Q&A: Nielsen talks economic shifts around private brands
In April of this year, Susan Dunn took on the role of chief revenue officer, NielsenIQ, having spent nearly 30 years with the organization in various leadership roles and involved in consumer goods. Dunn said she’s seen just about every trend, market shift and macroeconomic impact possible over that time.
She sat down with Store Brands to discuss private brands in a currently wild economic climate.
Store Brands: How does this year's retail landscape this holiday season compare with years past?
Susan Dunn: This year is all about two things — price and on-shelf availability. Last year we saw the impact of nesting behavior manifest at the shelf during the holiday season, with total store sales up 8%. For instance, total sales of flour during the holiday season in 2020 posted 9% growth vs. 3% the prior year. Private label vegetables and cheese also spiked, indicating that consumers were preparing more food at home amid ongoing restrictions and uncertainty.
This year, we anticipate sales gravitating toward those categories and brands with the most consistent on-shelf availability. Price will also be a concern for consumers as inflationary pressures continue, and that's where private labels and store brands can make an impact. But finding the balance between which private label items can stay on the shelf and offering them at a price that makes them attractive to consumers compared to branded items will be crucial.
SB: What are the biggest concerns and how does that impact store brands specifically?
SD: Top of mind for retailers are supply chain challenges and keeping their shelves stocked to meet consumer demand. That has resulted in a need to reduce assortment variety and ensure that items retailers carry can generate an incremental contribution to the category. According to NielsenIQ data, there is a 5%+ reduction of SKUs available on the shelf in 2021, which is substantial.
Store brands are not immune to supply chain and availability challenges. In fact, we have data available for the most recent period (October 2021) that shows private label items fared worse than branded items in terms of on-shelf availability across most categories. Exceptions to that availability trend include categories where store brands have consistently been more available than branded items all year, including cookie mix, soap, toothpaste, fabric softener and laundry detergent. Retailers have an opportunity to compete on price with their store brands in those categories where they have a consistent availability advantage.
Online fulfillment options also impact stocking and availability issues. While the popularity of curbside and in-store pickup may have fallen off slightly from the height of the pandemic, volume in these fulfillment channels remain above 2019 levels, and retailers must still manage their inventory appropriately.
SB: How can retailers improve?
SD: Unfortunately, many supply chain issues are outside retailers' control, so preventing private label out-of-stocks completely is probably impossible. Instead, their strategy should focus on curating their assortment and leverage store brands to offset out-of-stock national brands. Leaning into those categories where they can consistently keep their private label items in stock and avoiding or temporarily delisting their store brands in those categories where they can't will help retailers optimize their assortments.
SB: Does the supply and demand challenges this holiday season benefit retailers and a focus on store brands in any way, in your opinion?
In some ways, yes. Retailers have an opportunity to meet the needs of a less price-sensitive consumer looking to have an in-home vs. out-of-home food experience by offering more premium store brand options. By the same token, retailers can position their store brands in a way that provides value to income-constrained consumers most affected by energy and food inflation. The flexible nature of store brands — and the control retailers can exert over them in terms of pricing and packaging — makes them an ideal vehicle for meeting the varied needs of consumer groups in a shifting environment.
Of course, these strategies are contingent upon availability. As mentioned, as long as retailers put their efforts into those categories where they can consistently keep both their premium and mainstream store brands on the shelf, they can benefit from the supply and demand fluctuations affecting the rest of the industry.
SB: Can you share any sales numbers on how store brands are selling vs. national brands leading into the holiday season? Any categories doing exceptionally well and why?
Year to date across total U.S. xAOC, private label sales are $132.5B, compared to $573.26B for national brands during the same period. Private Label share YTD is 18.8%, slightly behind 2020 levels of 19.2%. Growth has slowed for both Private Label and Branded items in 2021, but national brand growth is outpacing Private Label (1.9% versus -0.7%, respectively).
Individual private label category performance reflects this relatively slow overall growth, with half of the top 20 categories growing and half declining. The Salads and Water private label categories are growing fastest on a dollar sales basis, at 17.4% and 8.3% respectively.
The top 20 branded categories are enjoying greater success, with 11 growing and only nine experiencing declining sales volume for the 44 weeks ending November 6th. Energy drinks and supplements are the highest growth national brand categories for the period, at 22.4% and 13.7% respectively.
In an inflationary environment, store brands can expect an additional boost since they're likely to be the lowest-priced item on the shelf. In categories where the average customer is particularly price-sensitive, this effect can be multiplied. Expect private label sales to have a good holiday season this year.