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Are Private-Label Food Offerings Bound To Keep Growing?
A new report by FMI, The Food Industry Association, finds that 54% of shoppers plan to buy “much more” or “somewhat more” private-label brands in the future. Only 26% of those surveyed indicated the same for national-brand groceries.
Private-label foods and beverages have expanded to a 20.6% share of U.S. grocery dollars from 18.7% before the pandemic, the market research firm Circana recently told the New York Times.
According to the Times article, the expansion is due in part to the recent spike in inflation that has consumers buying private label to save money. Other factors include the need to compete on price against newer entrants such as Aldi, which significantly relies on private-label offerings, as well as store brands often earning a higher margin for grocers than national brands.
Increasingly, store brands serve as differentiators. “We want our brand to serve the value customer who is on a budget,” Nicole Wegman, president of Wegmans, told the New York Times. “But we also want products, like our cheese and our breads, that are fun for the food enthusiast. They’re specialty items and more expensive to make, so we have to charge more for them.”
One focus in particular seems to be the “seismic shift in consumer attitudes” toward private label, as offerings have been upgraded. The FMI study found that 51% of those who said they want to buy more store-brand groceries plan to do so because of taste and 47% because of quality.
Brands like Costco’s Kirkland Signature are considered “cool,” Michael Krupski, a clinical assistant professor of operations management and strategy at the University at Buffalo, recently told CNBC. “They are providing what feels like an experience beyond what private labels have been able to provide in the past.”
PLMA President Peggy Davies said store brands have also benefited from several years of “unprecedented consumer trial,” partly due to supply chain challenges faced during the pandemic.
“Having opted for a store brand over the national brand for the first time, there’s a strong likelihood the shopper will stick with the store brand,” said Davies. “In addition, we are also seeing retailers doubling down on product innovation in food and non-food to take advantage of the flow of new store brand customers.”
Private-label acceptance is significantly higher in some food categories than in others. For the three months ending June 30, 2023, compared to a year before, Numerator found that private-label cheese held 45% of the market, canned vegetable sales held 38.3%, and coffee held 14.9%.
A recent study from Purdue University’s Center for Food Demand Analysis and Sustainability found taste to be the major factor determining whether consumers choose brand-name foods over less-expensive store brands. The report’s lead author Joseph Balagtas, professor of agricultural economics at Purdue, said, “Across all food categories, most consumers do not believe that brand-name foods are more nutritious or made from better ingredients or safer than store brands.”
Discussion Questions
What obvious and less obvious factors do you see driving growth in private-label food categories? Is private-label growth generally a win-win for grocers, or are there risks as private-label penetration starts to dominate a food category?
Poll
Loading …BrainTrust
David Naumann
Marketing Strategy Lead - Retail, Travel & Distribution, Verizon
John Karolefski
Editor-in-Chief, CPGmatters
The obvious growth driver is lower cost to the consumer. In high inflationary times private-label brands which cost less in part because the retailer has better margins, so they can keep price low and still maintain a reasonable margin. Another growth driver is consumer acceptance. Consumers have wised-up about brands and have come to realize that private label brands are often as good as brand-names and sometimes even better for a lower price. Private label brands are a win for grocers, they’re a win for consumers and the only losers are the brands that are now finding it more challenging to compete with the private brands.
Private label product quality has risen over the years to where, in many cases, it surpasses the better-known national brand. By now, most shoppers have realized that their grocers don’t have magic factories that can produce everything from beans to cheese to orange juice. It’s just a secret as to who the “real” brand is. This means that grocery brands can fine-tune the packaging and package messaging to align even better with what they know their shoppers will buy.
The real trick is to figure out how to place and merchandise private label vs. brand SKUs to maximize overall sales and profit. As for quality and taste, I would expect grocers to do more in-store sampling of their private label items, too.
When you factor in the trust and loyalty a grocery chain engenders, private label offers a winning combination that consumers trust. And trust is a golden attribute. Retailers who gain a consumer’s trust have a lifetime value that is secure.
Yes, private label will keep growing. Certainly, more people are trading down to private label to save money. However, retailers are developing more sophisticated and enticing lines and it’s the premium private label tier that is now growing fastest – albeit from a small base. Lines like Target’s Good & Gather Signature and Safeway’s Signature Reserve products are are pushing private label in to the ‘best’ segment of the good, better, best hierarchy.
Lower cost combined with better quality. I believe if you look at PL performance by category, you’ll find those areas where there is more growth, quality has reached a very acceptable level. Also the converse – where they don’t perform as well as branded products, you might find less growth (from inflationary pressures). And I’m not embarrassed to say we like Kirkland red wines 🙂
Private brand’s growth recently was primarily driven by the higher costs across the board for food and beverage products. However, as more consumers continue to buy more private brands, they build trust in that brand and are willing to try new products. The less obvious areas of growth are in premium products where I have seen many brands expand into such as plant-based ice cream at Ralph’s. All the major grocery chains also have organic and natural lines where there has been expansion and renewed focus in the past few years.
The challenge with too much growth in private brands is the likely impact on trade marketing and/or retail media dollars. As retailers increase their private brand SKU count they may be reducing the opportunity to attract more brands to promote via the retail media programs. Private brands don’t typically invest or invest very little in these programs compared to the national brands.
Private-label products have shaken off the traditional stigma of being inferior or low-quality. In the past, many consumers may have felt a little ashamed to purchase private-label products, but now retailers have gained consumers’ trust and confidence in the products’ quality. Private label brands have become respected and now have loyal followings, especially at key retailers like Costco and Trader Joe’s. Private labels are here to stay and will continue to expand, even after the economy rebounds and inflation is at bay.
Obvious factors driving private label growth are price-conscious consumers, elevated quality and more choice. Less obvious growth factors include a shrinkflation backlash by shoppers against national brands.
Grocers win big time. They earn loyalty with exclusive brands and gain more control over supply chain costs. National brands pay grocers more in retail media ads to stay competitive.
If European markets like Spain have a 50% private label share, certainly there’s room for more growth in North America.
If the brand vs. private label choice is only differentiated by price then (of course) private label will continue to grow. And with more households cord cutting their cable to stream, the ability of CPG brands to differentiate by way of televised commercials narrows to fewer households.
Brands that can gain share in this environment would be smaller, maybe local brands. But other brands are in trouble.
Absolutely private label food will see continued growth. The value equation for private label food is compelling. Good to better quality for less money. Boom. Multi-ingredient foods with distinct tastes and flavors might not be able to be easily replaced, but several packaged foods are a slam dunk. Pasta and canned vegetables for instance. Distinction and differentiation are a brands’ moat. Without those elements, any brand is fair game to be knocked off. It takes a lot of marketing dollars to create that distinction and differentiation, so subtract those dollars from the equation and the cost difference then means the retailer can offer the customer a value difference that will draw them to private label over branded.
Private label will continue to grow. Consumers are savvy and with food prices creating nagging moments like, “I can’t believe how much I spent at the grocery store”, shoppers are more than willing to trade away from national brands in favor of store brands. Additionally, taste and quality of store brands has improved over the years to the point where many shoppers are eager to buy them and save precious disposable income.
A 1/2 gallon of private brand milk was $1.00 less expensive when i shopped this weekend….That says it all. There are many categories similar to Dairy where private brand will continue to gain market share over the next few years. Additionally, in some demographics the private label brand names have reached a recognition tipping point that many consumers do not realize that the products are private label.
Private label will continue its growth trajectory. Our research shows shoppers the value it brings to the table as well as the quality. It also offers a better margin to the retailer, creating a win-win situation.
Private label will continue to take market share from national brands. In addition to the reasons noted in the article & by other BrainTrust members, in my opinion the biggest impact will come from how retailers position private or own label offerings. Retailers realize that they need to think like a brand & act like a retailer. Private label gives them a terrific tool to brand themselves.
Every supermarket carries Coke, Heinz Ketchup, Campbell soups, etc. However, the appropriate mix of private label gives customers permission to drive past one store to visit a store with unique offerings, reinforcing the retailer’s brand image.
No doubt in my mind private label wil continue to grow! At this point, most consumers have realized that many private label items are equal to and in some cases better than name brands in quality and price/value. Why pay more if the quality is to your liking? There are many examples, from Costco’s Kirklands brand, to Target’s Good & Gather, to Wegman’s Food You Feel Good About, and many more that consumers have grown more attached to in recent years. Brand names will have to do more than produce clever advertising to bring customers back into their brands and overcome private label!
The obvious has already been stated by my fellow Braintrust peeps, and that is money. Typically, private-label products save the consumer money. The other thing to consider is the quality. Just because it costs less doesn’t mean it’s lower quality. The reality is most food retailers work hard to find recipes that are excellent. It’s about their reputation. When you trust the quality of one private-label product, you will assume others are similar in quality.
Private label food and drink will continue to grow in the future, but not at the same pace as they have been growing in recent years. Makers of branded goods are well aware of the growth of store brands and will respond accordingly. Any analyst who predicts that US store brands will eventually reach the market share they have in the UK — now more than 46% — doesn’t understand the effect of aggressive marketing on shoppers.
I see it largely as an issue of trust….broken: consumers , rightly or wrongly – and I would say more the former – see the recent inflation as being heavily due to brands taking advantage of consumer loyalty and jacking up prices. (A counter argument, is that they also held prices in check for years, so they were overdue). Once the trust is lost, so is the loyalty, and the reason for paying a premium for a branded item. Obviously there are brands that truly differentiate their products – different recipies, innovative packaging – but too many skate by with “because that’s what my Mom always bought”.
On this one I will speak for myself as a consumer w/ any reference to internal or external research. Because IT’S GOOD. 90% of the Kirkland stuff I buy I love. Same for Bowl and Basket and others. In a way I don’t think about them as PL anymore. Just as brands hat have earned my trust and loyalty through quality. Marketing makes almost zero difference for me on PL products.
Private-label growth is not a given.
Brand vendors have the upper hand. They can take back share when they decide to get competitive or become more promotional.
Conversely, private-label growth will slow as retailers get greedy on margin.
There is no doubt more growth available in private label brands. For many grocers, the appeal in offering lower priced options at decent margins helps give customers choices when they want to save, especially in economic times like now.
A less obvious growth opportunity exists with high upside for independent grocers and small markets, in creating an offering of high quality private label items. Better tasting and more curated foods create higher differentiation and competition against middling chain stores with more financial muscle. Smaller stores can create partnerships with smaller producers and farms to secure limited volume, in the end, helping each other out. Customers win with higher taste profiles and quality levels than a chain store could offer. The upside is in the customer experience opportunity, in offering better foods at higher margins that competitors can’t get.
Absolutely. As CPG companies continue to raise the costs of doing business, house brands remain a very viable option. This is also assisted by the fact that house brands are upping their game in regards to quality and taste profiles.
With Private label products retailers can satisfy a multitude of shoppers desires: value-priced lines, specialty items, seasonal items and limited-time promotions
For certain, the pandemic and inflation are tailwinds behind the growth in private label. However, improved quality and improved social perception of private label are also contributing factors. The quality piece is key as it narrows the consideration gap between brand and private label. Brands should be mindful of this shift, and realize that consumers increasingly want more than just a popular brand name, they want value, price and quality too.
Private label will continue to penetrate some categories more than others but in the end, Brands will maintain their dominance in food categories because of scale and ability to innovate. Still, Brands may want to tighten up their game. Winning back market share from private label is a slippery slope.