“After outpacing industry average for several years, private label dollar sales growth declined during the past two years; unit sales are also lagging behind industry average,” the market research firm says in its latest Times & Trends report, ‘Private Label: The Journey to Growth Along Roads Less Traveled.’
In 2012 through 2014, private label sales in dollars outpaced those of the total store by 0.7 to 0.8 percentage points, according to IRI. In addition, private label’s share of retail sales also steadily climbed from 14.6% in 2012 to 14.8% in 2015.
But last year, sales and share dropped below the total store. In 2015, private label sales in dollars increased 3.2% -- just below the overall segment’s 3.3%. Likewise, private label also gave share back to national brands, dipping from 14.8% in 2015 to 14.5% in 2016 up to Sept. 11, according to the report.
The stagnation comes at a time when food prices are falling due to excess supply, low energy prices and lower demand in some international markets, IRI notes.
“These declines are driving national brands to lower prices, which put the squeeze on private label price benefits and encourages private label marketers to slash their prices to reestablish their low-price advantage,” the report notes, adding this is a “dangerous spiral.”
The declines are particularly hard hitting for private label products in the refrigerated sector, where unit sales fell 0.2% in the year ending Sept. 4, 2016. General food also fell 0.2%, as did home care (0.3%), healthcare (0.1%) and general merchandise (0.1%).
“To stabilize private label and boost comparative store sales, retailers must travel new paths to growth,” IRI notes. These include:
- Offering products that span the price and value spectrum – Retailers need a balanced mix of private label products that are low-cost and no-frill, “me-too” alternatives to mainstream options and value-added premium products that stand on their own innovation rather than copying other manufacturers.
- Adding innovation upstream – IRI encourages retailers to break free of just offering “me-too” products and actively innovate to offer consumers engaging, timely and on-trend options such as plant-based milks and nutrient-enhanced eggs. But, it adds, maintaining an easy entry price point is essential.
- Investing in growing categories – Natural cheese, frozen seafood, frozen meat, baking snacks and frozen pizza are all categories that are growing for private label. Underlying drivers for these segments are consumers’ desire for convenience and healthy foods, IRI notes. It adds, “By investing time, money and attention to understand these emerging trends and how they impact key shoppers, retailers will be able to tailor their private label solutions and associated communications to shoppers in a more personalized and engaging manner.”
- Maintaining effective price-pack architecture – Acknowledging that this is a “daunting task,” IRI notes “by tactically choosing where to compete on opening price point and where to use higher-end attributes and premiumization to entice consumers to trade-up, retailers can grow the category and their private label brands simultaneously.”