It's A Store Brand Economy

It should come as no surprise that despite lagging sales from other brands during the latest recession, store brand sales actually have experienced significant growth. In fact, economists and analysts have found that during the past 20 years, the greatest volume share growth for store brands has taken place during periods of economic contraction, when shopper perception of products is shaken up.

What's more, the share gains have remained during periods of economic expansion, driven by the inertia of consumers' purchasing store brands in the period of economic contraction. Based on this pattern and on Morgan Stanley's forecast that the U.S. economy will remain anemic for the next 12 to 18 months, SymphonyIRI predicts store brand dollar sales will grow at a rate of 3 to 4 percent during 2012.

You might ask: From where are store brands' dollar and volume share gains coming? As shoppers make do with the limited budgets forced on them by economic uncertainties, many are taking up frugal habits such as searching for store brands in more categories and on more occasions. For example, a recent SymphonyIRI report titled "Managing Private Label for Growth" stated that store brands account for 38 percent of consumer packaged goods dollar spend in 15 percent of U.S. households. This number is more than twice that of store brands' average dollar share (18 percent). In addition to providing more cost-effective options, store brands also have gained the trust of more shoppers over time, and category by category, resulting in dollar and volume share growth within many households.

This migration to store brands poses a challenge to branded companies, which will face an uphill battle with shoppers as they try to win these folks back during the current economic contraction, as well as during the next economic expansion. The changing trends associated with store brands and branded products during economic cycles do not happen randomly. Trends are enforced by shoppers, who respond to the marketing actions of store brands and branded companies. Strategies such as an increase in innovation, advertising, promotions and pricing are key to winning the hearts and wallets of shoppers.

Now is the time for retailers to take advantage of store brand success by expanding penetration and the buy rate across categories and aisles. Instead of viewing store brand household share from a limited number of categories, retailers must look to a higher proportion of the basket categories with store brand offerings. Additionally, because store brands have earned a much better reputation among shoppers on delivering quality, value and performance, retailers have an opportunity to raise their average price to achieve greater sales from each household.

Store brands are also a good source for differentiation in the marketplace. For retailers seeking to attract shoppers who are not typical store brand buyers, effective branding and messaging in the marketplace such as feature ads will be critical in changing perceptions and highlighting the value these products bring in the marketplace.

Moreover, retailers seeking to reallocate their store brand marketing spend should do so in alignment with the practices of economic periods. Retailers should continue to emphasize store brand offerings in an economic contraction, as this period of time is better suited to garnering awareness and share. The U.S. economy is expected to remain sluggish for the next 18 months, so now is the time is now to act and challenge the competition for the wallets and loyalty of shoppers.

Daniel Grubbs is a principal at Symphony Consulting, a practice area of Chicago-based SymphonyIRI Group. He leads the strategic insights and thought leadership areas within Symphony Consulting. He can be reached at [email protected].

'Store brands account for 38 percent of consumer packaged goods dollar spend in 15 percent of U.S. households.'