On the back of a continuously weak economy, consumers’ shopping behaviors are changing. Consumers are trading down, buying less and keeping a leaner stock of household goods. One marked outcome of such change in consumer behavior is the rise in popularity of private labels, or store brands, as consumers remain focused on value. Major retailers in particular began to aggressively offer more products under their store brands such as Archer Farms (Target), Great Value (Wal-Mart), and Kirkland (Costco).

The branded companies may see their dominance erode if they do not take actions to counter the rise of private labels. Most U. S. household non durables companies have been heavily caught up in the global economic downturn which began in 4Q 2008 with retailers cutting back or delaying purchases and many consumers following suit. The more discretionary and higher-priced sub-categories in household nondurables, including make-up and fragrances, suffered even more. In response to the downturn, many consumers traded down, bought less and kept a leaner stock of household goods.

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This was seen in the selection of branded offerings in the “value” segment, or even a smaller-sized version of an expensive branded product (which costs the same or more per unit but less in absolute dollars). Also, anecdotal evidence points to consumers waiting as long as possible between purchases (“pantry de-stocking”). As consumers remain focused on value, one marked outcome of the change in the consumer shopping behaviour is the rise in popularity of private labels, or store brands.

These are consumer goods products that offer the same or similar features provided by branded products but are manufactured and sold more cheaply by retailers and distributors. Major retailers in particular began to aggressively offer more products under their store brands such as Archer Farms (Target), Great Value (Wal-Mart), and Kirkland (Costco). On the back of a weak economy, private labels have been diligently increasing their market share over the past several years.

In order for the branded consumer goods companies to fight off competition from private labels, maintain competitiveness and ultimately grow market share, they may consider the following; 1. Branded companies can beef up their “good-value” products line, selling at a substantial discount but offering fewer features or benefits, while continuing with the higher-priced segments, giving customers the full range. For example, PG increased its offerings in value-priced segments by introducing such products as Tide Basic, Charmin Basic, Bounty Basic, and Pampers Basic.

At the same time, PG continued to offer products in higher-priced segments, such as Tide Total Care and Olay Pro-X, and in 2010 introduced its latest razor, the Gillette Fusion ProGlide, giving less room for store brands for competition. Through heavy investments in research and development, branded companies can actively launch new products that focus on innovation. New products lift profits while innovation keeps consumers from defecting to less-expensive private label products that lack in features. PG’s Pampers Swaddlers, and Cruisers with Dry Max are considered by the company to be the biggest innovation for Pampers in 25 years.

In late 2009, CL began the global rollout of Colgate Pro-Relief, a new treatment for dentine hypersensitivity. This was followed in March 2010 by the introduction of Colgate PROCLINICAL, a new line of professionally inspired daily toothpaste. In higher margin categories where innovation and marketing play a large role, branded companies have an upper hand with pricing. As large scale players, branded companies have the flexibility to implement aggressive promotional pricing if necessary. This can help to shrink price gaps and slow private label share gains.

As influential players in the packaged foods market branded companies have the bargaining power to be flexible with their pricing when deemed necessary. With rising commodity prices, larger players have an advantage over smaller producers, which lack the capacity and sophistication to manage a large-scale hedging program and are therefore more exposed to spot market volatility. When the cost of inputs rise, smaller producers must generally respond by raising prices. These price increases erode pricing gaps with the large leading brands, which allows consumers to trade up to brand names at little additional cost.

In the current recession, private label products have successfully expanded their reach in the market. Retailers have good upside potential in their private label initiatives, particularly if they maintain reasonable quality in various product categories. However, many branded manufacturers still have key advantages derived from their scale, R&D, pricing and cost management. As long as the branded companies remain focused on these key areas, they should be able to ward off competition from the private labels and maintain market share.