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Higher Prices Driving Dramatic Growth of U.S. Private Label: Nielsen

A new analysis from The Nielsen Company, presented at Nielsen's Consumer 360 Conference in Phoenix, found that the recent growth in private label is because of rising commodity and food prices, and not a result consumers forsaking national brands.

Over the past year, private label sales of CPG products have gone up almost 9 percent to $50 billion in supermarket sales, or a 17.5 percent share of supermarket dollar sales. In supermarket, mass merchandise, and drug stores combined, private label sales rose 9.1 percent to $77 billion in sales, or a 15.9 percent share of stores' dollar sales. Nielsen discovered, however, that while dollar sales of private label products are up, unit sales are down slightly, indicating that higher unit pricing is the main reason for growth.

"When private label dollar share started to spike, it appeared that shoppers were shifting to store brands in order to save money," said Nielsen director of industry insights Tom Pirovano. "That's always been the conventional wisdom during economic downturns. Digging beyond the numbers, however, it_s clear that private label unit share is essentially flat. Higher prices in commodity categories like eggs, milk, and cheese are driving private label dollars, not consumers deserting traditional brands."

These higher prices at the store are attributable to the high price of gas, which makes it more costly to ship products from the manufacturer to the retailer. Interest in developing ethanol as an alternative fuel for cars ups the demand and price for corn, and higher corn prices lead to more expensive food products made with corn and corn byproducts.

The top-selling private label items are mostly products with limited profit margins that are most affected by an increase in shipping or raw materials. In the food categories, the top private label items are eggs, milk, and cheese products, while the best-selling nonfood private label items are aluminum foil, paper towels, paper plates, and toilet paper.

The popularity of private label products varies throughout the United States. The San Antonio market has the highest private label share of store, at 25.6 percent, while in the New York City market, private label commands just over a 10 percent share-of-store.

"Market consolidation appears to be an important indicator for private label share," noted Pirovano. "For example, San Antonio and other top markets for private label are dominated by just a few major retailers. New York and other markets with lower private label share, however, have several smaller grocery chains with less opportunity to establish shopper loyalty for retailers or their brands."

Although higher prices are largely the reason for private label's recent growth, the products are also gaining share of wallet and share of mind with consumers. Private label organic products performed well, generating 17.4 percent of organic sales. Additional opportunities for manufacturers and retails reside in the low-fat, natural, gluten-free, and probiotic segments.

Private label was once offered as a less expensive alternative to national brands, but there has been a shift in perception over the past few years, with a number of retailers now positioning their store-brand products as exclusive items.

"Private label products are in the pantry of virtually every U.S. home and not limited to low and middle income households anymore," observed Pirovano. "As prices continue to rise, private label products can be leveraged by retailers to entice consumers into the store and increase sales. Knowing what your consumers want is essential for developing your private label strategy. Do your customers want to save money with in-store brands? Are your customers willing to buy higher-end and more expensive private label products? In a challenging economy, private label products can serve as 'destination' products that truly differentiate your store from competitors."
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