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04/03/2018

Deep-discount grocers reaping benefits of robust store brand programs

Deep discounters such as Lidl continue to invest in private brands.

As channels continue to fragment and the fast-moving consumer goods (FMCG) landscape becomes more dynamic, the composition of households is changing too. Individuals are driving their own agendas, purchase decisions and preferences, and that means manufacturers and retailers need to analyze purchasing with more granularity.

At a macro level, online continues to drive shopping occasions, leading growth in trips per shopper. That said, consumers are making 1 percent fewer trips at the individual shopper level than they were a year ago. This is primarily because of decreased traffic to pet and drug stores. In looking at e-commerce trends for these two areas, it’s likely that consumers are covering this gap — and possibly more — by making their purchases online.

In addition to being open to new shopping channels, consumers are paying more attention to how they spend their money, particularly when it comes to store brands. While consumers will always be interested in getting the best price for the products they buy, the perceived quality gap between branded and private-branded products is fading. Notably, just under 74 percent of Americans say they believe store brand products are a good alternative to name brands.

And we can see this sentiment come through in the sales data from the past few years. Private brands have posted a compound annual growth rate of 1.7 percent over the past four years, ahead of the 1.4 percent posted by branded products.

One retail channel has built its growth strategy around private brands: discount grocery. Discount grocers (not including dollar stores) offer value and heavy discounts. For many retailers, but particularly deep-discount retailers, store brands play a strategic role in winning over shoppers from other channels. Compared to other major retail channels, deep discounters have more than twice the store brand share of dollars.

The discount grocery channel continues to invest in private brands. With over half of dollar volume sourced by retailer-branded items, manufacturers seeking entrance into this channel need to vocalize the premium- or value-added differentiators of their offering. Or, like many manufacturers, they need to consider working with retailers on their private brand offerings.

When it comes to deep discount grocery chains, store brands comprise a majority share of sales in three departments: dairy (72 percent), grocery (52 percent) and frozen food (53 percent). This is driven by both penetration and trips, with consumers making more trips to purchase store brand grocery, dairy and frozen products (up 3.3 percent, 5.7 percent and 3.7 percent in trips, respectively, compared to the prior year) than trips made for branded products from these departments.  

Deep-discount grocery retailers are certainly reaping the benefits of having a robust store brand presence within their stores. With consumers taking three times more trips to deep-discount grocery stores compared to other channels, like mass merchandisers or dollar stores, opportunity for growth should only continue for private brands.

While deep discounters have significantly high store brand growth, there is still room for penetration growth across all retail channels. Whether a deep discounter, a traditional supermarket or an online channel, retailers should continue to keep store brand strategy front and center as a way to offer consumers the value and quality they’re looking for at price points that resonate with their wallets.

Jordan Rost is vice president of consumer insights for Nielsen. His work explores emerging trends and shifting buying and media consumption behaviors and helps manufacturers and retailers make more informed business decisions.

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