Beyond the Middle

Beyond the middleThe evolution of value and values for

private label brands

White paper | June 2012

Shikatani Lacroix is a leading branding and design firm located in

Toronto, Canada. The company is commissioned assignments from

all around the world, across CPG, retail and service industries,

helping clients achieve success within their operating markets. It

does this by enabling its clients’ brands to better connect with their

consumers through a variety of core services including corporate

identity and communication, brand experience design, packaging,

naming and product design.

About the Author

Jean-Pierre Lacroix, RGD, President and Founder of Shikatani

Lacroix

Jean-Pierre (JP) Lacroix provides leadership and direction to his

firm, which was founded in 1990. He has spent the last 30 years

helping organizations better connect their brands with consumers

in ways that impact the overall performance of their business. Mr.

Lacroix was the first to coin and trademark the statement “The

Blink Factor” in 1990, which today is a cornerstone principle to how

brands succeed in the marketplace. JP has authored several papers,

has been quoted in numerous branding and design articles, and in

2001 he co-authored the book “The Business of Graphic Design”

which has sold over 10,000 copies. JP can be reached at

jplacroix@sld.com and you can follow his thought leadership

webinars at: www.sldesignlounge.com.

Other Articles and Books

Belonging Experiences...Designing Engaged Brands

Business of Graphic Design

White paper | July 2012 | Store Brands | 1

Finding higher ground

The past five years have seen most retailers revamping their

private label programs due to the need to create greater

differentiation in the marketplace, and to take advantage of a

more fickle consumer. Although these initiatives were much-

needed and timely, they were an answer to current

opportunities. There is now a massive shift in consumer

demographics in North America that necessitates further

changes. Only a handful of leading retailers have started to

take heed and shift their approach to capitalize on this shift.

The next decade will define those retailers whose private label

programs truly drive clear differentiation and increased sales.

More importantly, their sustainable growth will no longer be

focused solely on meeting the needs of the middle class but

will explore opportunities around the demographically-driven

fringes.

The present, in search of trusted value

The current move to update existing private label programs is

in response to a significant shift in the way consumers shop.

Precipitated by the 2009 recession and the fluctuation of

personal equities in the marketplace, this shift in personal

equity has further driven inequality between the rich and the

poor. This has resulted in the shrinking of the middle class in

developed countries, historically the engine of economic

growth, which has been most impacted by the recent

downturn as their net worth has plunged to 1992 levels. In

addition, the top one percent of the population now

represents 20 percent of the nation’s income - twice as much

as it did two decades ago. The net result: a significant impact

on where marketers will find future growth.

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So despite the

immediacy of the

internet, the "new normal" actually

means that

consumers are

abandoning the

"next new thing" mentality that

powered so

much spending

for the past 20

years, in favor of more enduring

priorities.

American Consumption and the New NormalNancy Koehn | December 31, 2009

Most of the wealth was lost to the mortgage crisis and the

drop in home values, which wiped out equity many families

counted on, and reduced their ability to spend or invest. The

report also identified that incomes and stock-based

retirement accounts also fell, further fueling the focus on

value. This shift has not only seen consumer buying habits

focus on price reductions, but there is now a heightened

importance to make wise purchasing decisions based on

products that provide a high level of quality and trust. This

reinforces consumers’ need for reassurance that they are not

compromising on quality or performance as their buying

habits move from national brands to private label offerings.

A new reality is setting in the marketplace, providing a strong

platform for private label sales to increase as the current

market volatility and uncertainty is no longer a blimp as

reports indicate the current trends will not change in the

foreseeable future. The flight to value is supported by a recent

study conducted by GfK for PLMA (Private Label Marketing

Association) identifying that fewer than one in five felt the

economy had improved. This new reality is changing the

meaning of value from temporary price promotions to brands

with a high level of trust and familiarity.

This shift of value is further supported by a recent study by

Shoppercentric, an independent agency specializing in

shopper research in the UK. The study revealed that shoppers

are redefining the meaning of value beyond price.

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The research study entitled: “Window On the Value Equation”

defined value as: 

• “Getting the most for the money I planned to spend” is

actually the definition that scores highest (28% of

shoppers). 

• 21% of shoppers say that for them, “Getting the right

quality for the money I planned to spend” is most

important. 

• “Feeling that what I’m buying is worth the money I’m

spending” also scores well with 20%. 

The Shoppercentric study identified four consumer sections

that can be segmented by their values, namely:

• Quality Matters (34% of shoppers) - best quality for the

money is the key driver

• Low Price Hunters (23%) - lowest cost is the driver

• Holistic Value Seekers (22%) - a wide range of drivers

• Pile it High (21%) - quantity is the key driver

These findings align with North American consumer behaviors

with more than two thirds of PLMA respondents in the study

(69%) saying they will take advantage of discounts by buying

larger sizes or quantities for items they regularly buy; while

67% say they will look for more coupons and promotions on

national brands. About a third (36%) intend to change the

stores or types of stores where they do their primary grocery

shopping. This shift is driven by both the need to find greater

value in their total basket cost without compromising on

quality or performance, in addition to consumers’ lifestyle

values which forgo risk in return for tried and true brands.

Retailers who offer programs at the intersection of cost and

risk will benefit from a higher level of store traffic and loyalty.

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This consumer need to spend less while still meeting lifestyle

values is supported by the PLMA study findings. Overall, half

the shoppers in the study (51%) claim they intend to spend

less money on buying groceries in the months ahead.

Ultimately, more shoppers are forsaking national brands for

store brands. More than four in 10 (43%) report they have

recently passed on a familiar national brand for a private label

counterpart, a marked increase of more than 15% since 2009.

This new flight to value is driving consumers to store brands

with a solid majority of consumers in the PLMA study (62%)

planning on buying more private label as they continue to deal

with the tough economic climate. Not only is the consumer’s

intent to purchase increasing, the frequency has also

increased with 57% indicating that they buy private label

products “frequently,” up from 55% just a year ago. The

increase in frequency is driven by both the level of

sophistication of private label programs and the breadth of

offerings within each retail banner. As retailers expand their

capabilities in private label, they are exploring new brand

offerings that appeal to specialty groups, from sustainability

and organic products to lifestyle needs, to build their overall

share of private label sales.

Narrowing the value gap

The new shift to value is not only driving consumers to forsake

national brands for store brands, those that switch are happy

with their new choice. Fully 97% of respondents in the PLMA

study compared store brands favorably to their previous

national brand choices in the same categories. About half

(49%) said their new store brand selections compare “very

favorably,” an increase from 26% in 2009.

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An extensive study conducted by Rajeev Batra of the

University of Michigan and Indrajit Sinha of Temple University

on the consumer-level factors moderating the success of

private label brands also supports this change in perceptions.

The study concluded consumers are more prone to buying

private label brands in product categories where they

perceive a lower chance of taking a risk in their brand

selection.

This is either because the differences between national and

private label brands are indistinguishable or the investment

threshold is low in switching. Consumer affinity for private

label brands is also a reflection of retailers’ heightened level of

sophistication by investing in manufacturing capabilities,

category management internal disciplines, new marketing

initiatives, all of which are historically the realm of consumer

packaged goods companies.

Retailers such as Aldi in the U.K., Kroger, HEB, Wegmans and

Costco have developed new platforms in both core and non-

core categories. Based on a 2012 Nielsen report, these private

label leaders drive higher shares and exhibit stronger pricing

and promotional skills versus the industry at large. The growth

of interest by retailers is driven by their need to build stronger

brand loyalty and greater competitive advantage.

Historically, national brands stood for quality, innovation and

strong badge value. Most brand tracking studies rank brands

by a series of attributes such as "a brand I trust," "a brand that

I would recommend to a friend," "a brand that is reliable," and

a range of other metrics where national brands garnered

higher rankings than private label brands.

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However, our experience in major private label programs and

supporting consumer research have identified that this

perceived quality gap is narrowing between national and

private label brands. A 2011 Nielsen study confirmed our

observations as store brand quality now ranks “as good

as” [65% of consumers agree] or “some higher quality” [38%

agree] than national brands.

Meeting the demographic shift

Retailers’ private brand initiatives have broad demographic

draw among small and large households across most income

groups, but is generally under-developed among multicultural

households, a growth opportunity that is currently not being

leveraged. The Nielsen report identified an opportunity to

broaden the offering to appeal to the lighter private brand

buyers who are more affluent, who are big brand spenders,

and the Hispanic segment. In addition, the Nielsen report

identified opportunities to offer a different range of products

between the lower/middle income consumers and families

with annual household income of $100,000+.

The study supports the belief that retailers will need to market

the fringes if they want to maintain strong growth in their

private label programs. Nielsen identified that the two highest

value/highest potential segments are the low spend potentials

who ring up $4,045 per year across the store, followed by

upscale premium shoppers at $4,024. As current private label

programs peak, there exists an opportunity to develop

programs to appeal to these under-leveraged segments.

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Loblaws, one of the most sophisticated private label retailers,

has done well at marketing value and lifestyle needs to both

the middle class and fringes with brands such as No Name,

President’s Choice, Blue Menu, PC Organics, and President

Choice’s Black Label. Creating brand platforms to appeal to

both the fringes and the middle class has allowed Loblaws to

continue to grow its private label’s share of sales.

The next phase for private label brands: capitalize further on

emerging demographics

Hispanic Population: With the growth of Hispanic and new

Americans as a total of the population, along with the

shrinking of the middle class and the rise of the more affluent

consumer, the leading retailers are taking into account this

demographic’s needs and evolving their private label

programs in order to continue building stronger brand loyalty.

The Census Bureau, in its first nationwide demographic tally

from the 2010 headcount, confirmed that the U.S. Hispanic

population surged 43%, rising to 50.5 million in 2010 from 35.3

million in 2000. Latinos now constitute 16% of the nation's

total population of 308.7 million.

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The Census Bureau has estimated that the non-Hispanic white

population would drop to 50.8% of the total population by

2040, then drop to 46.3% by 2050. This bodes well for private

label programs as the Hispanic market are heavy users and

loyal to retailer brands. New initiatives should take into

consideration bilingual packaging, products that cater to the

habitual and cultural nuances, in addition to larger package

sizes as this segment tends to have a stronger family nucleus.

To secure more affinity with the Hispanic market, Publix

developed various authentic Hispanic private label products

and created bilingual packaging with a special graphic design

treatment that was very appealing to the Hispanic consumer. 

Hispanic private label initiatives were focused around

products that had high appeal, such as frozen yucca, sweet

potatoes, white Spanish cheeses, malta beverages, Cuban

crackers, seasoned black beans, Spanish bean soup, mojo

marinades and white cooking wine. Food Lion, Stop & Shop,

Food City, Food 4 Less, Nash Finch and H-E-B have also been

effective in marketing to Hispanic consumers.

Chains that are located in heavily-populated Hispanic markets

such as California, Florida and Texas will explore how bilingual

packaging and product specific offerings help carve a greater

share of the market while providing greater differentiation.

Retailers should also look at markets where the needs of

unique and growing consumer segments are being met.

Markets such as Canada with its unique French language and

Quebec market, or Europe with its growth of unique

immigrant cultures, can provide a framework for American

retailers wanting to develop stronger private label programs.

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Immigration: Catering to this group has significant long-term

benefits for retailers as immigration is the largest factor

contributing to population growth, with the addition of over

2.25 million people to the U.S. population annually (1.5 million

legal and illegal immigrants as of 2001-2002, now estimated

at 1.7 million in 2003; plus 750,000 births to immigrant

women annually). The total foreign-born population in the U.S.

is now 31.1 million, a record 57% increase since 1990. Nine to 11

million of those are here illegally, a 4.5 million increase since

1990.

Upper-Tier Consumers: The ability to market to the fringe is

further supported by a 2011 Stanford University study

identifying that only around 44% of families in America live in

what the country considers middle-income neighborhoods,

down from the 1970 statistic of 65%. At the same time, while

only 15% of the country was grouped into either the lower or

upper class four decades ago, that proportion has more than

doubled with a third of America now at either end of the

spectrum.

Retailers such as Loblaws, Canada’s largest supermarket

chain, have considered the more affluent consumer with the

launch of a new gourmet line of 213 President’s Choice “Black

Label” products. The launch stemmed from a need to

capitalize on the affluent consumer and the fact that the

company had fallen behind as competitors developed high-

end, third-tier private labels such as Wal-Mart’s “Our Finest,”

Metro’s “Irresistibles” and Sobey’s “Sensations by

Compliments.”

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Shoppers Drug Mart, the leading drug store chain in Canada

has also launched several third-tier brands to effectively

compete with national brands. Quo, for example, is a exclusive,

premium line of color cosmetics and cosmetic accessories. All

Quo products are developed from an unwavering commitment

to quality and innovation that consistently delivers a

contemporary core assortment and the must-have colors and

products for the season. For Shoppers, this brand dominates

the category, displacing national brand products as the

preferred choice by consumers, a position traditionally

dominated by national brands.

In the fall of 2010, Walgreens also announced it would roll out

the Duane Reade DR Delish brand chain-wide, an upscale

private label program. A&P introduced The Food Emporium

Trading Company label as a platform to experience products

from around the world. We believe that this new platform will

allow A&P to not only compete in the higher priced

categories, but it will also lay a foundation to appeal to both

immigrants and Hispanics with specially sourced products

that fit their specific lifestyles.

The U.K., long known for its innovation in private label

programs, has also launched a range of new brands.

Sainsbury’s doubled its sales for its highest-priced Taste the

Difference store brand line by adding 300 items for the 2010

holiday season. Irrespective of the negative economic climate

in Europe, shoppers in the U.K. purchased 11% more premium

private label items from the top supermarkets in 2010 than

they did the year prior, according to a Kantar report.

White paper | July 2012 | Store Brands | 11

Conclusion

As retailers rush to complete their corporate brand refresh in

order to capitalize on the consumer shift to value, it is

important that third-tier products that cater to the Hispanic

and immigrant markets be further explored as these segments

will represent one of two key platforms for the future growth

of retailers. A focus on the bottom and top-tier income

consumers will also provide an opportunity to grow this

segment of light private label users that have significant

buying power.

With more than 50% of the population representing these

segments in the next twenty years, retailers will need to

understand what the regional and market specific wants are

of their customers, and how their private label offerings will

need to change. The current platforms will become the cost of

entry as retailers focus on meeting the new needs dominating

customer preference and private label’s share of total sales.

White paper | July 2012 | Store Brands | 12

Jean-Pierre Lacroix, President

Shikatani Lacroix

387 Richmond Street East

Toronto, Ontario

M5A 1P6

Telephone: 416-367-1999

Email: jplacroix@sld.com

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