Private First Class

Sales of private-label frozens are anything but cold. Store-brand frozen prepared food had the largest dollar and unit sales growth of all high-volume private-label categories, soaring 20% in dollars to $570 million and jumping 14% in units to 159 million, according to Nielsen data for the 52 weeks ending Dec. 1, 2007, compared to the prior 52 weeks. (Eggs were the No. 1 category in terms of dollar

Sales of private-label frozens are anything but cold.

Store-brand frozen prepared food had the largest dollar and unit sales growth of all high-volume private-label categories, soaring 20% in dollars to $570 million and jumping 14% in units to 159 million, according to Nielsen data for the 52 weeks ending Dec. 1, 2007, compared to the prior 52 weeks. (Eggs were the No. 1 category in terms of dollar sales gains, but that was mostly due to price increase, not unit movement.)

As national-brand manufacturers like Stouffer's and Bertolli boast unique frozens such as skillet dishes and panini, retailers are filling cases with innovative food and beverages of their own.

“In frozen prepared foods, there's been a lot of new product activity, such as steaming bags and complete meals,” Nielsen's senior vice president of consumer shopping and insights, Todd Hale, told SN.

Other high-volume categories with fast-growing dollar and unit sales include frozen baked goods, prepared food and pet care. Frozen baked goods experienced a 15.3% increase in dollar sales to $164.1 million and a 5.3% rise in unit sales to 79.6 million. Private-label prepared food and salads shot up 13.7% in dollar sales to $1.4 billion and gained 8.5% in units to 319.7 million. Pet care (including cat litter and flea collars) climbed 11.4% in dollar sales to $174.4 million and 5.3% in units to 50.9 million.

The strong performance of these and other categories comes at a time when private label generated $48.7 billion in sales at food stores for the 52 weeks ending Dec. 1, 2007, a 6.8% increase compared with the prior 52 weeks, according to Nielsen.

Sales could be even higher this year, depending on how consumers react to the threat of recession, said Hale.

“2008 will likely be a challenging year for U.S. consumers and the economy as a whole as we grapple with growing inflation, credit card debt, declining house values — as well as expectations for gasoline to hit $3.40 by spring,” said Hale. “Value, convenience and competitive pricing will be more important than ever in the year ahead.”

After the last economic downturn, which occurred after Sept. 11, 2001, many consumers started reducing spending and trading down.

There already are signs that a weakening economy could trigger more private-label sales. Just-released Nielsen research shows that 23% consumers are buying more private label to compensate for rising gas prices. They are also reducing spending in other ways, including eating out less and clipping coupons more often.

Tesco's U.S. entry could be another boon for private label, as about 50% of the 3,500 stockkeeping units in the company's new Fresh & Easy Neighborhood Markets are private label.

“Tesco will continue to put pressure on the grocery industry and could push it more toward private label,” Hale said.

NICHE BRANDS

One of the big growth opportunities is tiered programs, because they enable retailers to meet the needs not only of consumers with various incomes, but also those in search of foods that meet certain dietary requirements, said Hale.

“Retailers are looking at [tiers] to broaden their private-label reach,” he said.

Indeed, if U.S. retailers want to grow their private-label business, they should follow the lead of European companies and determine if there's demand for labels targeting different consumer segments, according to an Information Resources Inc. private-label report.

Take Safeway: Widely known for its Signature brand of soups and other fresh food, it has branched out into other private-label brands, including O Organics, O Organics for Baby and Toddler, and Eating Right.

“With private-label products, we want to satisfy as many needs as possible,” Safeway spokeswoman Teena Massingill said. “Today, that includes healthier eating, organic products and meeting specific dietary needs.”

Safeway's multiple tiers are helping the retailer make its private labels appealing to a broader group of consumers, said Thom Blischok, president of IRI Retail.

“There's a movement toward specialized private-label positioning,” he said. “With O Organics, Safeway shows that it understands emerging shopping needs: families interested in better-for-you products.”

Other U.S. retailers are also using multiple private-label brands to increase private-label penetration. Food Lion, Salisbury, N.C., recently rolled out a new three-tiered initiative.

Joining its existing national-brand-equivalent assortment marketed under Food Lion and other brands is the new Smart Option value brand and the Taste of Inspirations premium line.

The retailer has not stopped there. It has also rolled out brands in targeted store categories, including Nature's Place natural and organic products; Healthy Accents health and beauty care items; and Home 360 general merchandise.

Tiered programs like these are cited as a way to build sales across a wider mix of categories. As it stands, 70% of private-label dollar sales are concentrated in 50 categories, including milk, cheese and bread, according to IRI. And about one-quarter of private-label buyers are driving half the sales. These shoppers devote about one-fifth of their spending to private label, compared with 12% among light buyers.

IRI attributes the success of private label in Europe to tiered programs. European private labels reach out to many different consumer segments, including shoppers in search of value, health benefits, kids' products and ethnic items.

CHANNEL SHARE

Supermarkets and supercenters come out on top in terms of private-label dollar sales, accounting for 17.7% and 16.8% of sales, respectively, according to IRI.

But club stores are experiencing the most growth. Private-label dollar share in club stores increased 3.8 percentage points between 2004 and 2007, compared with a 0.4-point increase in mass merchandisers and a 0.2-point drop in supermarkets.

Segmentation

Sub-branding has contributed to the success of private label in Europe

Along with offering value, national-brand-equivalent and premium lines, European retailers are committed to plenty of other private-label sub-brands. Among them are:

HEALTH AND WELLNESS

  • Health claims: products that offer specific health benefits, such as low-fat and fat-free.

  • “Free-from” foods: products that cater to consumers who have food intolerances, such as to gluten.

FUNCTIONAL

  • Products that offer health-and-wellness benefits beyond basic nutrition, such as cholesterol-lowering foods.

ETHICAL

  • Organic: brands like Sainsbury's “SO” organics that address both health and environmental concerns.

Private Enterprise

Multi-tiered offerings are one way that retailers can broaden private-label penetration across categories and consumer segments, according to IRI

Among other ways retailers can expand share:

  • Evaluate private-label growth potential at the category and store levels.

  • Assess the fit of current private-label offerings with core and target consumer segments.

  • Identify market gaps (including flavors, sizes, healthier alternatives) within big categories.

  • Invest in store branding, leverage high-equity banner brands as umbrella brands in private-label marketing and packaging.

  • Tailor private-label assortment by market.

  • Work with manufacturer partners to identify the right mix of private-label and manufacturer brands.

  • Track private-label share trends by category at the store level at multiple points throughout the year, and before and after major category changes in advertising, pricing, promotions and new product introductions.

Gas Guzzler

Nearly one-quarter of consumers are buying more private label to compensate for high gas prices

IMPACT OF HIGH GAS PRICES ON CONSUMER SPENDING HABITS
ACTION CONSUMERS WHO AGREE AS OF JUNE 2007 CONSUMERS WHO AGREE AS OF DECEMBER 2007
Shop More at Supercenters 23% 27%
Switch to Lower Price Gas Stations 26% 26%
Use More Coupons 21% 25%
Buying Store Brands 19% 23%
Use Lower Grade Gas 14% 15%
Source: Nielsen Homescan Survey

Share and Share Alike

Supermarkets and supercenters capture the greatest share of consumer spending on private label

U.S. 2007 CPG PRIVATE-LABEL SHARE
CHANNEL UNIT SHARE DOLLAR SHARE
Grocery 22.8% 17.7%
Wal-Mart 22.6% 16.8%
Supercenters 22.5% 17.0%
Club 15.7% 15.4%
Drug 15.2% 13.9%
Mass 14.7% 11.3%
Dollar 6.9% 6.7%
Source: IRI

Fight Club

Private-label share has increased the most in the club channel

2007 vs. 2004 CPG PRIVATE-LABEL SHARE CHANGE
CHANNEL UNIT SHARE POINT CHANGE DOLLAR SHARE POINT CHANGE
Club 4.6 3.8
Mass 0.4 0.4
Grocery -0.1 -0.2
Drug -0.2 0.3
Wal-Mart -0.2 -0.3
Supercenter -0.4 -0.3
Dollar -4.2 -3.8
Source: IRI
Top 25 Private-Label Categories
CATEGORY DOLLAR SALES CHANGE vs. YEAR AGO
1. Milk $7.2 billion 12.8%
2. Bread/Baked Goods $3.5 billion 4.9%
3. Cheese $3.0 billion 7.0%
4. Fresh Eggs $2.1 billion 31.9%
5. Fresh Produce $1.9 billion 7.7%
6. Paper Products $1.9 billion 3.1%
7. Deli Dressings/Salads/Prepared Foods $1.4 billion 13.7%
8. Packaged Meat $1.3 billion 2.4%
9. Frozen Meat/Seafood $1.2 billion 5.9%
10. Frozen Vegetables $1.1 billion 2.6%
11. Canned Vegetables $1.0 billion 1.2%
12. Ice Cream $949.5 million 3.8%
13. Bottled Water $946.0 million 12.0%
14. Shelf-Stable Juices/Drinks $827.1 million 3.7%
15. Cereal $801.0 million 3.1%
16. Cottage Cheese/Sour Cream $786.9 million 5.4%
17. Carbonated Beverages $778.8 million -3.7%
18. Storage Bags/Wrapping Materials $754.4 million 3.4%
19. Butter/Margarine $672.8 million 0.7%
20. Condiments/Gravy/Sauces $652.8 million 4.1%
21. Sugar/Sugar Substitutes $604.3 million -2.1%
22. Snacks $582.3 million 6.5%
23. Frozen Prepared Food $570.5 million 20.2%
24. Shortening $559.1 million 5.8%
25. Cookies $486.8 million 5.2%
Source: Nielsen
Top Private-Label Dollar Sales Gains
CATEGORY DOLLAR SALES CHANGE vs. YEAR AGO
1. Fresh Eggs $2.1 billion 31.9%
2. Frozen Prepared Foods $570.5 million 20.2%
3. Frozen Baked Goods $164.1 million 15.3%
4. Deli Dressings/Salad/Prepared Food $1.4 billion 13.7%
5. Refrigerated Juices/Drinks $425.9 million 13.0%
6. Milk $7.2 billion 12.8%
7. Bottled Water $946.0 million 12.0%
8. Packaging With 2 or More Related Products $101.9 million 11.6%
9. Cat Litter/ Flea Collars/Other Pet Care $174.4 million 11.4%
10. Dairy Snacks/Spreads/Dips $135.9 million 10.3%
Source: Nielsen, based on categories with private-label sales over $100 million, at U.S. food stores (excluding supercenters) with $2 million in sales or more, for the 52 weeks ending Dec. 1, 2007.
Top Private-Label Unit Sales Gains
CATEGORY UNIT SALES CHANGE vs. YEAR AGO
1. Frozen Prepared Foods 159.2 million 14.0%
2. Deli Dressings/Salads/Prepared Food 319.7 million 8.5%
3. Packaging With 2 or More Related Products 15.1 million 7.4%
4. Tea 86.2 million 5.6%
5. Frozen Breakfast Foods 88.4 million 5.6%
6. Fresh Meat 98.2 million 5.4%
7. Cat Litter/Flea Collars/Other Pet Care 50.9 million 5.3%
8. Frozen Baked Goods 79.6 million 5.3%
9. First Aid 88.5 million 4.8%
10. Oral Hygiene 46.9 million 4.6%
Source: Nielsen, based on categories with private-label sales over $100 million, at U.S. food stores (excluding supercenters) with $2 million in sales or more, for the 52 weeks ending Dec. 1, 2007.