Catalysts for private label gains
September 15, 2009
Consumers are buying private label beverages at a growing rate. Private label beverage categories such as canned and bottled tea, shelf-stable fruit juices and nectars, iced coffee, sports and energy drink mixes and carbonated soft drinks have all experienced double-digit sales growth in the past year.
Attitudes around quality and relationships between consumers and retailers are at the center of private label beverages’ expansion, says Sean Seitzinger, senior vice president of Chicago-based Information Resources Inc. Consulting and Innovation. Consumer perceptions of the quality of private label beverages is at an all-time high, he says.
Retailers also have been working hard to improve the quality of their private label beverages, advance the perceptions of their brands and develop loyalty with shoppers. Additionally, the recession led consumers to stretch their dollars and acted as a catalyst to consumers who were maybe ready to switch to private label, he says.
Private label still bottled water continues to be the leading private label beverage category in supermarkets, drug stores and mass merchandise outlets, with $725.6 million, a sales increase of 5 percent for the year ending July 12, according to IRI. Recent private label growth has been strongest in carbonated beverages and bottled water, says Brent Baarda, director of IRI Consulting and Innovation.
“Consumers are recognizing in categories like these, where they are buying a case or two a week, that it’s a great place to save money if they are willing to trade down,” he says. “But it’s also an area where retailers have begun to add some focus.”
For example, Supervalu, Eden Prairie, Minn., has rebranded and expanded its Super Chill brand of beverages, including carbonated soft drinks and bottled water. The Super Chill now includes new varieties and flavors, and a trendier look.
The new Super Chill design brings a more energizing look to store shelves that reinforces the brand’s “supremely cool” image, and is still offered at a price significantly lower than national brands, says Danny Olson in Supervalu’s corporate communications department.
“The first time I saw a display of this, I picked up a package because I thought, ‘Well, who is making this?’” Baarda says. “It looks like a really upscale kind of a soda, and I looked on the back and it says, ‘Supervalu.’”
Carbonated soft drinks typically are not a very appealing area for retailers to grow private label because it is a very shelf-intensive category that requires a lot of back stock and offers low margins, Baarda says. In the supermarket channel, private label’s share of volume historically has been about 10 percent or lower, but has grown to about 12.5 percent in the past two years, he says. As a comparison, in other beverage categories such as shelf-stable bottled juices, private label share is about 25 percent.
“It’s just a more labor-intensive category that requires a lot of commitment if a retailer wants to expand private label within carbonated,” Baarda says.
Reasons for private label beverages’ gains within their categories depends on whether the category is mature, developing or emerging, Seitzinger explains. For example, private label growth in mature beverage categories, such as carbonated soft drinks, comes primarily from consumers looking for “me-too” alternatives, which are typically products at a better value proposition with a marginal difference, if any, in product or packaging quality.
“A lot of private label growth in a category like CSDs is driven by packaging that is very easy to provide a lot of value to the consumer, like in 2-liter packages,” Seitzinger says. “Over half of the private label growth here over the last 12 months has been driven by the 2-liter package. Consumers aren’t just trading down in private label, but really looking for the value package within private label for CSD. This is a little bit different when we look at some of the more emerging categories where innovative packaging and multipack strategies that have more of a consumer proposition are actually a big part of the growth story for private label.”
In developing beverage categories, private label products see much higher levels of share and share gains. These private label beverages have similar formulations to their non-private label counterparts, and in some cases, the private label solutions might have additional functional benefits added to the product.
“In many cases, they are able to go to new manufacturing technology to move a little bit ahead of where the traditional manufacturers might be,” Seitzinger says.
In emerging categories, retailers are working hard to understand consumer trends and product innovations. Teas, juice and functional beverages have been some areas where retailers are moving out in front, Seitzinger says.
Wine is another area where retailers have begun developing more private label options.
“It’s still very much in an experimental range,” Baarda says. “In terms of private label share of volume, it’s barely a blip on the radar at this point, but the future looks strong for the wine category overall and that’s definitely one of the determining factors on where retailers determine where they are going to play. They want to go after categories that are large enough and growing enough that there is going to be room for additional variety that would include private label.”
Consumer and retailer driven
While the economy has been a short-term catalyst, private label gains are a consumer-driven, retailer capability story, Seitzinger says.
“We see a majority of consumers seeing private label being a stronger value in many cases than the manufacturer brands,” he says. “When you think about retail capability and investment, I think all retailers today are executing different strategies in building manufacturing capabilities in some cases, building branding strategies and building innovation strategies that make them significant players moving forward.”
In IRI’s research though, consumers have been saying they are trading down to private label because of the recession.
“They are trying new private label solutions and categories where they haven’t tried it before,” Baarda says. “What they are telling us is that they are having good experiences. They are having positive experiences with private label across frozen, dairy and center store, where private label is making gains. After the economy recovers, and it could take a long time, there is no reason to believe that shoppers would go back to a branded solution when they are already telling us that they are having great experiences with private label.”
Whether it is a retailer offering private label beverages across all categories or innovative private label manufacturers that are offering new technology to launch creative private label products, these types of trends are going to continue private label growth for the long term, and not just in beverage categories, but throughout the store, Seitzinger says.
“We project more expansion in private label, but we also expect the manufacturers to reinvest back in their brands,” he says. “‘Fight back’ might be too strong of words, but I think to make sure they are driving healthy business. From this we could see more innovation. We could see more investment in developing brands, in particular, focusing on new emerging product categories.”
“We project private label growth moving forward, but we also expect beverages to become more competitive as retailers do a more effective job at understanding needs and bringing those solutions to consumers and having a strong value proposition,” he adds.