It appears consumers are rewarding those retailers who have placed an emphasis on promoting quality in addition to value as part of their private label offerings. In fact, just under 74% of Americans report they believe store brand products are a good alternative to name brands , suggesting “own brand” programs that are equally differentiated by experience as by pricepoint are finally closing any perceived quality gap between national brands, a recent Nielsen report revealed.
“Private-label products have posted a compounded annual growth rate of 1.7% over the past four years, ahead of the 1.4% posted by branded products,” Chris Morley, president, FMCG and retail, Nielsen, wrote in the second installment of Nielsen’s “Total Consumer Report.” “The difference is even greater over the past year: private-label gained 0.7% in sales, while branded products decreased 0.3%.”
Only 10.8% of U.S. consumers in households that earn more than $100,000 per year believe that private-label brands are ‘really meant for people who are on tight budgets and can’t afford the best brands,'” Morley noted. “Comparatively, almost 21% of consumers in the under $20,000 per year bracket agree with this statement.”
For proof of private label success look no further than Costco. Costco is making it even easier for its customers with its private label Kirkland brand, a pillar of the company’s profitability and driver of sales. Today Kirkland accounts for about 25% of the company sales, well above the industry average of 17% for private-label sales, according to WSJ. Costco shoppers are not only drawn to Kirkland brands because they are cheaper than the name-brand offerings, but Kirkland products have a quality they have come to rely on. Costco has private label in virtually all categories including craft beer and wine.
Private label sales are going upscale as well. The price between some private label and branded products is closing rapidly. What does this mean? It means that consumers don’t see the “value” in some branded products and it also means that a lot of marketers are failing to deliver on the brand promise.