A change in mindset

Shopper behavior around private brands has changed much in recent years. Not too many years ago, the average middle-class American consumer might have been willing to serve store brand products to her family, but felt the need to choose the national brands when serving friends and other guests.

That position has diminished. The same consumer now is serving private brand products to friends and guests because the quality has improved to the point where it is as good as or better than that of the national brands. Private brands have found a permanent place in the American pantry, now accounting for 22 to 28 percent of whats inside it.

But when it comes to shopping private brands, American consumers have bifurcated into two distinct groups that exhibit vastly different buying behaviors.

The largest group, the \"survivalists,\" represents 64 percent of American households. These households typically earn less than $50,000 per year; however, three out of 10 of them earn more than $50,000 – and one of those three households earns more than $100,000.

The number of survivalists rose by almost 20 million households in just the past two years. The groups members now touch every single economic class except the super-rich. Many of them simply have overextended themselves.

The other group, the \"selectionists,\" represents 31 percent of American households. These households typically earn more than $50,000 a year and are not as hindered by financial challenges as the survivalists are (approximately 5 percent of households fall into neither group).

While the number of survivalists has been on the upswing, the number of selectionists actually has been falling – by 4 million in the past year alone.

Shopping to survive, or thrive
When it comes to grocery shopping, the survivalists are value-seekers. And from our conversations with thousands of shoppers, we know that the definition of value for this group has changed from that in years past; its now defined as quality received per dollar spent.

Although they still like to buy as many national brands as they can, survivalists have made a substantial degree of substitution within the private brand arena. They recognize that the store brand products they purchase offer very good quality for the money, and in many cases, these products are becoming the first choice for these shoppers. In fact, our research shows that approximately 42 percent of shoppers within this group now buy 30 or more private brand categories. Thats a big number.

Selectionists are more brand-loyal than survivalists are, but they, too, now buy private brands. They appreciate a value and recognize that they can find good-quality staples under retailers store brands. However, they are more aspirational than survivalists and, as such, are attracted to private brand artisanal and niche-based products.

Two directions for development
Private brands have penetrated, at least to some degree, about 99 percent of American households. Their share of the market, however, has stayed fairly flat during the past two years.

But the industry is about to hit a real turning point – where retailers will be taking private brands to the next level. To get to that level, however, retailers will need to consider the varying needs of todays survivalists and selectionists.

The next three to five years should bring a new generation of entry-level private brand products that are very basic, very nutritional and very high in quality for the survivalists. At the same time, we expect to see a rise in the development of artisanal and niche products for the selectionists.

The increased level of sophistication in private brand development will be driven, in part, by retailers desire to find ways to increase – or at least protect – margin. It also will be driven by the reality that the American consumer has learned to live with less, and is comfortable in doing so. Moreover, American shoppers in both groups will continue to search for value far beyond the foreseeable future, and private brands will be providing that value.

As smaller brands in relation to the national brands, store brands actually have the opportunity to pace innovation going forward. Many retail companies have been building private brand organizations that are modeled after traditional consumer-packaged-goods companies branding and marketing organizations, and they are going to continue to hone efforts here.

Retailers that want to meet both groups shopping needs will be investing in formulary, taste and flavor innovations on the private brand side. They will be investing in packaging innovation. And they will be developing brand extensions that take private label in certain key categories to 40 to 70 percent of the category.

The local movement presents another opportunity. For example, instead of just offering \"generic\" green beans, a retailer might want to cobrand with a local farm to communicate that the product is the freshest of the freshest in terms of quality.

And retailers also would benefit in the years to come by changing their mindset from a seller of items to a seller of ideas. In addition to preplanning and purchase, they should focus on envisioning and post-planning. Envisioning assists the shopper in his or her meal-related vision prior to preplanning, and could be accomplished, for example, through the use of recipes and strategic cross-merchandising (that includes private brands) in various departments in the store. Post-shopping, meanwhile, extends the shopping experience (and, potentially, the positive banner perception) into the social media/social marketing realm.

Finally, the days of a retailer being everything to everyone are long gone. Going forward, retailers will need to stand for something specific and understandable – and work that positioning into their private brands. Whatever that positioning is, it should consider the four dimensions todays shoppers want in the store: simplicity in the shopping experience, quality and value in relation to the products, and consistency or coherence in presentation.

Thom Blischok is chief retail strategist for Booz & Company Inc., a global consulting firm with North American headquarters located in New York.