We recently participated in #pckgchat, a monthly Twitter chat that discusses important issues in the packaging industry. The topic was private label package design and branding. At Kaleidoscope, we have a special interest in this area since some of our clients are in the private label space. It got us thinking about some of the trends we’re seeing specific to private label, and how they will impact retail and consumer brands in the coming year.
Quite frankly, the United States is lagging behind European countries in the development of private label brands. According to a 2010 Nielson report, Switzerland, the United Kingdom and Germany lead the way in store brand value shares of 46%, 43% and 32%.
Don’t discredit the United States just yet though. Private label continues to gain popularity domestically. According to Store Brands Decisions 2012 Spotlight, store brands are huge, up 14% since 2009, coming in at $107.4 billion.
One of the biggest brand challenges facing retail brands is consistent product quality. Contract manufacturing can be risky, and retailer brands may live or die by how quality is managed. Brands are not born, they are created, fostered, and carefully managed to deliver on a promise. If that promise is broken to the consumer, a loss of trust will result in poor sales. Retailers who falter on building strong trusted brands are also putting their own corporate brand at risk. If they can manage quality, however, private brands are in a strong position to compete with consumer brands.
Retailers are beginning to take note. Many are hiring CPG executives and employing brand and design thinking. They recognize the advantage of being a destination brand as a means to focus on their guests. They control the shelf and thus can influence purchasing decisions at point of purchase through in-store marketing. Retailers can compete on price and maintain a high level of profitability regardless of price promotion. Retailers also have the most effective research methodology at their fingertips – in-store, in-market testing and sampling.
And it seems like consumer brands recognize the competition breathing down their neck. According to a September 5th article in PL Buyer, successful consumer packaged goods companies are five times more likely to view retailer collaboration as a strategic priority than those that do not. The lines are beginning to blur between national brand companies and the retailers that they compete against.
While National brands have the advantage of large budgets and advertising, private label has the advantage of spanning various categories within a store. National brands have to be more innovative with flavors and packaging structures to dominate the little shelf space they possess and stay at the forefront of the consumer’s mind.
More than ever retailers are investing in building truly credible private brands within their portfolio and are being rewarded with market share year over year. Ones to watch are Target, Safeway, Walmart and Kroger to name but a few.
Consumer research is essential to private label brands, especially those that are looking to build differentiation into their core product offerings. Retailers are investing more money into listening to their customers and asking what they want. Customers expect great quality, even at an inexpensive price point. They even want to be a part of the decision making process. A great example is ASDA in the UK, who created a brand called “Chosen by You”. It spanned across multiple categories in store and was literally chosen and taste tested by consumers who endorsed every single item.
In 2013 and beyond, we’ll be watching the following trends:
- A strong focus on customer confidence
- Building brand loyalty through portfolio optimization
- Collaboration between suppliers, manufacturers, designers, and marketers to elevate product quality innovation
- An even bigger shift towards research, and less “me too” approaches to packaging
There is no doubt that this is an exciting time to be in the private label space. What trends are you seeing in store brands? Share in the comments section below, or let us know on Twitter @KaleidoscopeChi.