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Innovation critical to compete with private labels

By Sarah Hills , 03-Nov-2008
Last updated on 03-Nov-2008 at 17:27 GMT2008-11-03T17:27:57Z

Innovation and increasing speed to market are crucial if food manufacturers want to compete with private label products, according to a new report.

Consumers are turning to private label products to try and save money so manufacturers need to be ready with products that meet the change in shopper’s needs, said the report from Information Resources, Inc (IRI) called Times & Trends: A Snapshot of Trends Shaping the CPG and Retail Industries.

It said: “Brand manufacturers beware: retailers have raised the bar on private label. The need to innovate and differentiate is more critical than ever, and speed to market does count.”

In troubled economic times consumers are looking for ways to save money without opting out of a category completely. This is coupled with an improved perception of private label products.

Thom Blischok, president, Consulting & Innovation, IRI, said: “Gone are the generic brown paper labels with black type. In its place today are premium products, innovative packaging, aggressive in-store merchandising and even feature ad support.

“Historically, lower- and middle-income shoppers have represented the largest population segment purchasing private label. However, as detailed in IRI’s latest report on the Transforming Economy, Shoppers in Crisis, even upper-income shoppers, those earning $100,000 or more, are turning to private label as part of a money-saving strategy.”

A source of growth for private label products has been frozen foods. This is put down to a resurgence of people cooking at home from scratch, increasing consumer demand for easy-to-prepare meal solutions and meal component categories on the rise.

The report added: “Thanks to increased perceptions of quality, private label frozen foods are being recognized as a convenient and affordable solution to meal-time conundrums.”

However, there is evidence that innovation is improving the performance of branded products over private label. This is seen with private label yogurt and margarine or spreads, which are down 3.8 and 3.2 share points respectively since 2005.

Similarly, yogurt and margarine or spreads have seen high levels of innovation as manufacturers seek to add functional attributes such as plant sterols to distinguish their products. IRI highlighted new product releases by Smart Balance, Dannon and Promise as examples.

Among 44 percent of top CPG categories, private label share is below average but on the rise.

The categories with the highest private label share gains include non-chocolate candy which increased penetration by 2.2 points this year, after a 3.5 point increase last year. Likewise salad dressing penetration climbed 1.7 points this year after an increase of 3.3 points last year.

The report said: “The time is ripe for manufacturers and retailers to explore a cooperative effort partnership which provides a branded product targeting one segment (or segments) of the marketplace while the private label targets another segment (or segments).”

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