The rise of private labels

BOOK EXTRACT

Private labels have been around for a long time. A&P with its Eight O'Clock Breakfast Coffee has been purveying own brands for more than a century. Yet, private labels were seen as poor cousins to the manufacturer brands, with a small share of the overall market that was considered unlikely to become significant.

Manufacturers of branded products therefore have been taken aback by the unexpected and continued increase in private label share since the 1970s. Private labels have outperformed manufacturer brands in all but one of the last ten years. They now account for 20 percent of sales in supermarkets and mass merchandisers as well as a healthy share of sales in department stores, category killers, specialty stores, and convenience stores....

Private labels are ubiquitous:
The three best-selling private label categories may still be predictable "" milk, eggs, and bread in food; food storage and trash bags, cups and plates, and toilet tissue in nonfood.

However, today's large and sophisticated retailers are able to develop credible private label offerings for categories where traditionally customers were more wary of straying from their favorite manufacturer brand names.

Store brands are currently present in over 95 percent of consumer packaged goods categories. Among the fastest-growing categories for private label sales are lipstick, facial moisturizers, and baby food....

Private labels compete on quality:
Traditionally, the image that private labels evoked was of white packages with the words toilet paper, beans, or laundry detergent embossed in plain black typeface on them, found somewhere at the bottom of store shelves. But times are changing.

Consumer Reports magazine ranked Winn-Dixie's chocolate ice cream ahead of Breyers, Wal-Mart's Sam's Choice better than Tide detergent, and Kroger's potato chips tastier than Ruffles and Pringles.

Hotel Collection by Charter Club, a Macy's own label, sells $1,350 duvets and $275 pillowcases. Similarly, Gap has introduced the 1969 label, which retails at twice the price of most Gap jeans....

Consumer acceptance of private labels:
The improvement in private labels has made them an acceptable purchase alternative for consumers. Two-thirds of consumers around the world believe that "supermarket own brands are a good alternative to other brands."

In 2001, 45 percent of shoppers were more likely to switch to a store brand, up from 31 percent in 1996. In a recent survey, only 29 percent of U.S. consumers agreed that manufacturer brands are worth the price premium, while only 16 percent believed that store brands are not as good as manufacturer brands.

And any social stigma associated with store brands seems to have vanished, since only 6 percent of consumers in the survey reported that they don't feel comfortable serving store brand items in their home....

The rich buy private labels:
In the past, private labels were primarily targeted to the poor. Today, while the poor still buy private labels more often than other consumers, one observes wealthy consumers purchasing store brands.

Increasingly, it is considered "smart" shopping to purchase private label products of (supposedly) comparable quality for a much lower price, rather than being "ripped off" by high-priced manufacturer brands.... Private label buyers are now found among all socioeconomic strata and seen as thoughtful shoppers, who are not easily influenced by advertising and take pride in their decision-making ability.