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Beyond the Middle


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The evolution of value and values for private label brands
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Beyond the Middle

  1. 1. Beyond the middleThe evolution of value and values forprivate label brandsWhite paper | June 2012
  2. 2. Shikatani Lacroix is a leading branding and design firm located inToronto, Canada. The company is commissioned assignments fromall around the world, across CPG, retail and service industries,helping clients achieve success within their operating markets. Itdoes this by enabling its clients’ brands to better connect with theirconsumers through a variety of core services including corporateidentity and communication, brand experience design, packaging,naming and product design.About the AuthorJean-Pierre Lacroix, RGD, President and Founder of ShikataniLacroixJean-Pierre (JP) Lacroix provides leadership and direction to hisfirm, which was founded in 1990. He has spent the last 30 yearshelping organizations better connect their brands with consumersin ways that impact the overall performance of their business. Mr.Lacroix was the first to coin and trademark the statement “TheBlink Factor” in 1990, which today is a cornerstone principle to howbrands succeed in the marketplace. JP has authored several papers,has been quoted in numerous branding and design articles, and in2001 he co-authored the book “The Business of Graphic Design”which has sold over 10,000 copies. JP can be reached and you can follow his thought leadershipwebinars at: Articles and BooksBelonging Experiences...Designing Engaged BrandsBusiness of Graphic DesignWhite paper | July 2012 | Store Brands | 1
  3. 3. Finding higher groundThe past five years have seen most retailers revamping theirprivate label programs due to the need to create greaterdifferentiation in the marketplace, and to take advantage of amore fickle consumer. Although these initiatives were much-needed and timely, they were an answer to currentopportunities. There is now a massive shift in consumerdemographics in North America that necessitates furtherchanges. Only a handful of leading retailers have started totake heed and shift their approach to capitalize on this shift.The next decade will define those retailers whose private labelprograms truly drive clear differentiation and increased sales.More importantly, their sustainable growth will no longer befocused solely on meeting the needs of the middle class butwill explore opportunities around the demographically-drivenfringes.The present, in search of trusted valueThe current move to update existing private label programs isin response to a significant shift in the way consumers shop.Precipitated by the 2009 recession and the fluctuation ofpersonal equities in the marketplace, this shift in personalequity has further driven inequality between the rich and thepoor. This has resulted in the shrinking of the middle class indeveloped countries, historically the engine of economicgrowth, which has been most impacted by the recentdownturn as their net worth has plunged to 1992 levels. Inaddition, the top one percent of the population nowrepresents 20 percent of the nation’s income - twice as muchas it did two decades ago. The net result: a significant impacton where marketers will find future growth.White paper | July 2012 | Store Brands | 2So despite theimmediacy of theinternet, the "newnormal" actuallymeans thatconsumers areabandoning the"next new thing"mentality thatpowered somuch spendingfor the past 20years, in favor ofmore enduringpriorities.American Consumptionand the New NormalNancy Koehn | December 31, 2009
  4. 4. Most of the wealth was lost to the mortgage crisis and thedrop in home values, which wiped out equity many familiescounted on, and reduced their ability to spend or invest. Thereport also identified that incomes and stock-basedretirement accounts also fell, further fueling the focus onvalue. This shift has not only seen consumer buying habitsfocus on price reductions, but there is now a heightenedimportance to make wise purchasing decisions based onproducts that provide a high level of quality and trust. Thisreinforces consumers’ need for reassurance that they are notcompromising on quality or performance as their buyinghabits move from national brands to private label offerings.A new reality is setting in the marketplace, providing a strongplatform for private label sales to increase as the currentmarket volatility and uncertainty is no longer a blimp asreports indicate the current trends will not change in theforeseeable future. The flight to value is supported by a recentstudy conducted by GfK for PLMA (Private Label MarketingAssociation) identifying that fewer than one in five felt theeconomy had improved. This new reality is changing themeaning of value from temporary price promotions to brandswith a high level of trust and familiarity.This shift of value is further supported by a recent study byShoppercentric, an independent agency specializing inshopper research in the UK. The study revealed that shoppersare redefining the meaning of value beyond price.White paper | July 2012 | Store Brands | 3
  5. 5. The research study entitled: “Window On the Value Equation”defined value as: • “Getting the most for the money I planned to spend” isactually the definition that scores highest (28% ofshoppers). • 21% of shoppers say that for them, “Getting the rightquality for the money I planned to spend” is mostimportant. • “Feeling that what I’m buying is worth the money I’mspending” also scores well with 20%. The Shoppercentric study identified four consumer sectionsthat can be segmented by their values, namely:• Quality Matters (34% of shoppers) - best quality for themoney is the key driver• Low Price Hunters (23%) - lowest cost is the driver• Holistic Value Seekers (22%) - a wide range of drivers• Pile it High (21%) - quantity is the key driverThese findings align with North American consumer behaviorswith more than two thirds of PLMA respondents in the study(69%) saying they will take advantage of discounts by buyinglarger sizes or quantities for items they regularly buy; while67% say they will look for more coupons and promotions onnational brands. About a third (36%) intend to change thestores or types of stores where they do their primary groceryshopping. This shift is driven by both the need to find greatervalue in their total basket cost without compromising onquality or performance, in addition to consumers’ lifestylevalues which forgo risk in return for tried and true brands.Retailers who offer programs at the intersection of cost andrisk will benefit from a higher level of store traffic and loyalty.White paper | July 2012 | Store Brands | 4
  6. 6. This consumer need to spend less while still meeting lifestylevalues is supported by the PLMA study findings. Overall, halfthe shoppers in the study (51%) claim they intend to spendless money on buying groceries in the months ahead.Ultimately, more shoppers are forsaking national brands forstore brands. More than four in 10 (43%) report they haverecently passed on a familiar national brand for a private labelcounterpart, a marked increase of more than 15% since 2009.This new flight to value is driving consumers to store brandswith a solid majority of consumers in the PLMA study (62%)planning on buying more private label as they continue to dealwith the tough economic climate. Not only is the consumer’sintent to purchase increasing, the frequency has alsoincreased with 57% indicating that they buy private labelproducts “frequently,” up from 55% just a year ago. Theincrease in frequency is driven by both the level ofsophistication of private label programs and the breadth ofofferings within each retail banner. As retailers expand theircapabilities in private label, they are exploring new brandofferings that appeal to specialty groups, from sustainabilityand organic products to lifestyle needs, to build their overallshare of private label sales.Narrowing the value gapThe new shift to value is not only driving consumers to forsakenational brands for store brands, those that switch are happywith their new choice. Fully 97% of respondents in the PLMAstudy compared store brands favorably to their previousnational brand choices in the same categories. About half(49%) said their new store brand selections compare “veryfavorably,” an increase from 26% in 2009.White paper | July 2012 | Store Brands | 5
  7. 7. An extensive study conducted by Rajeev Batra of theUniversity of Michigan and Indrajit Sinha of Temple Universityon the consumer-level factors moderating the success ofprivate label brands also supports this change in perceptions.The study concluded consumers are more prone to buyingprivate label brands in product categories where theyperceive a lower chance of taking a risk in their brandselection.This is either because the differences between national andprivate label brands are indistinguishable or the investmentthreshold is low in switching. Consumer affinity for privatelabel brands is also a reflection of retailers’ heightened level ofsophistication by investing in manufacturing capabilities,category management internal disciplines, new marketinginitiatives, all of which are historically the realm of consumerpackaged goods companies.Retailers such as Aldi in the U.K., Kroger, HEB, Wegmans andCostco have developed new platforms in both core and non-core categories. Based on a 2012 Nielsen report, these privatelabel leaders drive higher shares and exhibit stronger pricingand promotional skills versus the industry at large. The growthof interest by retailers is driven by their need to build strongerbrand loyalty and greater competitive advantage.Historically, national brands stood for quality, innovation andstrong badge value. Most brand tracking studies rank brandsby a series of attributes such as "a brand I trust," "a brand thatI would recommend to a friend," "a brand that is reliable," anda range of other metrics where national brands garneredhigher rankings than private label brands.White paper | July 2012 | Store Brands | 6
  8. 8. However, our experience in major private label programs andsupporting consumer research have identified that thisperceived quality gap is narrowing between national andprivate label brands. A 2011 Nielsen study confirmed ourobservations as store brand quality now ranks “as goodas” [65% of consumers agree] or “some higher quality” [38%agree] than national brands.Meeting the demographic shiftRetailers’ private brand initiatives have broad demographicdraw among small and large households across most incomegroups, but is generally under-developed among multiculturalhouseholds, a growth opportunity that is currently not beingleveraged. The Nielsen report identified an opportunity tobroaden the offering to appeal to the lighter private brandbuyers who are more affluent, who are big brand spenders,and the Hispanic segment. In addition, the Nielsen reportidentified opportunities to offer a different range of productsbetween the lower/middle income consumers and familieswith annual household income of $100,000+.The study supports the belief that retailers will need to marketthe fringes if they want to maintain strong growth in theirprivate label programs. Nielsen identified that the two highestvalue/highest potential segments are the low spend potentialswho ring up $4,045 per year across the store, followed byupscale premium shoppers at $4,024. As current private labelprograms peak, there exists an opportunity to developprograms to appeal to these under-leveraged segments.White paper | July 2012 | Store Brands | 7
  9. 9. Loblaws, one of the most sophisticated private label retailers,has done well at marketing value and lifestyle needs to boththe middle class and fringes with brands such as No Name,President’s Choice, Blue Menu, PC Organics, and PresidentChoice’s Black Label. Creating brand platforms to appeal toboth the fringes and the middle class has allowed Loblaws tocontinue to grow its private label’s share of sales.The next phase for private label brands: capitalize further onemerging demographicsHispanic Population: With the growth of Hispanic and newAmericans as a total of the population, along with theshrinking of the middle class and the rise of the more affluentconsumer, the leading retailers are taking into account thisdemographic’s needs and evolving their private labelprograms in order to continue building stronger brand loyalty.The Census Bureau, in its first nationwide demographic tallyfrom the 2010 headcount, confirmed that the U.S. Hispanicpopulation surged 43%, rising to 50.5 million in 2010 from 35.3million in 2000. Latinos now constitute 16% of the nationstotal population of 308.7 million.White paper | July 2012 | Store Brands | 8
  10. 10. The Census Bureau has estimated that the non-Hispanic whitepopulation would drop to 50.8% of the total population by2040, then drop to 46.3% by 2050. This bodes well for privatelabel programs as the Hispanic market are heavy users andloyal to retailer brands. New initiatives should take intoconsideration bilingual packaging, products that cater to thehabitual and cultural nuances, in addition to larger packagesizes as this segment tends to have a stronger family nucleus.To secure more affinity with the Hispanic market, Publixdeveloped various authentic Hispanic private label productsand created bilingual packaging with a special graphic designtreatment that was very appealing to the Hispanic consumer. Hispanic private label initiatives were focused aroundproducts that had high appeal, such as frozen yucca, sweetpotatoes, white Spanish cheeses, malta beverages, Cubancrackers, seasoned black beans, Spanish bean soup, mojomarinades and white cooking wine. Food Lion, Stop & Shop,Food City, Food 4 Less, Nash Finch and H-E-B have also beeneffective in marketing to Hispanic consumers.Chains that are located in heavily-populated Hispanic marketssuch as California, Florida and Texas will explore how bilingualpackaging and product specific offerings help carve a greatershare of the market while providing greater differentiation.Retailers should also look at markets where the needs ofunique and growing consumer segments are being met.Markets such as Canada with its unique French language andQuebec market, or Europe with its growth of uniqueimmigrant cultures, can provide a framework for Americanretailers wanting to develop stronger private label programs.White paper | July 2012 | Store Brands | 9
  11. 11. Immigration: Catering to this group has significant long-termbenefits for retailers as immigration is the largest factorcontributing to population growth, with the addition of over2.25 million people to the U.S. population annually (1.5 millionlegal and illegal immigrants as of 2001-2002, now estimatedat 1.7 million in 2003; plus 750,000 births to immigrantwomen annually). The total foreign-born population in the now 31.1 million, a record 57% increase since 1990. Nine to 11million of those are here illegally, a 4.5 million increase since1990.Upper-Tier Consumers: The ability to market to the fringe isfurther supported by a 2011 Stanford University studyidentifying that only around 44% of families in America live inwhat the country considers middle-income neighborhoods,down from the 1970 statistic of 65%. At the same time, whileonly 15% of the country was grouped into either the lower orupper class four decades ago, that proportion has more thandoubled with a third of America now at either end of thespectrum.Retailers such as Loblaws, Canada’s largest supermarketchain, have considered the more affluent consumer with thelaunch of a new gourmet line of 213 President’s Choice “BlackLabel” products. The launch stemmed from a need tocapitalize on the affluent consumer and the fact that thecompany had fallen behind as competitors developed high-end, third-tier private labels such as Wal-Mart’s “Our Finest,”Metro’s “Irresistibles” and Sobey’s “Sensations byCompliments.”White paper | July 2012 | Store Brands | 10
  12. 12. Shoppers Drug Mart, the leading drug store chain in Canadahas also launched several third-tier brands to effectivelycompete with national brands. Quo, for example, is a exclusive,premium line of color cosmetics and cosmetic accessories. AllQuo products are developed from an unwavering commitmentto quality and innovation that consistently delivers acontemporary core assortment and the must-have colors andproducts for the season. For Shoppers, this brand dominatesthe category, displacing national brand products as thepreferred choice by consumers, a position traditionallydominated by national brands.In the fall of 2010, Walgreens also announced it would roll outthe Duane Reade DR Delish brand chain-wide, an upscaleprivate label program. A&P introduced The Food EmporiumTrading Company label as a platform to experience productsfrom around the world. We believe that this new platform willallow A&P to not only compete in the higher pricedcategories, but it will also lay a foundation to appeal to bothimmigrants and Hispanics with specially sourced productsthat fit their specific lifestyles.The U.K., long known for its innovation in private labelprograms, has also launched a range of new brands.Sainsbury’s doubled its sales for its highest-priced Taste theDifference store brand line by adding 300 items for the 2010holiday season. Irrespective of the negative economic climatein Europe, shoppers in the U.K. purchased 11% more premiumprivate label items from the top supermarkets in 2010 thanthey did the year prior, according to a Kantar report.White paper | July 2012 | Store Brands | 11
  13. 13. ConclusionAs retailers rush to complete their corporate brand refresh inorder to capitalize on the consumer shift to value, it isimportant that third-tier products that cater to the Hispanicand immigrant markets be further explored as these segmentswill represent one of two key platforms for the future growthof retailers. A focus on the bottom and top-tier incomeconsumers will also provide an opportunity to grow thissegment of light private label users that have significantbuying power.With more than 50% of the population representing thesesegments in the next twenty years, retailers will need tounderstand what the regional and market specific wants areof their customers, and how their private label offerings willneed to change. The current platforms will become the cost ofentry as retailers focus on meeting the new needs dominatingcustomer preference and private label’s share of total sales.White paper | July 2012 | Store Brands | 12
  14. 14. Jean-Pierre Lacroix, PresidentShikatani Lacroix387 Richmond Street EastToronto, OntarioM5A 1P6Telephone: 416-367-1999Email: jplacroix@sld.comWhite paper | July 2012 | Store Brands | 13