A study has found that consumer packaged goods (CPG) companies and retail executives both agree that private-label products will have a greater share of the market by 2012.
The study, The Battle for Brands in a World of Private Labels, is produced by Deloitte LLP. It found that when asked about private-label brands, both producers and retailers said the trend is here to stay. Deloitte also asked them how market share of store brands would change in the U.S. by 2012. Seventy-seven per cent of CPG executives and 90 per cent of retail executives said it would increase or increase significantly.
However, the study also found that while CPG manufacturers and retailers agree that store brands will continue to grow, they have different views on consumer attitudes towards store brands. Fewer than two out of 10 executives surveyed believe consumers view store brands as likely to be manufactured by the traditional national brands.
Meanwhile, eight out of 10 consumers surveyed in another Deloitte study, 2010 American Pantry Study, believe that most store brands are manufactured by the traditional national brands. In addition to the disconnect around manufacturing of store brands, 85 per cent of consumers also indicated that they have found several store brands that are just as good as national brands, and as a result have little reason to switch back.
“Though conventional wisdom has co-branding between retailers and CPG companies as a win-lose proposition, the results of our study indicate that nearly half of retail and CPG executives agree that working together may be the best way to win the wallets of the ‘new consumer,’” says Pat Conroy, vice-chairman and Deloitte’s U.S. Consumer Products practice leader.
“What they need to consider are variations on current brands and what new innovations should be brought to market so as not to overwhelm an already substantial marketplace.”
The Deloitte study goes on to say that there is a fine line that needs to be followed by both CPG companies and retailers, as both sides believe consumers have unique associations with national brands compared to store brands.
While price and product performance are table stakes, the executives surveyed feel consumers are much more likely to associate innovation with national brands, and local variants, such as taste and specific regional preferences, with store brands. Those areas that the executives felt consumers did not have either a strong national brand or store-brand specific association were: exclusivity, green (organic and environmentally friendly) and support for social causes.
It comes as no surprise that the executives surveyed believe that retailers are more focused on store brands, premium offerings and building customer loyalty, and that they believe CPG companies should be focusing more on store brands. However, they also believe that CPG companies need to develop retailer-specific portfolios and more low-end brands.
Furthermore, most retail executives surveyed believe that national brands would increase market share if they created local variations to better appeal to consumers in target cites, states, or regions.
To help navigate CPG companies through this changing environment and attract the “new consumer,” Deloitte suggests they should:
• Shed homogeneity
• Be irreplaceable
• Make me-too strategies an onerous path
• Stop reckless promotions
“To compete in this new ‘store branded’ world, CPG companies must increase their direct-to-consumer efforts while simultaneously developing a product portfolio that reflects each retailer’s unique consumer base,” says Conroy.
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