CHICAGO, IL — May 4, 2003 — As food retailing competition intensifies across the nation, private label store brands have become an increasingly important element of differentiation among U.S. food retailers and a key driver in total store sales and shopper store loyalty, according to a new report from the Food Marketing Institute (FMI), Building Shopper Loyalty With Store Brands.

The report, released on the opening day of the 2003 FMI Show being held here, also finds that consumers see improving quality with private label products and many believe that they are a better overall value than name-brand products.

Private label brands have increased market share in nine of the past 10 years and now represent approximately 17 percent of the $729 billion grocery industry, according to the report.

“A strong, well-executed store brand program that offers enhanced consumer value provides a unique opportunity to increase shopper loyalty and satisfaction,” said Janice Jones, FMI director of research. “With increased competition across many channels for the consumer’s grocery dollar, store brands not only represent value, but they are also products that shoppers cannot obtain elsewhere else. Loyalty to your store brand can foster loyalty to your store.”

“Today’s shoppers have more choices than ever before, and store brands are an increasingly important driver of product variety, selection and retail differentiation,” said Bob Himler, director of category management and insight with Daymon Associates, the report sponsor. “We are excited to partner with FMI to shed light on how retailers can more effectively leverage their store brands to drive shopper loyalty and create a true retail advantage.”

Store Brand Loyalty Enhances Overall Store Loyalty

The report finds that the availability of private label store brands is extremely important to today’s consumers: nearly 70 percent say they place a high importance on store brands when selecting a primary grocery store. Furthermore, shoppers who are loyal to a store’s private label brand are much more loyal to the store. Eight in 10 of these shoppers visited the store frequently. Store-loyal shoppers are also less likely to buy another store’s own brand. Among shoppers who were more likely to buy another store’s private label, the top reasons include better price, more selection and higher quality.

“As a group, store-loyal shoppers are a promising target for increasing private label sales,” added FMI’s Jones. “Although they purchase a lot of store brands, they are not the typical low-price-seeking shopper. They are as much or more demanding than other shoppers regarding good selection, high-quality products, convenient location, good customer service and especially the availability of trusted store brands.”

Traditionally, the heaviest store brand shoppers tend to be from larger and less affluent households. The report finds, however, more affluent shoppers are now purchasing store brands. This is especially noticeable among premium store brand shoppers.

Although ethnic shoppers may agree with some of the value propositions of store brands, they are generally less inclined to purchase private label products overall and have yet to demonstrate strong store brand loyalty. This could be due to a lack of familiarity with the brands, particularly among recent immigrants. The study finds, however, that retailers can find success with ethnic customers by targeting marketing campaigns to reach them.

Innovative Category Management and Merchandising Drives Sales

Factors that influence product selection vary widely across categories. In food categories, such as orange juice and cookies, taste is often a more important factor than price, even among consumers who would purchase a store brand. With nonfood categories, such as toilet paper and laundry detergent, price is the most important consideration. The report suggests, however, that this poses a difficult challenge for retailers, since competitively priced name brand nonfood items are increasingly purchased at mass merchandisers and club stores rather than at grocery stores.

Although the report finds that lower prices are major driver of store brand sales, product quality is just as important to consumers. Accordingly, the ways in which store brand products are packaged and marketed can directly affect consumer impressions of the products.

Packaging plays a significant role in quality perception. Nearly half (46 percent) of all
shoppers think that the packaging of a store brand makes it appear to be of a lesser quality
than the national brand. The report suggests that better packaging can attract new users — particularly younger shoppers.

Traditional merchandising strategies can be just as effective in promoting store brands as they are with national brands, according to the report. Tactics such as in-store sampling, attractive signage, advertising and direct mail can be used to educate the consumers on the attributes of store brands and to encourage purchases. This is especially true with premium store brand shoppers — eight of 10 shoppers in this group said that they would buy more store brands if they could sample them first.

Providing product lines with store brand value tiers can be effective in promoting value pricing and minimizing shopper visits to alternative format stores for lower-priced products, according to the report. While value seekers are often price-oriented, they also place a high importance on selection and variety.

Having a product mix that includes premium private label products can even bring in new users to the private label franchise, the report suggests, particularly among consumers who are less price-sensitive and more concerned with high quality and overall value.

Data Tabulation

Data for the study was collected from a custom study of 1,145 grocery shoppers across the United States in January and February 2003. Shoppers were identified through the Knowledge Networks, Inc., Web-enabled Internet panel from more than 10,000 households. Grocery shoppers of nine major retailers were identified and then surveyed online about their shopping habits with respect to store brands and national brands.

Building Shopper Loyalty With Store Brands is available for $50 to FMI members, $127 to FMI associate members and $150 to nonmembers, with multiple copy discounts. Contact the FMI Store at 202-220-0723 or for details.