Project Name - IRI

Private Label 2017 The Evolution of Private Label in a Transforming Marketplace

October 2017

Executive Summary 

Economic indicators have been shaken by wild fall weather, but favorable trends prevail.



Though the economy is fairly solid, many consumers are still struggling to make ends meet and uncertainty is pervasive.



Private label is viewed as a viable CPG option and is outpacing industryaverage growth, as well as national brands.



The private label marketplace is evolving rapidly, as new market entrants turn “the old way” on its head.



E-commerce private label is growing quickly, supported by the proliferation of click-and-collect models.



Traction is solid across various consumer segments.



Prospects for private label growth are good, but CPG marketers need to dial into consumer needs and wants—including premium-tiered solutions.

Copyright © 2017 Information Resources, Inc. (IRI). Confidential and Proprietary.

2

Unemployment fell in 2016 and retail sales climbed. Meanwhile, GDP slipped and inflation ticked up.

Economic Measure

ECONOMIC GROWTH

2012

2013

2014

2015

2016

GDP (% Chg.)

4.1%

3.3%

4.2%

4.0%

2.8%

Unemployment (%, SA)

8.1%

7.4%

6.2%

5.3%

4.9%

Consumer Price Inflation (% Chg.)

2.1%

1.5%

1.6%

0.1%

1.3%

Retail Sales (% Chg.)

4.8%

3.8%

4.2%

2.6%

3.0%

3.3

3.9

4.2

4.7

4.8

Residential Permits, Total (Mil.)

Source: Moody’s


3

A chaotic hurricane season has thrown off economic ECONOMIC GROWTH indicator trends; overall, sentiment appears positive. 

Damage boosting car sales and inflating gas prices.



Mixed impact on food sales, as out-of-home restaurants were depressed by damage/closed stores, but now seeing a boost as consumers eat out due to lack of power.



U.S. Department of Commerce: sales at restaurants, retail stores and onlineshopping platforms rose a seasonally adjusted 1.6% in September from the prior month, the largest one-month jump in more than two years.



Despite tainted indicators, experts assessing largely positive economic movement.



Expectation that U.S. Federal Reserve will raise short-term interest rates for the third time this year.

Source: The Wall Street Journal


4

Changing private label assortment dynamics and new market entrants are also impacting sales trends.

EVOLVING MARKETPLACE



Costco is focused on driving private label penetration from the current rate of about 25% of sales to 37% of sales; focus is on Kirkland Signature natural and organic products and increased scope of co-branded products.



By 2022, major private label players, Aldi and Lidl, could have a combined 10% grocery share. o

Hard-discount grocer Lidl entered the U.S. market in June 2017, with plans to open more than 100 U.S. stores by the end of 2018, and over 600 stores in five years.

o

Aldi is increasing its U.S. investment and is expected to become the third-largest U.S. grocer by 2022, with over 2,300 stores.



Amazon.com’s private label sales (all-inclusive) are expected to top $4 billion this year, including $700 million in private label sales from newly acquired Whole Foods.



Online grocery retailer Brandless launched July 2017, offering a wide range of generic CPG items—including snacks, beverages, cleaning supplies, beauty products and more—for $3 each.

Source: Company press releases; www.fortune.com (July 13, 2017); www.cnbc.com (October 2, 2017); IGD Retail


5

Despite favorable economic conditions, uncertainty has driven consumer sentiment down.

CONSUMER SENTIMENT

Consumer Connect Index Average = 100 Total U.S. 105

100

95

90

85

Q1 2016

Q2 2016

Q3 2016

Q4 2016

Q1 2017

Q2 2017

Q3 2017


6

One-third of the population struggles to afford groceries; the struggle is more pervasive among lower-earning households.

Q3 2017

30.5%

Q2 2017

Under $35K

Income

Households Having Difficulty Affording Groceries % of Households Total U.S.

58.6%

$35K$54.9K

32.9%

$55K$99.9K

16.6%

28.9% $100K+

Q1 2017

5.7%

28.9%

30.0%

Q3 2016

29.4%

Millennials

Generation

Q4 2016

35.6%

Gen Xers

31.0%

Boomers

Seniors

32.5%

21.1%

Source: Consumer Connect™, Q3 2017


7

Consumers are open to brands that allow them to save money.

Shopping Behaviors Top-2 Box Responses

Buy store brand products to save money

84% 84%

Try new, lower-priced brands to save money

74% 73%

Q3 2016

Q3 2017



8

Brand-switching for the purpose of saving money is more common among younger and less-wealthy consumers. Shopping Behaviors Top-2 Box Responses Income

Generation

89%

Buy private label products to save money

85% 84% 76% 81%

Try new, lowerpriced brands to save money

Under $35K

75% 72% 62%

$35K-$54K

$55K-$99K

$100K+

90%

Buy private label products to save money

87% 81% 81% 83%

Try new, lowerpriced brands to save money

Millennials

81% 68% 65%

Gen Xers

Boomers

Seniors



9

Consumers view private label brands as a good money-saving opportunity; millennials show a particularly strong affinity toward private label solutions. Private Label Perceptions by Generation Income

Generation

Private label products are just as good in quality as national brands

80% 81% 72% 69%

Private label products are a better value than national brands

Under $35K

73% 72% 66% 61%

$35K-$54K

$55K-$99K

$100K+

Private label products are just as good in quality as national brands

83% 79% 72% 71%

Private label products are a better value than national brands

Millennials

75% 71% 65% 64%

Gen Xers

Boomers

Seniors



10

Seven out of 10 millennials prefer stores that have a wide selection of private label products, and nearly as many frequently choose private label options over name brands. Private Label Behaviors, by Generation Top-2 Box Responses I buy private label options only from certain stores I trust

60% 60% 60%

I prefer stores that have a large variety of private label products to choose from

54%

I choose to shop at certain stores because of their private label offerings

45% 45%

I often buy private label products instead of name brands

I rarely or never purchase private label solutions

Millennials

61% 60%

67%

70%

58% 53%

57% 55% 55%

66%

11% 9% 15% 14%

Gen Xers

Boomers

Seniors



11

Brand trust is huge across income segments, but private label sentiment influences store choice more among lower-earning households. Private Label Behaviors, by Income Top-2 Box Responses 61% 62% 58% 66%

I buy private label options only from certain stores I trust I prefer stores that have a large variety of private label products to choose from

56% 53%

I choose to shop at certain stores because of their private label offerings

43% 44%

I often buy private label solutions instead of name brands

I rarely or never purchase private label solutions

Under $35K

43% 11% 13% 12%

$35K-$54K

64%

70%

57% 55%

53%

63%

69%

19%

$55K-$99K

$100K+



12

PRIVATE LABEL PERFORMANCE

After underperforming the market and national brands in 2015 and 2016, private label has been an overperformer this year. Dollar Sales Change by Market Sector 3.4%

3.3%

Unit Sales Change by Market Sector 2.0%

3.1% 2.8% 2.5%

2.0%

1.7%

1.8%

2.0%

2014

-0.3%

-0.3% 0.1% Total National Brands 2015

2016

0.5%

0.5%

0.5%

Total CPG

0.9%

0.9%

0.7% 0.3%

-0.4%

-0.9%

0.1%

-1.6%

Total Private Label Total CPG 2017

Total National Brands

Total Private Label

Source: IRI Market Advantage™, year-to-date ending 9/3/2017 and same period prior years; MULOC.


13

Within grocery, private label sales fell, but declines are slimmer than industry average and the national brand sector. Dollar Sales Change by Market Sector: Grocery

1.7%

0.7%

0.3%

2.8%

2.5%

2.3% 1.9%

Unit Sales Change by Market Sector: Grocery

1.6%

1.4% -0.1% -0.2%

0.3%

0.0%

0.0%

-0.7% -1.6% -3.2%

Total CPG

2014

Total National Brands 2015

2016

-1.1% -1.4%

-1.4% -1.5%

-1.2%

-1.5% -1.7%

Total Private Label Total CPG 2017


Total Private Label

Source: IRI Market Advantage™, year-to-date ending 9/3/2017 and same period prior years; Grocery.


14

Private label dollars are growing at an above-average pace across edibles departments. EDIBLES

Dollar Sales Change by Sector and Department 5.1% 2.1%

6.3% 5.8% 5.2%

5.1%

2.6%

2.2%

2.3%

0.4%

0.4%

3.9% 1.6% 0.6%

-0.1%

Total CPG

-0.2%


Total Private Label

1.8%

1.0% 0.6% 0.3%

Total CPG

5.2%

1.2%

-0.5% -0.5%


Beverage

Total Private Label

Frozen 7.2% 5.6%

4.9% 3.5%

3.1% 2.1% 2.0% 1.8% 1.7% 1.5% 1.5% 1.3% 1.2% 1.1% 0.4% 0.3% 0.1%

0.3%

2.3%

0.8%

2.0%

2014 2015 2016

-0.8%

-0.4%

2017 -4.5%

Total CPG


Total Private Label

Total CPG

General Food


Total Private Label

Refrigerated



15

The non-food sector shows similar, though less pronounced, dollar sales trends. NON-EDIBLES

Dollar Sales Change by Sector and Department 6.9% 5.3% 2.3% 2.2% 1.2%

2.1% 1.9% 1.1%

-0.6%

Total CPG

3.1%

3.2%

-0.1%

Total Private Label

-0.7%

Total CPG

Beauty

-0.4%


Total Private Label

General Merchandise

6.2%

5.5% 2.5%

4.4% 3.4% 2.2% 2.0%

2.9% 2.2%

0.1%

-0.9%


3.2% 2.5%

2.9%

2.9%

5.6%

3.2%

0.3%

3.3% 2.5% 1.9% 1.1%


3.1% 1.9% 0.5%

0.8% 0.7% 0.6% 2014

-0.3%

Total CPG

2.9% 1.8% 0.5% -0.8%

Total Private Label

Total CPG

Health

2015

-1.3%

2016


Total Private Label

2017

Home Care



16

Edibles private label unit growth is far outpacing industry average and the national brand sector. EDIBLES

Unit Sales Change by Sector and Department 5.4% 4.9%

2.8% 2.1% 1.4%

2.8% 2.4% 1.0%

1.7%

-0.6% -1.9%

-1.3% Total CPG

3.7%


-0.8% -0.9% -1.0% -1.1% -1.5% -1.5% -1.7% -1.8% -2.2% Total CPG

Total Private Label


Beverage

-0.1%

Total Private Label

Frozen

4.1% 0.8% -0.2% -0.3% -0.9%

0.9%

0.0%

-0.1%

0.2%

0.8%

1.5% 0.5%

-1.2%


1.6% 0.3%

1.5% 0.6%

2014 2015 2016

Total Private Label

-0.7%

-0.8%

-1.2% -1.4% -3.6%

Total CPG

2.0%

Total CPG

General Food

2017

-2.9% -4.7% Total National Brands

Total Private Label

Refrigerated



17

Private label home care units are lagging, but other non-food sectors are performing relatively well. NON-EDIBLES

Unit Sales Change by Sector and Department

3.5% 2.7% 2.1% 1.7%

0.3%0.3% -0.5%

-1.3%

0.0% -0.8%

Total CPG

0.9%1.3%

-0.2%


-0.1%

-1.4%

-1.8% Total Private Label

-3.6% Total CPG

Beauty

1.5%1.4%

1.3% 0.7%

-1.9% -1.9% -4.2% Total National Brands

Total Private Label

General Merchandise 6.1%

0.1%

2014

3.0%

2.5% 0.4%

0.4%

0.5%

-1.0%

Total CPG

-1.8% Total National Brands

1.1% 1.1% 0.2% -1.0%

Total Private Label

0.4% 0.4%

-1.3%

Health

2016

-1.1% -2.3%

Total CPG

2015

0.9% 0.8%

-0.8%


2017 -2.1% -3.0% -3.4% Total Private Label

Home Care



18

Private label has grown across regions; South Central and West regions are growing more quickly than others. Regional Trends for Private Label West 13wk $ Sales ($MM)

Great Lakes

$3,560

4wk % Chg YA

6.1%

13wk % Chg YA

5.9%

13wk $ Sales ($MM)

Plains 13wk $ Sales ($MM)

$2,235

4wk % Chg YA

4.5%

13wk % Chg YA

4.4%

$4,433

4wk % Chg YA

2.5%

13wk % Chg YA

2.3%

Northeast 13wk $ Sales ($MM)

$4,801

4wk % Chg YA

2.8%

13wk % Chg YA

2.6%

Mid South California 13wk $ Sales ($MM)

13wk $ Sales ($MM)

$2,583

4wk % Chg YA

2.0%

13wk % Chg YA

1.7%

$4,262

4wk % Chg YA

3.8%

13wk % Chg YA

4.0%

South Central 13wk $ Sales ($MM)

$3,388

4wk % Chg YA

6.5%

13wk % Chg YA

6.4%

Source: IRI ILD POS database; L13 & L4 weeks ending Aug. 13, 2017.

Southeast 13wk $ Sales ($MM)

$4,597

4wk % Chg YA

5.1%

13wk % Chg YA

5.1%


19

Private label assortment is an important consideration in the store selection process for consumers across income segments. Store Selection Criteria, by Income Top-2 Box Responses Good assortment of private label food and beverage solutions Good assortment of private label home care products

47%

Good assortment of private label personal care products

45%

Good assortment of private label health care products Good assortment of private label beauty care products

32%

Good assortment of private label pet care products

Under $35K

24%

$35K-$54K

31%

39%

55%

53%

47% 45% 46%

54%

69% 68% 68%

82% 82% 76%

64% 62% 65% 62%

42% 40%

$55K-$99K

$100K+



20

Millennials are particularly influenced by private label assortment when making store selections, followed closely by Gen-Xers and boomers. Store Selection Criteria, by Generation Top-2 Box Responses 82% 78% 75% 75%

Good assortment of private label food and beverage solutions Good assortment of private label home care products

65% 57% 63% 54%

Good assortment of private label personal care products

64% 59% 57%

45%

Good assortment of private label health care products

48%

Good assortment of private label beauty care products

Millennials

47% 42% 40%

31%

Good assortment of private label pet care products

23%

Gen Xers

64% 57% 59%

32%

43% 40%

Boomers

Seniors



21

Private label sales trends vary at the banner level. Private Label—Dollar Sales Growth/Declines by Retailer

Private label dollars have grown

Private label dollars have declined

Source: IRI CSIA, All Outlets, 52 weeks ending Aug. 13, 2017 vs. YA, NBD aligned.


22

Club-channel private label has been consistently outperforming industry average and competing channels for several years…

Private Label Spending % Chg. vs. YA, Total U.S., by Channel

8.0%

All Outlet Grocery Drug Mass/Super Dollar Club

6.0% 4.0% 2.0% 0.0% -2.0% -4.0% -6.0% -8.0% -10.0% -12.0% -14.0%

2014

2015

2016

2017

Source: IRI Consumer Network™, CSIA – Total U.S. – All Outlets; 52 weeks ended 1/1/2017 and two years prior; 52 weeks ended 3/13/2017; NBD Aligned to Multi-Outlet, Grocery and Mass/Super exclude Walmart.


23

…due to momentum in basket size and trip frequency.

Private Label—Buy Rate, Trip Size and Trip Frequency by Channel Dollars/Buyer

Channels

L52

$1,009.3

All Outlets Club Grocery

$261.7

$444.2

Dollars/Trip

% Chg. vs. YA

0.3% 1.8%

L52

$12.0

$24.1

Trips/Buyer

% Chg. vs. YA

L52

83.8

1.5% 2.5%

-3.4%

$11.3

0.4%

% Chg. vs. YA

10.9

39.2

-1.1% -0.7% -3.8%

Drug

$106.6

0.1%

$10.4

3.8%

10.2

-3.6%

Mass/Supercenter

$67.4

-7.8%

$10.3

-3.9%

6.6

-4.1%

Dollar

$40.8

-5.7%

-1.2%

8.6

-4.6%

$4.7

Note: Walmart not included in grocery or mass/super. Source: IRI CSIA, All Outlets, 52 weeks ending Aug. 13, 2017 vs. YA, NBD aligned.


24

Private label sales have momentum across age groups; younger millennials are a standout. Private Label Dollar Sales % Chg. vs. YA, by Generation 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% -5.0%

9 Oct-16

6 Nov-16

4 Dec-16

1 Jan-17

29 Jan-17

26 Feb-17

26 Mar-17

23 Apr-17 21 May-17

Total U.S.

Older Millennial

Younger Boomers

Younger Millennial

Gen X

Older Boomers

18 Jun-17

16 Jul-17

13 Aug-17

Retirees & Seniors

Source: IRI CSIA, All Outlets; Quad Week Data Ending Aug. 13, 2017 and preceding; NBD Aligned to Multi-Outlet.


25

Online private label sales are more established across non-food categories and still account for a small percent of overall sales. Largest Private Label Categories, Based on Online Dollar Sales $ Million % Chg. vs. YA Vitamins

$48.7

Food & Trash Bags

$26.5

PL Share of Category Sales

5.8%

1.8%

65.3%

11.5%

Natural Cheese

$21.3

290.8%

17.6%

Gastrointestinal Tablets

$21.2

27.3%

13.8%

41.0%

3.2%

39.4%

8.8%

179.8%

5.8%

$10.3

31.9%

1.2%

Paper Towels

$9.7

14.7%

2.3%

Bottled Water

$9.6

60.4%

5.3%

Toilet Tissue Cups & Plates Baby Wipes Pet Food

$16.7 $12.9 $11.8

Source: IRI e-Market Insights™, Q2 2017


26

Private label growth strong in the online realm, supported by the proliferation of click-and-collect models. Fastest-Growing Private Label Categories Online Dollar Sales % Chg. vs. YA

Soup

328.3%

Natural Cheese

290.8%

Tomato Products

277.7%

Blades

201.0%

Household Cleaner Cloths

199.0%

Cold/Allergy/Sinus Liquids Baby Wipes

193.7% 179.8%

Moist Towelettes

175.2%

Snack/Granola Bars

172.5%

Hot Cereal

157.0%

Source: IRI e-Market Insights™, Q2 2017


27

Younger consumers allocate more of their CPG spending to private label solutions than their older counterparts; share is on the uptick, particularly among millennials. Private Label—Dollar and Unit Share by Generation

Dollar Share 22.2 17.7

21.4

19.5

17.5

Younger Millennial

16.3

Older Millennial

Gen X

21.0

19.6

19.4 15.7

Unit Share

15.8

16.6

Younger Boomers

Older Boomers

Retirees & Seniors

Share Pt. Chg. Vs. YA Dollar Share

0.9

0.4

0.2

0.1

0.2

0.0

Unit Share

1.7

0.8

0.5

0.5

0.5

0.3

Source: IRI CSIA, All Outlets, 52 weeks ending Sep. 10, 2017 vs. YA, NBD aligned.


28

Private label sales are up across most income brackets, in particular across households earning less than $15,000 per year. Private Label Dollar Sales % Chg. vs. YA, by Household Income 11.0% 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% -5.0%

9 Oct-16

6 Nov-16

4 Dec-16

1 Jan-17

29 Jan-17

26 Feb-17

26 Mar-17

23 Apr-17 21 May-17

18 Jun-17

Total U.S.

$15-$24.9K

$35-$49.9K

$70-$99.9K

= $100K

16 Jul-17

13 Aug-17

Source: IRI CSIA, All Outlets; Quad Week Data Ending Aug. 13, 2017 and preceding; NBD Aligned to Multi-Outlet.


29

Private label share dips as income increases, but unit share is showing momentum across middle- and upper-income shoppers. Private Label—Dollar and Unit Share by Income

Dollar Share 20.4 16.9

= $100K

Share Pt. Chg. Vs. YA Dollar Share

0.0

-0.1

0.3

0.1

0.2

0.2

0.3

Unit Share

0.2

0.3

0.7

0.4

0.7

0.5

0.8

Source: IRI CSIA, All Outlets, 52 weeks ending Sep. 10, 2017 vs. YA, NBD aligned.


30

Private label spending by Hispanic shoppers is relatively volatile. Private Label Dollar Sales % Chg. vs. YA, by Ethnicity 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% -0.5% -1.0% -1.5% -2.0%

9 Oct-16

6 Nov-16

4 Dec-16

1 Jan-17

Total U.S.

29 Jan-17

26 Feb-17

26 Mar-17

Non-Hispanic/Unknown

23 Apr-17 21 May-17

18 Jun-17

16 Jul-17

13 Aug-17

Acculturated Hispanic *

*Note:

Acculturated Hispanics are defined as Hispanics speaking only English or English more than Spanish. Source: IRI CSIA, All Outlets; Quad Week Data Ending Aug. 13, 2017 and preceding; NBD Aligned to Multi-Outlet.


31

Q2 growth ticked up, encouraged by increased personal consumption expenditures; Q2 2017 GDP is on par with 2016 but still lower than 2014 and 2015 levels. Real GDP: Percentage Change from Preceding Quarter



Negatively impacted by downturn in residential fixed investments and deceleration of exports



Positively impacted by uptick in personal consumption expenditures

Source: Bureau of Economic Analysis


32

While economic growth is expected to continue in 2017, inflation is predicted to reach its highest point since 2012.

Economic Measure

2013

2014

2015

2016

2017P

GDP (% Chg.)

3.3%

4.2%

4.0%

2.8%

3.9%

Unemployment (%, SA)

7.4%

6.2%

5.3%

4.9%

4.4%

Consumer Price Inflation (% Chg.)

1.5%

1.6%

0.1%

1.3%

2.0%

Retail Sales (% Chg.)

3.8%

4.2%

2.6%

3.0%

4.0%

3.9

4.2

4.7

4.8

5.1

Residential Permits, Total (Mil.)

Source: Moody’s


33

A majority of consumers anticipate purchasing private label options more frequently in the coming months, particularly millennials and lower-income consumers. Expect to Purchase More Private Label During the Next Six Months, by Income

$100K>

$55K-$99K

$35K-$54K

Seniors

52%

Boomers

62%

Gen X

65%

38%

$55K-$99K

$35K-$54K

37% $55-$99K 31% 31% $35-$54K 26% 30%

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