Rise of private labels or store brands and how consumer goods companies can fight back

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Executive Summary

On the back of a continuously weak economy, consumers’ shopping behaviors are changing.  Consumers are trading down, buying less and keeping a leaner stock of household goods.

One marked outcome of such change in consumer behavior is the rise in popularity of private labels, or store brands, as consumers remain focused on value. Major retailers in particular began to aggressively offer more products under their store brands such as Archer Farms (Target), Great Value (Wal-Mart), and Kirkland (Costco).

The branded companies may see their dominance erode if they do not take actions to counter the rise of private labels.

In order for the branded consumer goods companies to fight off competition from private labels, maintain competitiveness and ultimately grow market share, they need to consider the following;

  • Branded companies can beef up their “good-value” products line.
  • Through heavy investments in research and development, branded companies can actively launch new products that focus on innovation.
  • In higher margin categories where innovation and marketing play a large role, branded companies have an upper hand with pricing.
  • With rising commodity prices, larger players have an advantage over smaller producers, which lack the capacity and sophistication to manage a large-scale hedging program.

Change in Shopping Behaviors

Most U.S. household non durables companies have been heavily caught up in the global economic downturn which began in 4Q 2008 with retailers cutting back or delaying purchases and many consumers following suit. The more discretionary and higher-priced sub-categories in household nondurables, including make-up and fragrances, suffered even more.

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In response to the downturn, many consumers traded down, bought less and kept a leaner stock of household goods. This was seen in the selection of branded offerings in the “value” segment, or even a smaller-sized version of an expensive branded product (which costs the same or more per unit but less in absolute dollars). Also, anecdotal evidence points to consumers waiting as long as possible between purchases (“pantry de-stocking”).

(Source: WSJ.com)

Rise of Private Labels

As consumers remain focused on value, one marked outcome of the change in the consumer shopping behaviour is the rise in popularity ...

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