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food prices expected to rise Store brands lose stigma, gain share

  • Charlotte Observer
  • Published Saturday, March 26, 2011, at 12:07 a.m.
  • Updated Saturday, March 26, 2011, at 10:09 a.m.

CHARLOTTE, N.C. —Even as the economy shows signs of recovering, retailers are expanding their selection of store brands and working to persuade more customers to try — and stick with — their products.

Store brands have been around for decades, offering goods similar to nationally recognized brands such as Heinz and Tide at lower prices. But they've come to make up a larger portion of retailers' sales as consumers traded down to save money — often up to 30 percent, compared to national brands.

Retailers are ramping up private-label offerings, trying to cement the recent gains and sell customers more of their goods.

Food prices are expected to rise this year as a result of higher oil costs and poor harvests. The U.S. Department of Agriculture is forecasting that production of staple crops wheat and corn won't meet global demand.

Neil Stern, a senior partner and retail consultant at McMillan Doolittle in Chicago, said that store brands have usually become more popular during down times and have kept their appeal.

"We see these spikes up, and then as consumers have more money again, they tend to stick with their (new) habits," Stern said. He thinks the market share of private brands will continue increasing.

"Private labels 10 to 20 years ago certainly had a stigma of being lower priced, but lower quality," Stern said. But better packaging, ingredients and marketing have helped erase that stigma from many customers' minds.

Salisbury, N.C.,-based Food Lion this month announced a monthlong promotion to drive sales of its house brands, and Matthews, N.C.,-based Family Dollar said it's entering a long-term partnership to boost the assortment and quality of its private brands.

Both companies use Marketing Management, a Fort Worth-based company that develops private-brand products, labels and marketing strategies. MMI also sources the products' production through a network of manufacturers.

National brands still do a good job of differentiating themselves from the competition. And even as some observers say brand loyalty is declining, Stern said no one should underestimate the power of habit and familiarity.

"If I'm a consumer and I know Tide cleans my clothing, I'll probably stick with Tide instead of paying a little less," he said. "I really want my deodorant to work. Am I willing to try something else and risk the personal embarrassment?"

Analysts say there are limits to private labels. In Europe, where grocers are more consolidated and have developed private brands aggressively for longer, store brands account for about 35 percent of all sales.

Still, analysts say sales of store brand items have grown to about 20 percent of the American market. According to Nielsen data, store brand percentage of sales in dollar amounts increased to about $90 billion, or 17 percent of the total in 2010, up from 15 percent in 2005.

And in a recent Nielsen survey, about 60 percent of consumers said they bought more store brands during the downturn, and more than 90 percent of those said they would continue buying store brands.

Companies have invested more in their private brands, improving packaging and quality. They've rolled out normal, premium and economy varieties of their brands, and even offer organic varieties of store brands.

Wal-Mart, the nation's biggest seller of a private brand through its "Great Value" label, recently announced that it will lower sodium and trans-fat contents in its house products — a move that could appeal to health-conscious consumers.

And in a sign of just how ubiquitous private brands are becoming, the Walgreens pharmacy chain recently started selling its own private-label beer for 50 cents a can.

A study of 21 private-label foods by Consumer Reports last year found seven national-brand products were appreciably better than their store brand counterparts. For the other 14 categories, store brands were better than or equal to national- brand quality.

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