Grocery retailing changed dramatically in late February. It's about to change again.
The pandemic upended consumer trends, putting enormous pressures on grocery retailers. As this crisis moves on, shopping habits are at a new inflection point, with significant implications for grocery retailers and CPG brands.
Early on, consumer purchase behaviors in different markets were tied to ups and downs of local virus cases, an August 2020 Nielsen insight report noted. That direct connection had broken by late summer according to Nielsen data. Instead, the "macro" pandemic situation and the economic recession started driving the trends, said Scott McKenzie, Nielsen Intelligence Unit leader.
"Consumer behavior is spinning in fundamental ways right now," said McKenzie. "Typically, we, as humans, have months or years to adjust to new conditions. But that's no longer the world we live in. The implication for brands trying to meet the new needs of consumers is that they must be very focused and very fast in their response."
What does this mean for grocery retailing
There's an opportunity for grocery retailers to solidify pandemic-driven shopping habits into established routines that will strengthen their business, and private brands can help them do that.
Shoppers had embraced private brands before the pandemic struck, making them a bright spot for stores. Over the past decade, they've given retailers better margins and an opportunity to build consumer loyalty. This happened because stores changed the way they curated and packaged private brands.
In 2019, sales of private-label CPG brands rose 11% over 2018 in premier fresh grocery stores, like Whole Foods, and in mass merchandisers like Walmart and Target, eMarketer reported. That trend accelerated with the pandemic. In the first quarter of 2020, U.S. private brand sales jumped 14.6% over the same period last year, beating name brands' 11.5% increase.
But another recent trend is more worrying: Americans have started spending less on groceries than they were at the peak of the pandemic. The average size of the American shopping basket is still 11% higher than during the same period in 2019, Nielsen said, but that's below peak COVID-19 levels. And Nielsen predicted basket size would continue to drop as pandemic-related economic concerns persist.
"We anticipate that all consumers will start to re-prioritize what goes into their baskets, and that broad-based adjustment reflects a fundamental consumption reset," according to the Nielsen Insight report.
The new 'new normal'
All of this makes private brands more important than ever to grocery retailing. But business as usual no longer applies, and that includes private brands. To keep private brands valued during these uncertain times, retailers must consider:
Labeling & packaging.
Product claims have always helped motivate consumers to buy with "natural" and its variations leading claims in recent years. After months of quarantine and medical precautions, safety, health benefits, and quality have become more important to consumers, according to Nielsen data. Packaging that reflects those consumer concerns will encourage brand/retailer loyalty.
Adjust private brand portfolios to meet new consumer priorities. Basic goods—staples like rice, pasta, flour, toilet paper, and cereal—will always be at the top of people's shopping lists. But there's room for affordable indulgences, like meal kits for special dinners. Working/learning from home has also established DIY self-care routines, reflected in related sales. Last June, sales of hair coloring (+35%), pet grooming (+14%), and food preparation products like canning supplies, all rose.
Speed to market & reliability.
Deliver on new consumer wants. Broken supply chains early in the pandemic led many shoppers to try and even switch brands. Now shoppers put a premium on finding what they want when they want it. Because retailers control the production of private-label goods, they can source locally, helping both the reliability of supply and quality assurance. Promote those benefits on the packaging.
Price matters—78% of consumers around the globe surveyed by The Conference Board said they were cutting back to save on household expenses. (Survey conducted in collaboration with Nielsen.) Private brands have an inherent advantage when it comes to cost because there is no middle person to take a cut of profits. Advantage—grocery retailers.
Stores' private brand portfolio, the quality of the products, how they're packaged, and how quickly and consistently they get to market all factor into their success. With shoppers' priorities ever-changing, particularly in these uncertain times, retailers will be challenged to reflect this fluidity with their private brand portfolios.