Will private label users trade up to branded vitamin offerings?

Drug Store News, Nov 3, 2003 by Michael Johnsen

There is a common prejudice many suppliers have against store brands, often resulting from the assumption that the higher-margin private label sales so many retail merchants covet come at the expense of their brands.

But at least in dietary supplements, that argument may not hold as much water, according to at least one major branded supplier. People who purchase branded dietary supplements rarely, if ever, shop store brands, and customers enticed by the value proposition of private label may consider buying branded as a trade-up purchase, an executive from that company recently told Drug Store News.

If that argument holds up, retailers may have an opportunity to promote more aggressively their store brands without fear of eroding nationally advertised brand sales. Following this logic, a rise in consumer penetration in this area (already at 37.1 percent in store brand vitamins) would grow the $1.3 billion category rather than just swap the dollars around.

And this plays directly into drug store operators' strong suit. Private label vitamins already are the largest store brand category in drug stores with $382.8 million in sales last year, according to data from Information Resources Inc.

And according to research IRI released last month, retailers are not realizing the full potential of their store brands. Indeed, growth in store brand vitamins in 2002 was relatively flat in drug stores and has been down some 2.8 percent since 1998.

That might be because private label ain't what it used to be. Recently, private label pressure has been coming from supercenters, club and dollar stores. "The game has changed, and private label programs now require the same stringent category selection and brand management processes associated with traditional branded manufacturer offerings to be successful," said Ed Kuehnle, group president of IRI North America. "Companies that can embrace new and innovative ways to develop and manage their private label portfolios will be the winners," he said.

"We've done a lot of work on branded versus private label, given our obvious vested interest in this," reported Mike Miller, rice president of information resources for Pharmavite. "We tend to find very consistently ... that cross purchasing [in the dietary supplement] category is very low," he said, as low as 10 percent to 15 percent across the category. This suggests that there ate two distinct consumer groups when it comes to dietary supplements: a budget-conscious private label consumer interested in maintaining health and a branded consumer that shops for quality in addition to value.

IRI has found that, overall, 36 percent of all shoppers gravitate toward store brands.

And rarely do those consumers mix buckets, Miller observed. Private label consumers may trade up to national brands when the price difference is minimal, he said, but branded consumers rarely cross over to store brand.

"We highly recommend blocking versus interlacing," Miller continued, so that the separate consumer bases can shop either for brand or for private label without difficulty.

In addition, Miller suggested that a retailer should promote the national brands directly alongside their private label supplement offerings in their flyers. "If you promote multiple brands, a national brand and a private label, it'll have a much stronger impact on the category because you're appealing to these two different consumer groups," he said.

Store brand loyalty can likewise be tracked by ingredient within dietary supplements. "For example, [among] people who buy private label vitamin E, 90 percent of their vitamin E purchases are private label," Miller found.