Through most of 2007 and the first quarter of 2008, private-label dollar growth was attributed to inflated commodity costs and higher prices, but in March 2008, that all changed.

As consumers looked for ways to balance shrinking food budgets and ballooning food costs, many sought less expensive alternatives. And some discovered, for the first time, private labels were a suitable national-brand replacement. So last year, volume sales also began to grow.

Today, corporate-brand share across the store is relatively modest at 21.4%, but it continues to eat away at branded items’ piece of the pie, Todd Hale, senior vice president for consumer and shopper insights for the Nielsen Co., told SN. During the last six four-week periods, private-label-unit growth has averaged about 5.8% per period, while sales of national brands have dropped by more than 2% per period, he said.

The poor economy hasn’t been all that’s prodded consumers. Grocers are pushing private labels like never before. “I’ve been so impressed with the marketing muscle retailers have put behind private brands,” Hale said. “They’re doing a much better job on getting out the message.”

In the past year, store brands have been the focal point of countless endcaps, contests, discount offers and buy-one, get-one-free promotions. In the hopes of capitalizing on market conditions, retailers have also churned out record numbers of new introductions.

Take, for instance, Wal-Mart Stores’ revamped Great Value line. In preparation for the 16-year-old line’s relaunch, Wal-Mart tested more than 5,250 products against leading national brands to ensure equal or better quality. It also conducted more than 2,700 consumer tests of flavor, aroma, texture, color and appearance before deciding to reformulate more than 700 items. In addition, 80 new items like Great Value thin-crust pizza, fat-free caramel swirl ice cream and organic cage-free eggs, began hitting shelves this spring.

Enhancing the quality of these items was a must since Wal-Mart will look to its store brands when rationalizing SKUs as part of its new Project Impact, noted Jim Hertel, managing director of Willard Bishop, Barrington, Ill. Under the plan, Wal-Mart has grouped categories into Win, Play and Show designations.

In “show” categories, or those that lack growth for Wal-Mart, such as frozen vegetables, Great Value items will move to the fore. “Household name brands will be at risk and the Great Value private brand will shine here,” Hertel said.

Other retailers are adopting similar strategies. More than half (55.3%) of industry members polled in May as part of SN’s sixth annual survey of Center Store performance said that during the past year private labels replaced national brands in at least one of the categories in which they compete.

Strategies like these make sense for retailers, not just because store-brand profit margins are on average 10 percentage points higher than national brands, but also because of their overall contribution to profits. “Back in the day, we thought of store brands as a pure margin play,” said Hertel. “But many create more [overall] profit dollars than national brands do.”

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