The evolution of value and values for private label brands For more white papers and webinars, go to http://www.sldesignlounge.com Or visit us at http://www.sld.com

1. Beyond the middle
The evolution of value and values for
private label brands
White paper | June 2012

2. Shikatani Lacroix is a leading branding and design firm located in
Toronto, Canada. The company is commissioned assignments from
all around the world, across CPG, retail and service industries,
helping clients achieve success within their operating markets. It
does this by enabling its clients’ brands to better connect with their
consumers through a variety of core services including corporate
identity and communication, brand experience design, packaging,
naming and product design.
About the Author
Jean-Pierre Lacroix, RGD, President and Founder of Shikatani
Lacroix
Jean-Pierre (JP) Lacroix provides leadership and direction to his
firm, which was founded in 1990. He has spent the last 30 years
helping organizations better connect their brands with consumers
in ways that impact the overall performance of their business. Mr.
Lacroix was the first to coin and trademark the statement “The
Blink Factor” in 1990, which today is a cornerstone principle to how
brands succeed in the marketplace. JP has authored several papers,
has been quoted in numerous branding and design articles, and in
2001 he co-authored the book “The Business of Graphic Design”
which has sold over 10,000 copies. JP can be reached at
jplacroix@sld.com and you can follow his thought leadership
webinars at: www.sldesignlounge.com.
Other Articles and Books
Belonging Experiences...Designing Engaged Brands
Business of Graphic Design
White paper | July 2012 | Store Brands | 1

3. Finding higher ground
The past five years have seen most retailers revamping their
private label programs due to the need to create greater
differentiation in the marketplace, and to take advantage of a
more fickle consumer. Although these initiatives were much-
needed and timely, they were an answer to current
opportunities. There is now a massive shift in consumer
demographics in North America that necessitates further
changes. Only a handful of leading retailers have started to
take heed and shift their approach to capitalize on this shift.
The next decade will define those retailers whose private label
programs truly drive clear differentiation and increased sales.
More importantly, their sustainable growth will no longer be
focused solely on meeting the needs of the middle class but
will explore opportunities around the demographically-driven
fringes.
The present, in search of trusted value
The current move to update existing private label programs is
in response to a significant shift in the way consumers shop.
Precipitated by the 2009 recession and the fluctuation of
personal equities in the marketplace, this shift in personal
equity has further driven inequality between the rich and the
poor. This has resulted in the shrinking of the middle class in
developed countries, historically the engine of economic
growth, which has been most impacted by the recent
downturn as their net worth has plunged to 1992 levels. In
addition, the top one percent of the population now
represents 20 percent of the nation’s income - twice as much
as it did two decades ago. The net result: a significant impact
on where marketers will find future growth.
White paper | July 2012 | Store Brands | 2
So despite the
immediacy of the
internet, the "new
normal" actually
means that
consumers are
abandoning the
"next new thing"
mentality that
powered so
much spending
for the past 20
years, in favor of
more enduring
priorities.
American Consumption
and the New Normal
Nancy Koehn | December 31, 2009

4. Most of the wealth was lost to the mortgage crisis and the
drop in home values, which wiped out equity many families
counted on, and reduced their ability to spend or invest. The
report also identified that incomes and stock-based
retirement accounts also fell, further fueling the focus on
value. This shift has not only seen consumer buying habits
focus on price reductions, but there is now a heightened
importance to make wise purchasing decisions based on
products that provide a high level of quality and trust. This
reinforces consumers’ need for reassurance that they are not
compromising on quality or performance as their buying
habits move from national brands to private label offerings.
A new reality is setting in the marketplace, providing a strong
platform for private label sales to increase as the current
market volatility and uncertainty is no longer a blimp as
reports indicate the current trends will not change in the
foreseeable future. The flight to value is supported by a recent
study conducted by GfK for PLMA (Private Label Marketing
Association) identifying that fewer than one in five felt the
economy had improved. This new reality is changing the
meaning of value from temporary price promotions to brands
with a high level of trust and familiarity.
This shift of value is further supported by a recent study by
Shoppercentric, an independent agency specializing in
shopper research in the UK. The study revealed that shoppers
are redefining the meaning of value beyond price.
White paper | July 2012 | Store Brands | 3

5. The research study entitled: “Window On the Value Equation”
defined value as:
• “Getting the most for the money I planned to spend” is
actually the definition that scores highest (28% of
shoppers).
• 21% of shoppers say that for them, “Getting the right
quality for the money I planned to spend” is most
important.
• “Feeling that what I’m buying is worth the money I’m
spending” also scores well with 20%.
The Shoppercentric study identified four consumer sections
that can be segmented by their values, namely:
• Quality Matters (34% of shoppers) - best quality for the
money is the key driver
• Low Price Hunters (23%) - lowest cost is the driver
• Holistic Value Seekers (22%) - a wide range of drivers
• Pile it High (21%) - quantity is the key driver
These findings align with North American consumer behaviors
with more than two thirds of PLMA respondents in the study
(69%) saying they will take advantage of discounts by buying
larger sizes or quantities for items they regularly buy; while
67% say they will look for more coupons and promotions on
national brands. About a third (36%) intend to change the
stores or types of stores where they do their primary grocery
shopping. This shift is driven by both the need to find greater
value in their total basket cost without compromising on
quality or performance, in addition to consumers’ lifestyle
values which forgo risk in return for tried and true brands.
Retailers who offer programs at the intersection of cost and
risk will benefit from a higher level of store traffic and loyalty.
White paper | July 2012 | Store Brands | 4

6. This consumer need to spend less while still meeting lifestyle
values is supported by the PLMA study findings. Overall, half
the shoppers in the study (51%) claim they intend to spend
less money on buying groceries in the months ahead.
Ultimately, more shoppers are forsaking national brands for
store brands. More than four in 10 (43%) report they have
recently passed on a familiar national brand for a private label
counterpart, a marked increase of more than 15% since 2009.
This new flight to value is driving consumers to store brands
with a solid majority of consumers in the PLMA study (62%)
planning on buying more private label as they continue to deal
with the tough economic climate. Not only is the consumer’s
intent to purchase increasing, the frequency has also
increased with 57% indicating that they buy private label
products “frequently,” up from 55% just a year ago. The
increase in frequency is driven by both the level of
sophistication of private label programs and the breadth of
offerings within each retail banner. As retailers expand their
capabilities in private label, they are exploring new brand
offerings that appeal to specialty groups, from sustainability
and organic products to lifestyle needs, to build their overall
share of private label sales.
Narrowing the value gap
The new shift to value is not only driving consumers to forsake
national brands for store brands, those that switch are happy
with their new choice. Fully 97% of respondents in the PLMA
study compared store brands favorably to their previous
national brand choices in the same categories. About half
(49%) said their new store brand selections compare “very
favorably,” an increase from 26% in 2009.
White paper | July 2012 | Store Brands | 5

7. An extensive study conducted by Rajeev Batra of the
University of Michigan and Indrajit Sinha of Temple University
on the consumer-level factors moderating the success of
private label brands also supports this change in perceptions.
The study concluded consumers are more prone to buying
private label brands in product categories where they
perceive a lower chance of taking a risk in their brand
selection.
This is either because the differences between national and
private label brands are indistinguishable or the investment
threshold is low in switching. Consumer affinity for private
label brands is also a reflection of retailers’ heightened level of
sophistication by investing in manufacturing capabilities,
category management internal disciplines, new marketing
initiatives, all of which are historically the realm of consumer
packaged goods companies.
Retailers such as Aldi in the U.K., Kroger, HEB, Wegmans and
Costco have developed new platforms in both core and non-
core categories. Based on a 2012 Nielsen report, these private
label leaders drive higher shares and exhibit stronger pricing
and promotional skills versus the industry at large. The growth
of interest by retailers is driven by their need to build stronger
brand loyalty and greater competitive advantage.
Historically, national brands stood for quality, innovation and
strong badge value. Most brand tracking studies rank brands
by a series of attributes such as "a brand I trust," "a brand that
I would recommend to a friend," "a brand that is reliable," and
a range of other metrics where national brands garnered
higher rankings than private label brands.
White paper | July 2012 | Store Brands | 6

8. However, our experience in major private label programs and
supporting consumer research have identified that this
perceived quality gap is narrowing between national and
private label brands. A 2011 Nielsen study confirmed our
observations as store brand quality now ranks “as good
as” [65% of consumers agree] or “some higher quality” [38%
agree] than national brands.
Meeting the demographic shift
Retailers’ private brand initiatives have broad demographic
draw among small and large households across most income
groups, but is generally under-developed among multicultural
households, a growth opportunity that is currently not being
leveraged. The Nielsen report identified an opportunity to
broaden the offering to appeal to the lighter private brand
buyers who are more affluent, who are big brand spenders,
and the Hispanic segment. In addition, the Nielsen report
identified opportunities to offer a different range of products
between the lower/middle income consumers and families
with annual household income of $100,000+.
The study supports the belief that retailers will need to market
the fringes if they want to maintain strong growth in their
private label programs. Nielsen identified that the two highest
value/highest potential segments are the low spend potentials
who ring up $4,045 per year across the store, followed by
upscale premium shoppers at $4,024. As current private label
programs peak, there exists an opportunity to develop
programs to appeal to these under-leveraged segments.
White paper | July 2012 | Store Brands | 7

9. Loblaws, one of the most sophisticated private label retailers,
has done well at marketing value and lifestyle needs to both
the middle class and fringes with brands such as No Name,
President’s Choice, Blue Menu, PC Organics, and President
Choice’s Black Label. Creating brand platforms to appeal to
both the fringes and the middle class has allowed Loblaws to
continue to grow its private label’s share of sales.
The next phase for private label brands: capitalize further on
emerging demographics
Hispanic Population: With the growth of Hispanic and new
Americans as a total of the population, along with the
shrinking of the middle class and the rise of the more affluent
consumer, the leading retailers are taking into account this
demographic’s needs and evolving their private label
programs in order to continue building stronger brand loyalty.
The Census Bureau, in its first nationwide demographic tally
from the 2010 headcount, confirmed that the U.S. Hispanic
population surged 43%, rising to 50.5 million in 2010 from 35.3
million in 2000. Latinos now constitute 16% of the nation's
total population of 308.7 million.
White paper | July 2012 | Store Brands | 8

10. The Census Bureau has estimated that the non-Hispanic white
population would drop to 50.8% of the total population by
2040, then drop to 46.3% by 2050. This bodes well for private
label programs as the Hispanic market are heavy users and
loyal to retailer brands. New initiatives should take into
consideration bilingual packaging, products that cater to the
habitual and cultural nuances, in addition to larger package
sizes as this segment tends to have a stronger family nucleus.
To secure more affinity with the Hispanic market, Publix
developed various authentic Hispanic private label products
and created bilingual packaging with a special graphic design
treatment that was very appealing to the Hispanic consumer.
Hispanic private label initiatives were focused around
products that had high appeal, such as frozen yucca, sweet
potatoes, white Spanish cheeses, malta beverages, Cuban
crackers, seasoned black beans, Spanish bean soup, mojo
marinades and white cooking wine. Food Lion, Stop & Shop,
Food City, Food 4 Less, Nash Finch and H-E-B have also been
effective in marketing to Hispanic consumers.
Chains that are located in heavily-populated Hispanic markets
such as California, Florida and Texas will explore how bilingual
packaging and product specific offerings help carve a greater
share of the market while providing greater differentiation.
Retailers should also look at markets where the needs of
unique and growing consumer segments are being met.
Markets such as Canada with its unique French language and
Quebec market, or Europe with its growth of unique
immigrant cultures, can provide a framework for American
retailers wanting to develop stronger private label programs.
White paper | July 2012 | Store Brands | 9

11. Immigration: Catering to this group has significant long-term
benefits for retailers as immigration is the largest factor
contributing to population growth, with the addition of over
2.25 million people to the U.S. population annually (1.5 million
legal and illegal immigrants as of 2001-2002, now estimated
at 1.7 million in 2003; plus 750,000 births to immigrant
women annually). The total foreign-born population in the U.S.
is now 31.1 million, a record 57% increase since 1990. Nine to 11
million of those are here illegally, a 4.5 million increase since
1990.
Upper-Tier Consumers: The ability to market to the fringe is
further supported by a 2011 Stanford University study
identifying that only around 44% of families in America live in
what the country considers middle-income neighborhoods,
down from the 1970 statistic of 65%. At the same time, while
only 15% of the country was grouped into either the lower or
upper class four decades ago, that proportion has more than
doubled with a third of America now at either end of the
spectrum.
Retailers such as Loblaws, Canada’s largest supermarket
chain, have considered the more affluent consumer with the
launch of a new gourmet line of 213 President’s Choice “Black
Label” products. The launch stemmed from a need to
capitalize on the affluent consumer and the fact that the
company had fallen behind as competitors developed high-
end, third-tier private labels such as Wal-Mart’s “Our Finest,”
Metro’s “Irresistibles” and Sobey’s “Sensations by
Compliments.”
White paper | July 2012 | Store Brands | 10

12. Shoppers Drug Mart, the leading drug store chain in Canada
has also launched several third-tier brands to effectively
compete with national brands. Quo, for example, is a exclusive,
premium line of color cosmetics and cosmetic accessories. All
Quo products are developed from an unwavering commitment
to quality and innovation that consistently delivers a
contemporary core assortment and the must-have colors and
products for the season. For Shoppers, this brand dominates
the category, displacing national brand products as the
preferred choice by consumers, a position traditionally
dominated by national brands.
In the fall of 2010, Walgreens also announced it would roll out
the Duane Reade DR Delish brand chain-wide, an upscale
private label program. A&P introduced The Food Emporium
Trading Company label as a platform to experience products
from around the world. We believe that this new platform will
allow A&P to not only compete in the higher priced
categories, but it will also lay a foundation to appeal to both
immigrants and Hispanics with specially sourced products
that fit their specific lifestyles.
The U.K., long known for its innovation in private label
programs, has also launched a range of new brands.
Sainsbury’s doubled its sales for its highest-priced Taste the
Difference store brand line by adding 300 items for the 2010
holiday season. Irrespective of the negative economic climate
in Europe, shoppers in the U.K. purchased 11% more premium
private label items from the top supermarkets in 2010 than
they did the year prior, according to a Kantar report.
White paper | July 2012 | Store Brands | 11

13. Conclusion
As retailers rush to complete their corporate brand refresh in
order to capitalize on the consumer shift to value, it is
important that third-tier products that cater to the Hispanic
and immigrant markets be further explored as these segments
will represent one of two key platforms for the future growth
of retailers. A focus on the bottom and top-tier income
consumers will also provide an opportunity to grow this
segment of light private label users that have significant
buying power.
With more than 50% of the population representing these
segments in the next twenty years, retailers will need to
understand what the regional and market specific wants are
of their customers, and how their private label offerings will
need to change. The current platforms will become the cost of
entry as retailers focus on meeting the new needs dominating
customer preference and private label’s share of total sales.
White paper | July 2012 | Store Brands | 12

14. Jean-Pierre Lacroix, President
Shikatani Lacroix
387 Richmond Street East
Toronto, Ontario
M5A 1P6
Telephone: 416-367-1999
Email: jplacroix@sld.com
White paper | July 2012 | Store Brands | 13