How CPG brands can defend against shoppers trading down to own label and the discounters

Cheaper options are thriving as consumers trade down to manage soaring household bills. But CPGs don’t need to take the threat lying down. The following data-led strategies will help brands hold their own against own label and the discounters.

Presented by: 
Vanessa Thompson2022

The numbers speak for themselves.

UK supermarket own-label sales rose by 8.1% in October, while branded sales fell by 0.7%, according to Kantar. Aldi is now the country’s fourth-biggest grocer, having overtaken Morrisons. Across Europe, data from IRI suggests own brands have grown to account for 36% of CPG sales, up from 34% in May. In the US, footfall at Aldi is up 10.5%.

And there’s more to come. A recent study by the Food Industry Association revealed that 83% of US grocers plan to increase their investment in own label as they seek to woo increasingly price-conscious shoppers. The launch of new budget-friendly private labels in several markets, such as Kroger’s Smart Way brand and Just Essentials at Asda, clearly shows the direction of travel.

It all adds up to an incredibly tough climate for CPG brands. As inflation bites and consumers face a tough winter with soaring energy bills, value is king. Recessionary behaviors are in evidence everywhere: think buying more on promotion, shopping from lists, switching to the discounters, and – above all – trading down to own label.

This leaves CPGs facing enormous pressure to demonstrate value to shoppers, hold their own against private label, and navigate tricky pricing conversations with retailers.

But brands don’t need to take these challenges lying down. Armed with the right data and digital shelf insights, there’s a lot they can do to defend their position – and, in some cases, even grow share.

These are the strategies we are using to help our CPG clients fight back.

Add own label to your core competitive set online

This may sound obvious, but it’s a common blind spot.

Given how fast private label is growing, and how quickly retailers are evolving their private-label strategies, it’s not enough to look at own label every once in a while. Own brand is a brand in its own right now, which means it should be part of your core competitive set from the start.

The same goes for the discounters. The smartest CPGs we work with are actively asking us to track the likes of Aldi, Lidl, Home Bargains and B&M – even if they don’t sell products through these retailers. It’s about seeing what’s going on in the discount channel, what those price comparisons are, and how the competition is playing out.

Our newly launched Competitor Scorecard makes this process even easier by allowing brands to go head-to-head against key competitors, including own label, on key metrics.

Establish what’s really happening with prices

We’re still seeing far too many broad-brushstroke statements about pricing.

Don’t assume you know what’s happening with prices in your category – look at the evidence. For example, it’s simply not true to say that prices are increasing everywhere. We’re still seeing year-on-year decreases in certain categories and retailers.

To mount a credible defence against own label and hold their own in negotiations with retailers, brands must use the data to look at the reality of what is happening in the market, rather than going in with preconceptions.

Know what cost price increases own label is getting away with

Think own label is holding firmer on price increases than brands? Think again.

We recently did a piece of research for one of our CPG clients, looking at what cost price increases have gone through in certain categories over the past six and 12 months. We use our platform feature Smart Pricing and Promotions for this. The results were eye-opening and showed that own label is getting away with some sneaky increases at the moment.

Brands can use this data to gain leverage in pricing conversations with retailers. Armed with the right digital shelf insights, they can push back and say: “If own brand is shifting by 20%, why are you rejecting my increase for 20%?”

Having the right price gap to own label is also key. Brands need to ensure that gap doesn’t shrink or widen too much. There’s no rule of thumb for what the gap should be, but brands can establish a benchmark by tracking where category prices are going and what the competition is doing.

Understand how own label is winning in search

Retailer search strategies and algorithms are changing rapidly. Some retailers are now permanently locking some of their top search positions to own label, which means brands can no longer win those slots.

It’s critical that brands monitor search closely, so they can quickly adjust their own strategies and get the most out of shrinking paid search budgets. To be in with a chance of winning against own label, brands must know their retailers’ search algorithm strategy intimately.

If top search positions are no longer achievable, brands must look for other ways to stay front of mind – especially at a time when volume drops and frequency of purchase are a concern. Banners and promotions are key tools to have in your toolbox to ensure you’re maintaining visibility and keep encouraging regular purchases.

Leverage online ratings and reviews

Value clearly matters to shoppers right now, but value is more than just price. Consumers still demand quality, especially at a time when budgets are tight. Nobody wants to feel like they’ve wasted what little cash they have on a disappointing product.

Quality is therefore an important point of difference for brands, and ratings and reviews are a great way to prove it. Own brand may be cheaper, but is it always as good?

Using a tool like our Learn from the Shopper’s Voice fundamental, CPGs can turn ratings and reviews into actionable insight and track how shoppers perceive the quality of own label versus branded products. They can also track shopper sentiment in response to changing pack sizes and ingredients.

Use great content to demonstrate value

If you want to do well on the digital shelf, good content has always been key. But it’s especially important to brands as they seek to differentiate from own label.

Whether it’s titles, product descriptions, reasons to believe, or imagery – now’s the time for brands to flex rich product content to shout about their brand credentials and push their USP.

And don’t forget to Fix the Basics. One obvious point to pay attention to right now is making sure your product weight stands out. Shopper are considering products in the round when making buying decisions, and weight is an important part of the value equation.

Learn from other categories

Brands are understandably focused on their own category dynamics but shouldn’t miss out on opportunities to learn from others. After all, many categories are facing similar struggles around cost price increases and competition from own label.

Smart CPGs are using digital shelf insights to look beyond their own immediate markets and ask: What’s happening with cost price increases in other areas? What are they doing with promotional strategies and pack sizes? Are they downgrading on ingredients, and what impact is that having on ratings and reviews?

The more data and insight brands can gather, the easier they will find it to formulate a winning strategy against own label.

Set clear priorities

It’s a tough market, and you’re not going to win every battle. Brands must figure out where they really need to win, and not be afraid to make harsh decisions about which battles aren’t worth fighting right now.

This means focusing your promotional strategy and execution on where the margin is.

Smart CPGs also look closely at availability in this context. Supply chain disruption and availability remain a challenge for many, and there’s no point in putting products on promotion if you don’t have the stock.

Make the most of the opportunities

Negative news dominates at the moment, but there are still opportunities to be had.

People still want treats and they are not going out as much, creating demand that brands can meet much better than own label. The ‘lipstick effect’ is alive and well, and certain categories can still play and win share. That’s why smart CPGs are laser-focused on upsell opportunities right now, whether it’s the ‘big night in’ or small affordable treats.

Brands should also look for untapped opportunities to use the eCommerce channel to drive weight of purchase. Shoppers are cost-conscious, but many still respond well to bigger buys and multibuys in an online environment because of the convenience of not having to carry home those purchases. So, how can you drive those value messages through?

On the digital shelf, use everything at your disposal

Of course, none of the strategies outlined in this article is a silver bullet in and of itself. CPGs face an undeniably challenging trading environment and fighting back against own label and the discounters won’t be easy.

The brands that will ultimately win are those that are using everything at their disposal. They’re not just looking at the value proposition. They’re looking at promotions, search, and availability, and they’re using ratings and reviews to identify areas where they can win against the competition.

The brands that will win against own label are using everything in the armour to wow the shopper – and to win tough arguments with the retailer about cost price increases, promotions, and range.

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