Retailer Brands  Learning Through Recession and Recovery Title of Presentation
Agenda State of the industry  Impact on consumers Impact on Retailer Brands Moving forward ... going back to basics   1 2 ...
State of the industry Economic recovery in Europe is gradual,  fragile and uneven
Europe GDP Out of recession, but still in recovery Source: OECD
Europe* FMCG: slow volume, increasing inflation Fast Moving Consumer Goods market dynamics (*):Austria, Belgium,  Czech Re...
FMCG prices rising again in Europe* Source: Nielsen Trade Panel Growth Reporter (*):Austria, Belgium,  Czech Rep., Denmark...
Impact on consumers The consumer is still troubled ... and more value sensitive
Consumer confidence remains low
European Consumers claim high levels of reducing expenses by  switching to cheaper grocery brands
Record high share of FMCG volume now being sold on deal
Start of recession Heightened price sensitivity also confirmed in actual behavior ...  Recession Source: Nielsen Price Mod...
... in particular for brands on promotion Retailer Brands Brands Regular Price Elasticity Promoted Price Elasticity  Sourc...
Impact on retailer brands Continued growth... but many misconceptions about what is fuelling it
Remarkably steady Retailer Brands growth  9 years, 7 countries and 1944 categories
Retailer Brand Share - Summary by country
Growth a result of increasing trade concentration and scale of global retailers
Increasing Retailer concentration Percent Share of Top 3 / 5 retailers (*) (*): Top 3 retailers in European markets; Top 5...
Retailers are increasing their efforts to bring out more targeted and differentiated private label ranges, and are also in...
Common misconceptions about Retailer Brands growth Gaining ground everywhere Not managed as brands Win only on price For c...
Retail Brands – Great variance across categories .... Variance of value market shares Number of Categories Based on 2010 d...
...and by country <ul><li>Nielsen analyzed retailer brand category trends in 7 markets based on 7 years of data and bucket...
Common misconceptions about Retailer Brands growth Gaining ground everywhere Not managed as brands Win only on price For c...
Retailer Brands – Increasingly supported by consumer advertising <ul><li></li></ul>Estimated Media net spend based on Rate...
Retailers increasing advertising spend during tough times Source: Nielsen Global AdView 2011 Q2 Report Estimated Media net...
Common misconceptions about Retailer Brands growth Gaining ground everywhere Not managed as brands Win only on price For c...
Retailer Brands – Price is not the only factor Price-Cut Growers Gaining Retail Brands market share while becoming cheaper...
Common misconceptions about Retailer Brands growth Gaining ground everywhere Not managed as brands Win only on price For c...
Retail Brands purchased by everybody Household Penetration by Homescan 100% 98% 96% 94% 80% 77% Canada US Switzerland Germ...
The super heavy – large, affluent families
Going forward ... and back to basics  Competing with Retailer Brands require going back to the basics of building strong b...
Category conditions favoring Retailer Brands <ul><li>High elasticity & heavily promoted </li></ul><ul><li>Excess productio...
Trusted leading brands hold their ground Source : Nielsen Trade Panel 2010 data ≈ ≈ ≈ ≈ ≈ ≈ ≈ ≈ (*): Based upon a sample o...
% Variation - number of manufacturers’ items in Distribution Big stores – 2010 vs 2009 Innovations Basic brands Premium br...
Source: Nielsen  Analytic Consulting - Assortman™ Items variation brand type – RETAILERS’ strategy Big stores - 2010 vs 20...
Retailer Brands succeed when there is availability of production capacity   Top 10 categories in selected markets based on...
Innovation driving higher sales and margin Value Consumer = Price Value Consumer = Benefits/Price Entry/Mid-Tier 75 ml  “R...
Innovation driving higher sales and margin Value Consumer = Price Value Consumer = Benefits/Price Euro Sales -4% KG Sales ...
Brand Equity & Private Label Share High Belief in  Name Brand Value &  Low PL Share Low Belief in  Name Brand Value &  Hig...
Premium Medium Value Source: Nielsen Elasticity Driver  Secondary Model – Cross-category in 5 big European Countries Regul...
Get back to the basics <ul><li>Focus on building/maintaining strong brand equity </li></ul><ul><li>When rationalizing the ...
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Retailer Brands Learning

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  • This presentation is meant to provide a view of the current state of the market and also highlight where the consumer mindset is at the moment. Additionally, we will provide a broad view of retailer behavior recently and how the development of retailer brands are performing in the economic and consumer climate. Finally, we will focus on what manufacturers should focus on as you continue to evolve the business model to adapt to the current hurdles.
  • Unfortunately we start with the recognition that the notion of an economic recovery is in the early phases, but is still largely a fragile notion and is arguably less salient within Europe.
  • Technically speaking Europe is out of recession since early 2010 with GDP growing by quarter. But the recovery is slow with Gross Domestic Product (GDP) in the Euro Area expanding 0.20 percent in the second quarter of 2011 over the previous quarter. This is less than half the historical growth rates achieved from 1995 onwards. 
  • Short term prices are on the rise again after a period of low inflation over 2009/2010. The price increase come as manufacturers feel the pressure to pass on rising raw materials cost. Similar to 2008, it is the food prices that increase first. The steep price increase for certain food items may provide a window for Non Food manufacturers if price increase to steadily rise. Increases in FMCG prices outpaces GDP and salary growth. This is a critical point since the end result is putting continued pressure on consumers as FMCG costs start to eat into whatever disposable income the consumer has during a difficult economic stretch.
  • Of course, consumers are showing changes due to the economic stresses, and these changes include greater sensitivity to FMCG value. In some cases we are seeing less loyalty and greater willingness to swtich, thereby breaking from past behavior.
  • Confidence levels in the future remain low and intention to save on the household budget is higher than ever. (Data: Nielsen Consumer Confidence; total and by key market) While the Globally view shows some movement upward, for Consumers in Europe a relatively weak confidence index persists which makes business decisions and strategies that much more important to get right.
  • Among those consumers reportedly trying to reduce household spending, over half of European and North American consumer claims to be trying to accomplish this by swtiching to cheaper grocery brands
  • Clearly this sentiment has not gone unnoticted. Throughout the last years, promotional activities and intensity has kept increasing across Europe as illustrated by a record high share of FMCG volume now being sold on deal.
  • This claimed heightened sensitivity is also confirmed in Nielsen models. (Data: Nielsen Scantrack, Global Online Survey, Elasticity Driver Model) Shoppers have become more sensitive to price levels over time and the economic crisis has accelerated this effect. Consumers in Spain are going back to levels similar to the 2001 recession year. Price elasticity is also up in France, Italy and Spain, but not in UK and Germany.
  • Based on study using 25 categories (both food &amp; non food) / 12 target items per category across big 5 European countries, we fine that the “post recession” period sees a real increase in price sensitivity towards branded products. However, this trend does not emerge for retailer brands which for some consumers are viewed as a logical choice given economic difficulties.
  • In the center of this, we find the retailers continuing to see growth of their private label retailer brand offerings. But there are a lot of miconceptions about the link between the recession and their continued success that need to be recongized or else we miss the real success factors behind retailer brands.
  • Retailer brands have shown steady growth based on this 9 year look at their FMCG share. However, one would have thought that with the consumer conditions created through the recession, we would have seen explosive retailer brands growth in the recent years. But it is not the case. True – retailer brands share keep growing. But the pace has been remarkably steady over the past decade. (Data: Nielsen’s long term retailer brands database.)
  • Much of the growth for retailer brands stems from increasing trade concentration which gives the retailers the breadth needed to support heavier private label activities. In markets where retailer concentration is low, the share of private label in the market is likewise low. But in those markets where retailer concentration is more developed, we can see clearly that this is the environment where private label can take hold of the consumer spending. Once retailers have less concerns about overally retailer grwoth and loyalty from a consumer spend perspective, they can then focus their attention on improving their margins by developing their own retailer brands.
  • The actitivity around retailer brands cotinues to evolve in that it is becoming more targeted, more tiered, and more supported. The end results is a business estimated to be worth $280 BILLION annually around the globe. The majority of the examples shown here reflect new actiivities identified in the first half of this year.
  • But there are a number of misconceptions surrounding retailer brands which need to be recognized before attempting to develop your business for a healthy co-existence with retailer brands. The first misconception is that retailer brands are gaining ground everywhere, in the same categories, and are achieving the same level of success from a category share perspective and are growing in the same way. This is simply not true.
  • If we focus on our major European markets, we can see that there is a great deal of variation in the number of categories with high versus low Private Label share. In the UK, we see that roughly 40% categories with PL have a PL share that is greater than 50%, but for the remaining 6 markets in this analysis, this same figure is 20% or less. Furthermore, it is possible to have categories where PL is a major player in one market but a minor player in another market.
  • Also, if we consider the level of growth, there is still more variance that can be observed. An analysis of the 7 year growth trend across PL within various categories shows that value sales trends are not even close to being identical as we take a market view on the matter.
  • Another misconception which often emerges is that Retailer Brands and not managed in the same way as regular brands are managed.
  • However, if we start to look at the level of media spending and trends among the retailers, we see clear increases in retailer media support.. Any business which increases media support by upwards of 30% or more across a 5 year period is seeing benefit and becomes hooked on the relationship between building equity and consumer adoption. 2011 Spend levels Carrefour 40 MM Euro AH 7MM Euro ASDA 50 MM Euro TESCO 75 MM EURO
  • In fact, a recent analysis of spending Trends shows that retailers media spending actually increased in Europe while the spend by FMCG manufacturers declined. The chart on the right breaks the market level trends within Europe and we can clearly see that increasing media spend among retailers in becoming more of the norm.
  • A further misconception is that Retailer Brands grow because they offer the lowest price.
  • However an analysis across 8 years suggest otherwise. Nielsen tracked the market share change for PL in a given category across 8 years and then bucketed these results based on whether the Retailer brand pricing was relatively cheaper or more expensive than the average category price. While we did find that 42% of our category points showed increasing market share for PL when priced cheaper versus the category, we also found 30% of the point increased despite having a price that was relatively higher than the category average. Additionally, about a fifth of the data points showed a decline in market share despite having a cheaper offering. This would suggest that consumer adoption of retailer brands is not simply tied to a low price. While a low price might get a consumer to buy once, it is a quality product that will get them to buy again and again. And having brand equity with consumers (as you all know) helps overcome price resistance. Apparently the retailers know this as well.
  • Finally, one of the biggest misconceptions surrounds who is buying Private Label. Specifically that these products have the most penetration around the lower income groups of the marketplace and don’t necessarily pull from the mainstream or upstream consumers.
  • In fact, we see that most consumers at leadt dabble in retailer brands. A look at consumer panels in 14 markets, show 9 markets where 100% of consumers had purchased some PL product in the last year. For the remaining 5 markets, 3 had over 90% of consumers reporting a PL purchase.
  • But another truly interesting finding from this segmentation of PL buyers came when we looked at their demographic profiles. When we took the two most extreme groups – the Super Heavy PL buyers and the Super Low PL buyers– we saw a very consistent demographic profiles within our Developed markets. People that purchase the most PL tend to shop often, spend more at every shopping trip, 50% of their spend tends to be on PL products, they have larger HH sizes and they tend to be more Affluent. This stands in contract to the Super Low PL buyers who tend to be made of smaller HH’s, purchase primarily branded products and are actually less affluent.
  • Taking all these elements together, we believe the best way to move forward in this type of environment is to get back to the basics of building strong brands.
  • When we consider value for price, production and product differentiation, there are some recongizable conditions which favor PL. Categories which have high price elasticity Excess Production capacity so that it is easy for Retailers to put our products Minimal benefit differentiation, and / or equity across the various players This means that products which sell more on benefits than price, have limited availability within a category (not me too), and are recognized by consumers as offering a difference should be the most successful against PL.
  • And they are. An analysis of product sales trends (2010 vs. 2009) show that Number 1 brands were more likely to maintain their business levels even when PL was increasing. However, it was the “other brands which lost ground, either because they had less equity to defend against the PL offering, or because they were more likely to be “rationalized” off the shelf to make way for more PL.
  • In this light, it is interesting to see what manufacturers are actually making available to the consumer. A 6 country analysis (2010 vs; 2009) shows that in general Manufacturers were building up their premium established products and have been less likely to push innovation or even the basic products In general, manufacturers are also cutting the number of products they offer to help manage costs by pushing the premium “old products” and focusing less on the lower margin basic products and the risk-associated new products.
  • Here is what happaned from the Retailer perspective. In 2010, Retailers goal was to avoid irritating consumers by moving away from the heavy rationalization strategies from the previous years, but they are not using innovation products to accomplish this. Instead the new strategy is to satisfy “old habits” by stocking more established brands (rather than innovation) and also pushing Private Label. What is also interesting is that the established brands tend to be the premium products rather than the basic products, as they want to leave room/make space for PL. All works in favor of retailer margins.
  • Emerging super-premium segment in toothpaste at more than double the price point with regular toothpaste flat and lower tiers declining. Regular – Signal Integral / Colgate Total Superpremium – Colgate Pro Apaisant / Sensodyne Soin Complet / Soin Blancheur / Pro-email
  • Example from Greece – healthy pasta is on the rise despite a 50% price mark up with regular pasta being flat
  • Difference in price sensitivity by type of brands. Brands that have trained consumers to price-offs seem to suffer more from increasing sensitivity to that direction - Consumers behavior seems to polarize to a greater extent vs. previous years. In other words, we can distinct two key „types of consumers‘ sensitivity“: a) those that are really price sensitive and more straightforward to cheaper options and then they look even for additional offers on this level, and b) those that they trust specific brands and they will first increase their promotional sensitivity before they change to cheaper brands. - This trend is particularly true for non food categories.
  • Retailer Brands Learning

    1. 1. Retailer Brands Learning Through Recession and Recovery Title of Presentation
    2. 2. Agenda State of the industry Impact on consumers Impact on Retailer Brands Moving forward ... going back to basics 1 2 3 4
    3. 3. State of the industry Economic recovery in Europe is gradual, fragile and uneven
    4. 4. Europe GDP Out of recession, but still in recovery Source: OECD
    5. 5. Europe* FMCG: slow volume, increasing inflation Fast Moving Consumer Goods market dynamics (*):Austria, Belgium, Czech Rep., Denmark, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Netherlands, Norway, Poland, Portugal, Slovakia, Spain, Sweden, Switzerland, Turkey, UK.
    6. 6. FMCG prices rising again in Europe* Source: Nielsen Trade Panel Growth Reporter (*):Austria, Belgium, Czech Rep., Denmark, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Netherlands, Norway, Poland, Portugal, Slovakia, Spain, Sweden, Switzerland, Turkey, UK.
    7. 7. Impact on consumers The consumer is still troubled ... and more value sensitive
    8. 8. Consumer confidence remains low
    9. 9. European Consumers claim high levels of reducing expenses by switching to cheaper grocery brands
    10. 10. Record high share of FMCG volume now being sold on deal
    11. 11. Start of recession Heightened price sensitivity also confirmed in actual behavior ... Recession Source: Nielsen Price Modelling Example Price elasticity refers to the percentage change in quantity demanded in response to a one percent increase in price
    12. 12. ... in particular for brands on promotion Retailer Brands Brands Regular Price Elasticity Promoted Price Elasticity Source: Nielsen Elasticity Driver Secondary Model – Cross-category in 5 big European Countries Mar08-Jun09 Incremental Jul09-Sep10 Source: Nielsen Elasticity Driver Secondary Model – Cross-category in 5 big European Countries Analysis conducted on 24 Categories (Food & Non-Food), 12 items in each category, based on results in HM and SM
    13. 13. Impact on retailer brands Continued growth... but many misconceptions about what is fuelling it
    14. 14. Remarkably steady Retailer Brands growth 9 years, 7 countries and 1944 categories
    15. 15. Retailer Brand Share - Summary by country
    16. 16. Growth a result of increasing trade concentration and scale of global retailers
    17. 17. Increasing Retailer concentration Percent Share of Top 3 / 5 retailers (*) (*): Top 3 retailers in European markets; Top 5 retailers in Asia Pacific and U.S. markets
    18. 18. Retailers are increasing their efforts to bring out more targeted and differentiated private label ranges, and are also increasingly supporting them with media spend… It is now a giant industry with an estimated $280Billion in sales globally
    19. 19. Common misconceptions about Retailer Brands growth Gaining ground everywhere Not managed as brands Win only on price For consumers on a budget 1 2 3 4
    20. 20. Retail Brands – Great variance across categories .... Variance of value market shares Number of Categories Based on 2010 data Pasta, Cat Litter, Ready meals, Vodka, Biscuits, Small cakes, Frozen prepared meat Categories with over 50% Market Share in UK but less than 10% in Italy
    21. 21. ...and by country <ul><li>Nielsen analyzed retailer brand category trends in 7 markets based on 7 years of data and bucketed the categories as declining, stable, positive or very positive based on the slope found for the 7 years </li></ul>% of Retailer Brand Categories by 7 year Growth Profile Based on 2010 data
    22. 22. Common misconceptions about Retailer Brands growth Gaining ground everywhere Not managed as brands Win only on price For consumers on a budget 1 2 3 4
    23. 23. Retailer Brands – Increasingly supported by consumer advertising <ul><li></li></ul>Estimated Media net spend based on Rate Card, includes TV, Print & Radio Data reflects the major country for each Retailer (i.e., Tesco UK, Carrefour France) Media Spend Index (52 w/e 2007H1 = 100)
    24. 24. Retailers increasing advertising spend during tough times Source: Nielsen Global AdView 2011 Q2 Report Estimated Media net spend based on Rate Card, includes TV, Print & Radio Retailers reflects ALL Retailers in market, not just FMCG retailers
    25. 25. Common misconceptions about Retailer Brands growth Gaining ground everywhere Not managed as brands Win only on price For consumers on a budget 1 2 3 4
    26. 26. Retailer Brands – Price is not the only factor Price-Cut Growers Gaining Retail Brands market share while becoming cheaper over time 42% of the categories More Expensive & Winning Gaining Retail Brands market share while becoming relatively more expensive 30% of categories Cheaper & Losing Declining Retail Brands market share while becoming cheaper over time 21% of categories Price-Increase Losers Declining Retail Brands market share while becoming relatively more expensive 7% of categories Relatively cheaper Relatively more expensive Gaining market share Market Share Decline Retailer Brand Category Market Share VS. Retailer Brand Price versus Category Average Price Based on slope analysis with 8 years of data
    27. 27. Common misconceptions about Retailer Brands growth Gaining ground everywhere Not managed as brands Win only on price For consumers on a budget 1 2 3 4
    28. 28. Retail Brands purchased by everybody Household Penetration by Homescan 100% 98% 96% 94% 80% 77% Canada US Switzerland Germany Spain France Finland Italy Chile Columbia Singapore Hong Kong Australia Great Britain
    29. 29. The super heavy – large, affluent families
    30. 30. Going forward ... and back to basics Competing with Retailer Brands require going back to the basics of building strong brands
    31. 31. Category conditions favoring Retailer Brands <ul><li>High elasticity & heavily promoted </li></ul><ul><li>Excess production capacity </li></ul><ul><li>Low brand equity </li></ul><ul><li>Little differentiation among brands in the category </li></ul><ul><li>Minimal Innovation </li></ul><ul><li>Weak marketing support </li></ul><ul><li>Low elasticity, not a “price-lead” purchase </li></ul><ul><li>Limited supply </li></ul><ul><li>Strong brand preferences </li></ul><ul><li>Highly differentiated brands </li></ul><ul><li>Innovation is a driver </li></ul><ul><li>Strong marketing investments </li></ul>Price / Value Production Differentiation Favorable Unfavorable
    32. 32. Trusted leading brands hold their ground Source : Nielsen Trade Panel 2010 data ≈ ≈ ≈ ≈ ≈ ≈ ≈ ≈ (*): Based upon a sample of frequently purchased categories Value Share by Brand Type & Trend vs. Prior Year
    33. 33. % Variation - number of manufacturers’ items in Distribution Big stores – 2010 vs 2009 Innovations Basic brands Premium brands TOTAL Assortment rationalization may slow Innovation... Based on all sku’s tracked within a market
    34. 34. Source: Nielsen Analytic Consulting - Assortman™ Items variation brand type – RETAILERS’ strategy Big stores - 2010 vs 2009 Private Label Innovations Basic brands Premium brands ...enable growth in the Retailer Brand assortment ... Based on what is being distributed in Big Stores
    35. 35. Retailer Brands succeed when there is availability of production capacity Top 10 categories in selected markets based on Retail Brand turnover UK Germany France Spain Italy Milk Cigarettes Yoghurt Sliced meat Milk RTE Cereals Milk Milk Olive oil Eggs Yoghurt Cheese Whisky Cheese Toilet Paper Fruit/Veg. Juice Sausages Beer Toilet paper Dry Pasta Toilet Paper Bread Dog & cat food Milk Mozzarella Canned Beer Toilet Paper Roasted coffee Ice Cream Fruit Drinks Canned cat food Fruit Juice Ham Tuna in Oil Tuna in Oil Ready Meals Mineral Water Mineral Water Dry Fruit Olive Oil Potato Crisps Salt Snacks Fresh Desserts Beer Merendine Instant Coffee Roasted Coffee Laundry Detergent Biscuits Ice Cream
    36. 36. Innovation driving higher sales and margin Value Consumer = Price Value Consumer = Benefits/Price Entry/Mid-Tier 75 ml “Regular” Toothpaste Avg Price +231% higher Euro Sales +79% Unit Sales +82% Euro Sales +1% Unit Sales +1% Super Premium 75ml “Professional” Toothpaste France Period: 52w Mar11 vs 52v Apr10 Source: Nielsen Trade Panel Examples
    37. 37. Innovation driving higher sales and margin Value Consumer = Price Value Consumer = Benefits/Price Euro Sales -4% KG Sales -1% Avg Price 54% higher Euro Sales +11% KG Sales +11% Regular Pasta Healthy Pasta Greece Period: 52w Apr11 vs 52v Apr10 Source: Nielsen Trade Panel Examples
    38. 38. Brand Equity & Private Label Share High Belief in Name Brand Value & Low PL Share Low Belief in Name Brand Value & High PL Share
    39. 39. Premium Medium Value Source: Nielsen Elasticity Driver Secondary Model – Cross-category in 5 big European Countries Regular Price Elasticity Promoted Price Elasticity Mar08-Jun09 Incremental Jul09-Sep10 Value brands, be prepared for even greater price elasticity (and need for scale)
    40. 40. Get back to the basics <ul><li>Focus on building/maintaining strong brand equity </li></ul><ul><li>When rationalizing the range, take a “category incrementality” view of what items to remove </li></ul><ul><li>Keep the Innovation funnel of premium products .... to deliver value & benefits to consumers, while bringing buyers (and shelf space) back to your business </li></ul><ul><li>If your brand plays in value segments, ensure you have the scale to play the price and promotion piano to match Retailer Brands </li></ul>

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