738 per buyer per year is more than double the average store brand buyer spend of $833. Heavy buyers purchase $1,001 worth of private label goods annually, 20 percent more than the average shopper. Both the super heavy shopping pattern of 99 private label buying trips and the heavy private label segment s 81 trips represent more than the all-shopper average of 68 private label buying excursions per year. Regardless of their private label consumer segment or the category purchased, consumers exhibit very similar deal behaviour, with the number of products purchased on promotion comprising approximately 25 percent of total products purchased. Copyright 2011 The Nielsen Company. 7

8 A Positive Attitude Private label products have earned the respect of shoppers thanks to improvements in product quality and merchandising. A recent Nielsen survey determined that store brands deliver on their value proposition, with 84 percent of consumers agreeing that private label products demonstrated mainstream appeal and, delivered good value [69 percent], and 39 percent were willing to pay more for [their] favourite private label product. Quality concerns have melted away as well, with three-quarters of shoppers citing private label products as a good alternative to national brands, two-thirds stating that store brands were of equal quality to national brands and more than 40 percent believing that some [private label products had] better quality than national brands. Key Influencers Different factors influence the private label purchase decision, and the relative importance of those factors changes depending on the department. The top five purchase influencers include price, trusted/previous experience, product label, family/friend recommendation and in-store display. Price ranks paramount as an influencer across the board, most particularly in the household goods department, and becomes least important when purchasing an over-the-counter [OTC] product. Trusted/previous experience matters most for food shopping decisions and least for OTC items. Product labels, family/friend recommendations and in-store displays each represent a relatively insignificant factor in purchase decisions, influencing fewer than five percent of decisions. One outlier worthy of note is the importance of a pharmacist recommendation to Canadian OTC purchases [16 percent on average], especially in Quebec [26 percent]. A pharmacist recommendation ranked as high as seven times more important than that of a physician in making an OTC decision. Manufacturer Strategies To remain competitive against private label offerings, manufacturers should embrace differentiation strategies, leading the way with product innovation, attractive packaging, convenient new forms and desirable special ingredients that appeal to the upscale store brand buyer. Perhaps the one arena where manufacturers enjoy a distinct advantage is marketing. Deep brand management experience, comparatively large budgets and campaigns deploying a more diverse array of promotional vehicles help national brands to tell their story and keep buyers loyal. Engaging consumers at multiple contact points, including social media, helps legitimize the brand tax of higher prices. Pricing remains a challenge and an issue that requires constant monitoring to maintain an acceptable gap between private label and national brands. On a cautionary note, the recent spate of deep discounts and longer promotional periods may be educating an entire generation of consumers to hold out for a deal before purchasing an established brand. 8 Copyright 2011 The Nielsen Company.

9 Retailer Insights Private label offerings have morphed into more than the low cost option. They now compete with national brands at multiple quality levels and price points. Retailers need to determine how to build store equity based on private label offerings and how to differentiate their banner via private label positioning. One advantage retailers enjoy with respect to marketing is that they control in-store channels and media where messaging often has the highest impact on purchase decisions. Many predict that mobile marketing is the wave of the future, delivering immediate, on-site, content rich information along with discounts and special offers. As Baby Boomers age in to private label, savvy marketers will re-examine their product lines, adjusting to mature tastes, physical limitations, smaller households and larger wallets. Conclusion Now that quality and assortment have achieved parity with national brands, private label products enjoy a 30 percent average price advantage over national brands. But the price differential is starting to narrow as manufacturers implement aggressive promotional strategies and retailers like Walmart and Loblaws respond with their own premium tier lines. Marketing holds the key for both manufacturer and retailer success in staging, or staving off, successful private label campaigns. About Nielsen Nielsen Holdings N.V. (NYSE: NLSN) is a global information and measurement company with leading market positions in marketing and consumer information, television and other media measurement, online intelligence, mobile measurement, trade shows and related properties. Nielsen has a presence in approximately 100 countries, with headquarters in New York, USA and Diemen, the Netherlands. For more information, visit Copyright 2011 The Nielsen Company. All rights reserved. Nielsen and the Nielsen logo are trademarks or registered trademarks of CZT/ACN Trademarks, L.L.C. Other product and service names are trademarks or registered trademarks Copyright of their respective 2011 The companies. Nielsen Company. 11/4200 9