While most retailers offer shoppers private label products, it is now the single fastest growing category in grocery stores today.
Why are private label products growing so rapidly?
1. Approximately 64% of consumers have always been content with purchasing private label brands. However, since the recession, another 31 million households have begun to embrace the value that store brands represent.
The discount offered to shoppers is great – store brands are on average 25% cheaper than national brands. That means that the average household of four, which spends between $146 and $289 at the store, could save between $36.5 and $72.25 per week and between $1,898 and $3,757 per year.
2. Private label products offer an opportunity for retailers to increase their own profit margin.
Since grocery operators do not have to pay for the marketing that accompanies national brands, grocers can offer their own products at a lower price point to consumers, while still achieving a profit.
Not only do private label products allow for greater profitability for grocers, but also having a strong private label program presents an opportunity to differentiate themselves from the competition.
There is a tremendous growth opportunity with private label products as store brands in the U.S. only represent 18% of packaged food sales – while store brands in the United Kingdom total 36% and account for 44% in the Netherlands.
In a realization of that gap, certain retailers like Ahold are pushing to build their own-brand penetration in the U.S. to a target of 40% by 2016.
The growth in private-brand sales will stem from both increased purchases among current users and by attracting new shoppers to this category. This has resulted in three distinct groupings of shoppers:
- Those shoppers who prefer and purchase private-label items whenever possible.
- Those who switch back and forth between private and national brands.
- Those who almost always fill up their carts with nationally-branded products.
The challenge in pushing private label products is how to find the right product mix to meet the criteria of different shoppers and move more of the switchers to become loyal to private-brands and convert loyal national-brand shoppers to start purchasing more own-brand items.
To develop a private label strategy, grocers need to answer these 6 questions:
- Who are my private-brand purchasers?
- Which product categories should I be in?
- Are their existing vendor brands that I can safely displace with our own?
- How should our private label product mix vary from store to store?
- Which stores in my chain are best for testing private label concepts?
- Which ones would best accommodate an aggressive expansion of private label products?
Here is how customer analytics answers these questions:
All retailers are aware of the potential profitability of private label brands, and they know they need a strategy for managing this category.
By using customer analytics, you can take the guesswork out of this area by delivering fresh and relevant insights at the category, sub-category and SKU level.
In order to achieve maximum profitability, grocers must evaluate each and every store, category by category, to identify the best product mix – which is especially critical as shelf space becomes limited due to the migration to smaller store footprints. (Read more about grocers’ small footprint growth strategy).
Neighborhood demographics can vary greatly, even among the stores of a single grocery chain in a single metropolitan area.
The more you understand the customer, who lives in immediate proximity to each location, the better you can secure their business by optimizing your product mix.
Furthermore, after identifying each customer and their preferences you can capitalize on that through promotions, in-store advertising and direct marketing efforts that are geared specifically to them.
Taking a cookie-cutter approach can be a recipe for missed opportunities.