Competing against store brands (or private label goods) is an important topic to senior leaders in the consumer products industry. A number of factors seem to be working together against traditional national brands: increased focus on and investment in store brands by retailers, improved consumer perception of store brand quality and the recession-induced trial of less expensive options. Here, Pat Conroy, vice chairman, U.S. Consumer Products Leader, Deloitte LLP, discusses the results of a recent Deloitte research survey of consumer products and retail executives and senior managers on the challenges that national brands face.
Why did you decide to conduct a survey of U.S. executives on store brands?
Conroy: Like others, we have seen store brands gain market share over the long run in the United States across a number of personal care, household good and food categories. We have also seen U.S. retailers become more sophisticated with their store brands, like some European retailers, in terms of branding, multi-tier product portfolios and use of point-of-sale data. As the differences between national and store brands seems to narrow, we perceived a blurring of the two and, in some cases, a scenario in which traditional national brands were ceding too much ground to the grocery and mass merchandiser store brands.
We also heard a debate concerning the impact of the recession and eventual recovery on consumers' buying behavior related to store brands. We wanted to understand the perspective of brand managers, marketers and account managers at consumer products companies as well as the product managers, marketers, buyers and merchandisers at retailers. Each group brings a unique perspective on consumers and on the actions of the others.
How can consumer product companies address the challenge of store brands?
Conroy: It all starts with a change in mindset. First, consumer products companies should address each store brand as a real competitor brand. That means understanding the brand and product differentiation strategy today, and in the future. Of course, ongoing product innovation plays a major role in differentiation.
Second, consumer products companies should seek to create what we call destination brands. These are products that consumers actively seek out, believe the product performance is demonstrably superior, and will go to another retailer to find the product. Nearly half of all executives surveyed showed strong agreement that consumers will switch stores if their preferred brand is not offered.
Third, consumer products companies should create retailer-specific product portfolios to compete with the multi-tier range of low-end to often premium store brands. Less than two out of five executives surveyed believe that consumer products companies have a product lineup to successfully compete with store brands.
Fourth, we also see opportunity for national brands to create more localized versions. That is, localized versions at the regional, state or even city level. Our survey results show that retail executives are much more tuned in to this opportunity for national brands, compared to consumer products executives.
Finally, consumer products companies should deemphasize discount-driven promotions as undermining the national brands and increasing consumer price sensitivity. Nearly seven in 10 respondents showed strong agreement that consumers are more price sensitive due to national brand promotions.
What do consumer product and retail executives expect as the recession eases?
Conroy: Most executives see store brands as here to stay, as we asked them to project out a couple years. Of the executives we surveyed, nearly four in five respondents from consumer products companies, and nine in 10 from retailers, show strong agreement that U.S. market share for store brands will increase by 2012. They also expect some stickiness related to consumer frugality. Two in five consumer products and retail respondents show high level of agreement that consumers will remain frugal when the economy improves.
So while store brand sales tend to grow faster in recessions compared to good times, we expect the challenge of store brands to remain as the economy improves. At a minimum, consumer products companies should renew their focus on differentiation of their products compared to store brands and resist damaging discount-based promotions.