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Private Label Loses Its Luster—Good for Brand Names?

Tuesday, 1 May 2012 | 1:38 PM ET

These days it may take more than the lowest price to coax consumers to buy a store brand.

Although consumers have been steadily shifting to private-label foods and beverages, the shift may be born out of necessity rather than a deliberate choice on the part of the consumer, according to the findings of a new report from NPD Group.

Even before the recession , Americans were using more store brands, but consumers appear to be losing their enthusiasm for these value-oriented options despite the perception that private-label products are of a higher quality, the market researcher said.

For the first time since 2008, consumers polled by NPD said they did not plan to increase their purchases of store-brand products in the coming year. While it remains to be seen if consumers will stick to their word, the trend could be bad news for retailers who have been working hard to cultivate their store brands, and good news for food and beverage companies.

“If food inflation comes down and at the same time we see the economy improving, consumers might return to the name brand names they’ve known and trusted all their lives,” said Darren Seifer, NPD food and beverage industry analyst and author of the report. “This could become a reality if retailers don’t respond to declining satisfaction levels and if brand-name manufacturers continue their loyalty tactics.”

According to Seifer, there are several factors that could be contributing to consumers’ growing dissatisfaction. Among them are growing “frugal fatigue,” as well as an aggressive effort by national brands to cultivate their relationships with consumers on social media platforms such as Twitter, Facebook, and Pinterest, among others.

The survey found consumers who frequently use social media and apps on their smartphones claim to be more loyal to brand-name items versus their store-brand counterparts.

“It appears these relationships can mitigate the price differences between private label and a national brand,” Seifer said.

The report, entitled “The Evolution of Private Label—Does Brand Name Really Matter?,” found that private label’s share of household servings was 18 percent in 2000 and reached 27 percent in 2011. In contrast to steadily increasing usage, the satisfaction with private-label foods meeting consumers’ needs has dropped from 32 percent in 2009 to 24 percent in 2012.

That might explain why fewer consumers are planning to increase their consumption of store-brand products. In 2009, more than a third of adults said they planned to buy more private-label foods compared with the prior year. However, that percentage has now dropped to less than a quarter of adults in 2012.

That said, the report concludes that private-label products have still made progress over the years because about two-thirds of adults say store brands’ quality is much better today than it was five years ago.

Opinions range from category to category, with consumers being very loyal to store brands in certain categories. Seifer found consumers are more likely to use private-label products as ingredients in the foods they prepare. As evidence of this, flour and butter top the list of private-label-loyal categories, he said.

There could even be another factor behind declining purchase intentions, however. According to Seifer, it may be that consumers are still unaware of the names of store brands. For example, they may not know that when they are buying Archer Farms at Target , Kirkland at Costco , or Great Value at Wal-Mart Stores , they are buying private-label goods.

In the survey, which polled 687 adults in February, about 25 percent of shoppers were unable to identify the top-selling store brand, Great Value, as a store brand.

Questions? Comments? Email us at consumernation@cnbc.com. Follow Christina Cheddar Berk on Twitter @ccheddarberk.

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