Could private label be losing its luster?

01-May-2012 - Last updated on 02-May-2012 at 15:56 GMT

Sales of private label foods and beverages have been on the rise for more than a decade, but consumers are beginning to lose enthusiasm, suggests a new report from market research organization The NPD Group.

Growth in the private label, or store brand, sector increased rapidly as the recession took hold, but although some private label food products are still simply cheaper imitations of familiar brands, many store brands have focused on delivering quality as well as value. This led some market analysts to speculate that the appeal of store brands could endure even as the economy recovers.

But in its new report – “The Evolution of Private Label – Does Brand Name Really Matter?” – NPD said that consumers are less impressed with private label products than they were a few years ago. Two-thirds recognize that quality has improved, but as the economy has rebounded, an increasing number of consumers polled by NPD have said they intend to return to name brand products.

In 2012, less than a quarter of consumers said they intended to purchase more private label products in the coming 12 months compared to the year before, according to the report, compared to more than a third who said they intended to increase their purchases of private label products in 2009.

NPD food and beverage industry analyst, and report author, Daniel Seifer told FoodNavigator-USA that the reason for this was likely twofold. Firstly, consumers are experiencing “frugal fatigue” and want to go back to their favorite branded products, and secondly, private label manufacturers are doing a better job of masking the fact that their products are private label.

“As the economy improves, we might be at a fork in the road,” he said.

Meanwhile, two-thirds of consumers perceive store brand quality to have improved over the past five years – but they may be becoming choosier, as only 24% of adults said that private label goods did an excellent job of meeting their needs in 2012, compared to 32% in 2009.

Increasing loyalty

“If you are a branded food manufacturer, look at this as an opportunity to examine the shelves and look for the best way to coexist with retailers,” Seifer said. “…Continue what you are doing to help the loyalty because private label is going to beat you every time on price.”

In particular, name brand manufacturers are getting wise to the importance of making and maintaining connections with consumers, and many are looking to social media to do so.

“If you’ve got a million people going wild about your product online, that’s certainly a low-cost marketing strategy,” Seifer said.

Nevertheless private label is likely to continue outstripping branded products in some sectors, particularly ingredients, the report found.

Own-brand products accounted for 18% of household product servings in 2000, and this has risen steadily, to 27% last year.