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New Norms in Merchandising

Retailers who've battened down the hatches in the hopes of weathering the economic storm need to rethink their strategies.

That's according to the folks at McKinsey & Co. who say that retailers' response to consumers' financial hardships has only just begun. The firm projects that consumer spending will remain muted for the next five years.

"This is not a change you can weather, this is a new norm you'll operate on for years to come," said Katie Doyle, principal at McKinsey, this morning at GMA's MSM show.

Here's a preview of how things might look in 2016: Wal-Mart, other top grocers and members of the club channel will achieve 27% private-label penetration, which is on par with countries like Germany but a far cry from the 40% to 50% achieved by grocers in the U.K. McKinsey's Kari Alldredge explained that language and other trade barriers make it harder for national brands to make inroads with European retailers and effectively leverage scale.

Cognizant of competitive pressures, CPG companies are beginning to hone their strategies. Among those beginning to emerge, says McKinsey:

* More aggressive pricing — Tide Basic, a powdered, lower-priced version of liquid Tide, is an example of this.

* Reframe value — DiGiorno Pizza doesn't compare itself to other frozen pizzas, but its price relative to takeout.

* Innovate where consumers are willing to pay — Green Giant Valley Fresh Steamers' steaming innovations differentiate it from store brands.

* Reshape your distribution model — Iams produces store brands and effectively reduces distribution costs of its branded product as a result.