U.S.-based store brands are benefiting big time from the current economic downturn. As consumers continue to turn to better prices and value, retailers have clearly stepped up their game by enhancing their brands overall product quality and by adding strong marketing muscle behind store brand initiatives. But a Nielsen review of U.S. department-level price gaps between store brands and manufacturer brands shows that retailers may be hurting themselves in the long runand missing out on opportunities to collaborate with manufacturer partners to drive stronger category sales.
Within food, drug and mass-merchandisers (including Walmart), Nielsen reports that the price gap between store brands and manufacturer brands is considerableespecially for non-edible departments such as health & beauty and general merchandise where gaps ranged from 74% and 63% respectively. Food departments have a smaller percentage gapstore brand prices in the deli department were 22% lower than branded and up to 50% lower in the dairy department. Since the same period in 2006, price gaps have widened in four of seven departments (deli, frozen foods, dry grocery, dairy, non-food, general merchandise, health & beauty).
Closing the Gap
Are retailers losing category dollars because of aggressive store brand pricing or greater focus on store brand versus brands? While it is recognized that that department-level price gaps can be driven by differences in category mix, brand and/or size mix (an examination of gaps on an individual category-by-category and product-by-product basis is recommended), these differences are significant and suggest that retailers are not maximizing category sales.
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