Private-label items at food retailers, drugstores no longer just about price but loyalty and positive experiences, finds study; in 2011, prices of private labels rose 5.3%, outpacing food industry average of 1.9%, as market share grew to 29% from 20%

Cindy Allen

LOS ANGELES , January 31, 2012 (Industry Intelligence) – According to a two-month study conducted the in fall of 2011, private labels are no longer just about price; over 28% of respondents cited loyalty and positive experiences, rather than value, as the driving factor behind their purchasing decisions, The Wall Street Journal reported Jan. 31.

The study was conducted by Steve Rosenstock, an analyst at Clarkston Consulting Inc., and examined the reasons why customers across several major drugstore and grocery chains purchase private labels.

Although private labels’ market share of all beverages and foods consumed in U.S. homes has hovered around approximately 20% for decades, it has recently increased to 29%, says market research firm NDP Company Inc.

Stores are trying to increase private labels’ market share even further by introducing new private label brands or consolidating existing brands. They are also improving the quality of private label items, and using more innovative packaging designs and presentation techniques.

In addition to the traditional cut-price private labels, stores are introducing premium private label brands.

Although nationally branded products cost an average of 29% more than private label products, the price of private label products increased 5.3% in 2011, outpacing the industry average of 1.9%, reported market-research firm Symphony IRI Group.

In some cases, Symphony noted, the private-label product may actually be the most expensive item in a particular category.

Since some manufactures produce both private labels and national brands, the switch towards generics does not necessarily always constitute a loss in sales for the manufacturer.

In an effort to attract customers back to their branded products, consumer-product companies have increased the amount of discounts and coupons offered for name brands.

As the economy improves, consumer-products companies could have problems attracting customers back to branded products due to their loyalty towards private label brands although, as noted by Procter & Gamble Chief Executive Bob McDonald, in some ways, private label products simply cannot compete with their branded counterparts.

"We [Procter & Gamble] invest $2 billion a year in research and development, $400 million on consumer knowledge and about 10% of sales on advertising," said McDonald, "Store brands don't have that capability."

The primary source of this article is The Wall Street Journal, New York, New York, on Jan. 31, 2012.

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