Although many private-label brands have moved beyond the “me-too” positioning for which they were once known, the private-label beverage segment still is struggling to keep up with the rest of the beverage market as consumers' needs and wants have evolved.
According to MarketAdvantage data from Information Resources Inc. (IRI), dollar sales for private-label beverages increased only 0.2 percent in the 52 weeks ending Aug. 10 in multi-outlet and convenience store retailers, compared with the prior-year period, notes Susan Viamari, editor of Thought Leadership for the Chicago-based market research firm. This growth was largely driven by price increases, as unit sales declined 1.4 percent, she says. By comparison, the overall beverage market grew 1.6 percent, with unit sales up 2.1 percent, compared with the prior-year period, she adds.
Although demand for private-label beverages increased during the Great Recession as consumers increasingly sought lower-priced offerings, the segment’s growth has significantly slowed as the U.S. economy recovers, analysts note. Furthermore, the industry’s shift away from carbonated soft drinks and juices has negatively impacted private-label beverages, according to a September 2014 report titled “Private Label Foods & Beverages in the U.S.” published by Packaged Facts, a Rockville, Md.-based division of Market Research Group LLC.
“Declining consumption of carbonated beverages and juices will hurt both private-label and national brands, and [it] will hurt private label more because of the powerful [name] brands in these categories,” the report states.
However, private-label beverages have an opportunity to capitalize on consumers’ shift toward health and wellness by introducing healthy options, analysts note. Such offerings could include reducing “less desirable” attributes, such as calories, sugar and chemicals, and increasing the “most desirable” attributes, such as protein, fiber, natural ingredients, and vitamins and minerals, IRI’s Viamari says.
For instance, several leading retailers have created private-label “wellness” brands that feature natural or organic ingredients, Packaged Facts reports. Earlier this year, Aldi launched its SimplyNature brand, which includes simple foods and beverages made with all-natural or organic ingredients. Similarly, Target introduced its Simply Balanced private-label line in June 2013, and Kroger offers a Simple Truth store brand.
Additionally, as consumers increasingly seek healthier beverage offerings, many are turning to bottled waters. This shift could help the private-label segment, because bottled water consumers typically are more concerned about price than brand name, according to Packaged Facts’ report. According to IRI data, the private-label convenience/PET still water segment increased 7.3 percent in dollar sales during the 52 weeks ending Oct. 5 in multi-outlet and convenience store retailers, whereas the overall convenience/PET still water segment grew 2.3 percent during the timeframe, compared with the prior-year period.
Beverage breakout
Bottled water is the second-largest part of the private-label beverage segment, with a 28.3 percent share of multi-outlet sales, according to a December 2013 report titled “Private Label Beverages – US” by Chicago-based Mintel. The top private-label beverage category is milk, non-dairy drinks and yogurt drinks, which account for 52.3 percent of private-label sales, according to the report.
“These segments offer products that have been commoditized in consumers’ eyes, and, therefore, con-sumers tend to be less concerned about brand name,” the report states. “This has allowed private label to thrive.”
Nevertheless, despite maintaining its majority share of the private-label beverage market, the milk, non-dairy drinks and yogurt drinks segment experienced a 2.5 percent decline in sales between 2011 and 2013, according to Mintel. Other declining private-label beverage categories include juice and juice drinks and carbonated beverages and energy drinks, which likely reflects consumer concerns about high sugar content, the report states. Juice and juice drinks declined 8.9 percent, and carbonated beverages and energy drinks fell 11.4 percent during the timeframe, it notes. More recently, dollar sales of non-aseptic, shelf-stable energy drinks declined 15 percent in the 52 weeks ending Oct. 5, and dollar sales of shelf-stable energy shots dropped 25 percent during the timeframe, compared with the prior-year period, according to IRI data.
On the other hand, the private-label bottled water and tea and coffee categories have grown between 2011 and 2013, Mintel reports. Private-label bottled water sales increased 25.8 percent during the timeframe, driven by innovation in flavored and enhanced waters, it says. Similarly, the private-label tea and coffee category was able to capitalize on the success of the general tea and coffee category, enabling it to grow 10.7 percent during the timeframe, it adds. In particular, single-cup coffees performed well, largely because of the expiration of Keurig Green Mountain’s patent on its K-Cup technology in fall 2012, according to Packaged Facts. IRI data show that dollar sales of private-label single-cup coffee increased 104 percent in the 52 weeks ending Oct. 5 in multi-outlet and convenience store retailers, compared with the prior-year period. Additionally, dollar sales of refrigerated ready-to-drink coffee increased 87 percent during the timeframe, compared with the prior-year period, it notes.
Moreover, although they account for less than 1 percent of private-label beverage sales in multi-outlets, alcohol beverages and sports, nutritional and performance drinks have experienced significant growth, according to Mintel’s report. Private-label alcohol increased 86.9 percent between 2011 and 2013, reflecting innovation within the category and consumers’ growing acceptance of private label, the report notes. Sports, nutritional and performance drink sales experienced even higher growth, with a 124.6 percent increase in sales during the timeframe, it says. This growth can be attributed to increasing interest in healthful drink options, which helped bolster sales in drinks that address nutrition and exercise needs, it adds.
More than low price
Although keeping up with beverage industry trends is aiding the private-label beverage segment, brand value attributes remain a top driver for private-label purchases, according to analysts.
“Quality and value are prime drivers of private-label purchases,” IRI’s Viamari says. “According to IRI’s 2014 Brand & Retailer Loyalty survey, 93 percent of consumers believe private-label solutions offer the same or better value than their national-brand counterparts, and 81 percent believe private label offers the same or better quality. Even before the downturn began, private-label marketers were focused on improving quality, sprucing up packaging and building assortment. Timing on these enhancements was great, since the downturn and associated budgetary pressures helped persuade consumers to give private label a try. Many consumers have held on to private-label solutions even as the economy has made improvements.”
Mintel’s survey noted similar results. Three-quarters of private-label beverage consumers said that buying store brands is the best way to save money on a grocery bill, and 69 percent said that store brands offer more value for the price than name brands, according to Mintel consumer research. However, some consumers expressed doubts about the quality and reliability of store brands, saying that the taste and quality of these brands are not on par with name brands, the Mintel report states. Moreover, 54 percent of private-label beverage consumers said they will only buy a store brand if it has the lowest price, it says.
As name brands work to intensify the competition through promotional pricing and coupons, retailers will have to offer more than just low price or good value, the Mintel report suggests.