The real fault, we're sad to say, lies with brand-name marketers that have failed to innovate with new products or spend sufficiently on marketing. Combined with price increases on brand-name goods that widened the gap between brand-name and private-label items, the result is hardly surprising-a huge opportunity for store brands to step in.
Banc of America analyst William Steele was blunt in his assessment of brand-name marketer behavior: "In order to make short-term [earnings numbers], publicly held companies have cut spending behind their brands-innovation, advertising and sales promotion. These are potentially commodity categories if you don't innovate and you don't advertise."
Anyone who still believes the economy is the primary driver behind the surge in private-label need look no further than the shampoo category, where store brands have made no gains-despite the entry of products such as Procter & Gamble Co.'s Physique, sold at a pricey $6 a bottle.
Gone are the days when store brands carried embarrassing baggage as cheap alternatives to superior, nationally advertised brands. The Krogers and Wal-Marts have wisely kept private-label prices low in the face of price hikes by national brands, and they have created enough of a clear image for themselves that package-goods products carrying their brand names now carry an association with the store. A Wal-Mart brand stands for value; a Target brand stands for quality.
With an economic cloud hanging low over the horizon, marketers will be under steady pressure to bolster the bottom line at the expense of R&D, new product development and advertising. But attention must be lavished upon brands to give them true points of difference so that they may thrive-or even survive. Once consumers turn to private-label goods, they may never turn back.