Are store brands set for a big growth spurt?

Discussion
Photo: RetailWire
May 27, 2020
Tom Ryan

National brands saw outsized growth in the first quarter as consumers stocked up in the initial stages of the coronavirus pandemic, but store brands expanded even faster.

According to data provided to the Private Label Manufacturers Association (PLMA) by Nielsen, first-quarter sales of store brands in U.S. retail outlets jumped 14.6 percent year-over-year, ahead of the impressive 11.5 percent gain for national brands.

Among channels, store brands gained 16.6 percent at mass (mass merchandisers, club and dollar stores), 12.7 percent at supermarkets, and 13 percent at drug stores, versus 10.1 percent, 15 percent and 7 percent for national brands, respectively.

“There’s no doubt that shopper behavior was highly influenced by consumer fears,” said Brian Sharoff, PLMA president. “Nonetheless the statistics point to greater acceptance of retailer brands as the coronavirus crisis evolves.”

Catalina Marketing, as reported by CPGmatters, saw the gravitation towards private label purchases continue in April.

A survey of 2,000 shoppers by research consultancy Magid taken in two stages — the beginning of April and the start of May — found the top reason consumers tried a private label product, cited by nearly half, was because their preferred brand was out of stock, followed by the desire to save money, 35 percent.

Sixty percent that made a switch said that they are “likely to continue buying private label brands.”

Store brand growth in recent years has been attributed to improvements in the development and promotion of labels, including quality upgrades, expanded price tiers and extensions across categories. Stores have been using private labels for differentiation, negotiating leverage with national brands and enhancing margins. Consumers have also become less biased when it comes to purchasing retailer-owned labels.

Private label sales grew during the Great Recession as consumers traded down to less expensive and store brand options and that’s expected to happen again.

Wall Street Journal article on the potential for store brands to achieve market share gains stated, “In the previously unloved food business, grocers and brand owners such as Kraft Heinz Co. are more obvious beneficiaries of the coronavirus crisis. As recession bites, though, private label companies will likely take a bigger share of the spoils.”

DISCUSSION QUESTIONS: Do you see more factors driving rather than holding back private label growth in the CPG space over the next several years? Will the expected economic downtown due to the pandemic influence store brand purchases any differently than past downturns?

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Braintrust
"The focus should be on what products are on the retailer's shelves that are not available at competing retailers."
"When store brands look and perform as well or better than national brands, retailers will benefit from sales to a higher spending consumer..."
"In many very popular categories, big retailers like Walmart and Kroger’s shelves are dominated by store brands — as national brands continue to be out-of-stock."

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29 Comments on "Are store brands set for a big growth spurt?"


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Suresh Chaganti
BrainTrust

Retailers have certainly gained the upper hand in many categories. With consumers becoming less brand conscious because of supply shortages, retailers have pressed the advantage and strengthened their position. Of course they built the trust and credibility by not sacrificing the quality.

David Naumann
BrainTrust

The pandemic created an opportunity for private label brands. Some consumers have avoided buying private label brands because they perceived them as being of a lower quality than national brands. The shortages of national brands on shelves as consumers stocked up on household goods during the panic buying phase forced non-private label shoppers to purchase private label products as a last resort. As indicated by research consultancy Magid, 60 percent of consumers that tried private label products will likely continue buying private label brands. Just as the pandemic provided a boost to BOPIS and home delivery of groceries, it has propelled the growth of private label brands.

Jeff Weidauer
BrainTrust

The growth of private label has been slow but steady since plain wrap products set absurdly low expectations for store brands. The 2008 recession jump-started consumer interest and private brands have finally escaped the stigma of low quality at a low price. Now it’s up to retailers to make the commitment to invest in creating quality products that deliver strong value and capture consumer loyalty.

Richard Hernandez
BrainTrust

I read a similar report yesterday and I agree that private label will have a renaissance of sorts now and after the pandemic.
Now is the time for retailers to review their catalog and ensure they are not only sharp on their pricing but ensure the price gap between the private label and national brand is within reason where the customer will see the value of private label and not see it as a cheap substitute for the national brand label.

Ben Ball
BrainTrust

Limited product availability drove store brand trial among new users. As the recipient of hundreds of market research studies over the years I am extremely skeptical of reported “intent to buy” figures. How many of those users were satisfied with the product will only be demonstrated by repeat purchases — and that remains to be seen. For the sake of prognostication however, my bet is that many first time buyers of store brands were surprised by the product quality and happy with the price/value experience. Chalk this one up to another “pre-existing trend that will be accelerated by the pandemic.”

Michael Terpkosh
BrainTrust

Retailer private labels have done an excellent job positioning themselves with consumers over the last few years. Gone are the days when the “best” private labels were b-grade product in the package. Private labels now offer excellent product quality, unique flavors and position themselves as another major brand on the shelf. During the pandemic, consumers were looking for more traditional products at value pricing and private label fulfilled the need. Private label has also moved into the natural and organic space and the consumers have positively responded to these products. As long as retailers keep their eye on private label quality and meeting consumer trends, it is all upside for private labels into the future.

Dick Seesel
BrainTrust

This is anecdotal, not data-driven evidence, but I think it’s too early to tell whether consumers are shifting to or from private brands. A lot of it is driven by the supply chain issues of the past three months and what stores have on their shelves at any given time. If our local Kroger store substitutes its own branded coffee creamer for the national brand, when we place an online order, we don’t really care.

The search for value, and the elevated quality of many store-branded products, is not a new phenomenon — but I expect a tug-of-war between branded and private-label goods for quite some time.

Joel Rubinson
BrainTrust

I doubt that the rising share for private label can really be thought of as the result of branding or a branding moment itself. These are unusual times calling for unusual shopping measures (whatever brand of toilet paper or disinfectant you can find…) and people are more likely to retain, and act on, their pre-existing brand preferences once stores are stocked again.

Ron Margulis
BrainTrust

Brian Sharoff, the PLMA president quoted in this story, passed away last weekend after a short illness. For almost 40 years he led the association and had a lot to do with the transformation of store brands from low quality copycats of national brands with category shares in the low single digits to the robust and ever-growing sector it is today. He was constantly thinking about how to make the industry better and it showed every November at the trade group’s annual event in Chicago. On a personal note, as a writer he always had a good quote for me. He will be missed.

Bob Amster
BrainTrust

Like many habits that will have changed permanently because of COVID-19, shopping habits will also. Maybe because of financial stress, or because of supply shortages, private brands got a boost. if some consumers find no appreciable difference in quality or taste, they will stay with many private label products permanently. Those private label brands that have distinguished their product through quality coupled with price will be the winners of increased market share.

Jeff Sward
BrainTrust

A surge based on the preferred brand being out of stock is not exactly high praise. But 60 percent saying they are likely to continue use of a store brand once they tried it is indeed a great endorsement. I think it’s as simple as taking a page out of Costco’s Kirkland story. Extreme quality and extreme value. That equates into quickly built, if not instant, consumer loyalty. Differentiation and loyalty are the pillars of proprietary branding. It’s an opportunity available to almost every retailer.

Lisa Goller
BrainTrust

As the economy declines, it’s private label’s time.

During the 2008 recession, more consumers turned to private label for affordable pricing. Surprisingly, many shoppers remained loyal even as the economy picked up due to the store brands’ quality and innovation.

Private label innovation helps retailers adapt to consumer trends to personalize the shopping experience. Retailers’ assortments now reflect consumers’ diverse needs like organic and vegan, and recipes with less sugar, salt, and fat.

Even during boom times, a 2018 U.S. survey found 85 percent consumers trust private label brands and 81 percent buy private label products during every shopping trip.

That’s because private labels have evolved into legitimate brands whose exclusivity can spark loyalty, variety and a competitive edge.

Ryan Grogman
BrainTrust

Similar to increases in digital purchases for groceries and the use of curbside services, the pandemic has also brought about impressive growth in private label purchases. And as with those other shifts, I expect to see the gains in these areas recede from current levels, but certainly stay above comp levels from before the pandemic. The overall quality in private label goods, especially in the CPG space, continues to increase and consumers who have shifted to private label due to either lower price points or in-stock availability are recognizing their value. And it’s this higher quality, coupled with retailers’ desire to control as much of the supply chain as possible, which should see some of those gains maintain traction.

Richard J. George, Ph.D.
BrainTrust

This is a tremendous opportunity for retailers to develop own-labels which distinguish themselves from national brands. However the real opportunity is to use-own label as a significant point of difference from competing retailers. In the early days of private label, the key point of differentiation was price. Recall no-name, value brands, etc. Today the focus should be on what products are on the retailer’s shelves that are not available at competing retailers. Every major retailer carries most major national brands, so what is the differentiation and competitive advantage there? Unique own-label will give a customer permission to drive past one store to visit another. Now that’s a competitive advantage.

On a sad note, Brian Sharoff, president of PLMA, quoted in the article, passed away a few days ago. He truly was the champion of private label both domestically and internationally. His leadership, passion and focus on private label will be missed.

Cathy Hotka
BrainTrust

Almost 25 percent of Americans aren’t working now, so the cost of consumables is important. If store brands can mimic the quality of name brands, they are bound to see an uptick in sales. The Great Recession prompted big changes in consumer behavior and we’re sure to see it now as well.

Gene Detroyer
BrainTrust

Why? As the study showed — “their preferred brand was out of stock.”

The experience of the out-of-stocks will not only help the private label brands, but also the secondary and tertiary brands.

The preferred brand that people were buying, perhaps year after year after year as a habit, was no longer available. So they tried something else. they found that the store brand or lesser brands that they never imagined trying were just as good but less expensive or they were just plain better than what they were used to.

This forced experience to change a shopping habit will forever hurt the leading brands that first went out-of-stock. Satisfied customers will not come back.

Neil Saunders
BrainTrust

Store brands are growing and will continue to grow ahead of national brands. Some of this is down to a value saving mentality, which has become particularly acute during the pandemic and which will persist in its aftermath. However, this is not all about value. A lot of it is also down to a lack of innovation by the big CPG players. Many national brands look tired and dull and they are not delivering newness. By contrast, Target and others have put a lot of effort into developing mid-tier and premium own-brands. So too have niche DTC players which are also growing at a far faster pace in CPG than the big national players.

Ralph Jacobson
BrainTrust

High value (low price/high quality) private label products have done well for decades in every category of retailing (e.g., Craftsman Tools). This will continue as value-driven shoppers proliferate across demographics. We do need to qualify first quarter 2020 category movement with the fact that the pandemic drove deep sales into specific sections of grocery stores, selling out of every “flavor” of bathroom tissue, regardless of brand. Beyond the pandemic effect, I do see good PL growth as many people see the benefit of shopping across brands to save money, bottom line.

Brandon Rael
BrainTrust

The emergence and growth of grocery and CPG private labels had been in motion well before the pandemic. Now with the post-COVID-19 world in motion, we are experiencing a great acceleration of private labels, and their importance to grocery stores, as well as the value-driven consumers. As long as the price, quality, and experience is consistent with the brand promise, then consumers will be gravitating to private labels at an unprecedented rate and driving significant growth for grocery stores.

Target has invested significantly in the private label space with the growth of its Good and Gather brand. Target said by the end of 2020 there will be upwards of 2,000 items being sold by the private label brand. Value conscious consumers will absolutely benefit by Whole Foods’ expansion of the 365 labels across most of the packaged goods categories. The 365 brand is also available on Amazon and has generated tens of millions in annual sales for the e-commerce giant since it became available.

Andrew Blatherwick
BrainTrust
During the early stages of the pandemic when stocks were short and people were panic buying, consumers would have bought anything that was available. They were just happy to have got something. Many of these consumers will have been surprised at how good the private label was and may well continue to purchase it. This will be reinforced in the aftermath of the pandemic when money is tight and people look to save pennies on every purchase. The habit is formed, loyalty to the premium brand broken and future purchasing patterns formed. This only needs to be a relatively small percentage of the population and you see a big growth of private label sales at the cost of the premium brands. Advertising money will be spent to bring back customers but it is very difficult once the purchasing habit is formed and the belief that ”brands are best” is dispelled. Retailers should look at this as an opportunity to push forward their advantage and establish stronger private label sales using promotions to establish that habit.… Read more »
Gregory Osborne
BrainTrust

As Millennials’ influence continues to grow, private-label CPG will grow in parallel–this was happening even before the pandemic. Value for money is a fundamental principal that will drive private-label growth in CPG and in an economic downturn this value principal becomes even more important.

Kathy Kimple
BrainTrust

Private label brands that offer quality and value have been gaining ground for some time now, and the pandemic gave them a huge boost. The market share expansion for store brands is likely to continue, especially as essential items remain hard to find and consumers stay in “prepper” mode.

Jason Goldberg
BrainTrust
This is not a new trend, but rather a continuation of an existing trend. Private label has been gaining share at the expense of national brands for the past several years, and that trend is only accelerating due to COVID-19. Scarcity during the pandemic has forced customers to be less brand loyal, and economic pressures/falling consumer confidence is shifting consumer behavior to more value-oriented brands. At the same time many national brands turned off or curtailed marketing efforts, sacrificing share of voice. Many of those consumers who were forced to switch brands during the pandemic will become permanently less brand loyal. What brands really need to be concerned about is the subset of private label called “exclusive products.” These are retail invented brands that have unique value propositions (vs. just being a value oriented knock off of a national brand). Over the past 10 years, retailers have been way better product innovators than have national brands or challenger brands, look at the success of Target (5 new billion-dollar brands in the last two years), Kroger… Read more »
Ricardo Belmar
BrainTrust

Add private label brands to the list of trends accelerated by the pandemic. While this was primarily a forced situation due to out-of-stocks, if 60 percent of consumers say they will stick to the private label brand, that’s real staying power. Many consumers are now learning that those private label brands can oftentimes be as good as or “good enough” when compared to the leading national brands. I suspect that secondary, lower-tier brands are also seeing a boost. Just think about diaper brand competitors, like Luvs, when parents couldn’t find Pampers or Huggies on the shelf! The pandemic is very likely to have created a seismic shift in brand loyalty when we look back at 2020! Just as the 2008 recession led to changes in brand loyalty and an uptick in private label purchases, the pandemic will cause a very similar shift, perhaps even bigger across more categories. Unfortunately for the national brands, this was caused by out-of-stocks and they will have to work to recapture those formerly loyal customers.

David Biernbaum
BrainTrust

When store brands look and perform as well or better than national brands, retailers will benefit from sales to a higher spending consumer than when store brands are strictly private label knock-offs. Brand naming and package design are critical. Store brands need to be properly positioned, not understated nor overstated.

Peter Charness
BrainTrust

I wouldn’t overreact to the last few months of off-the-wall business. While I’ve always been a believer in own-brands as the future differentiator, I think we need to pay more attention to the much larger share of online shoppers, who will probably want to buy known brands from across the web.

Mark Heckman
BrainTrust

While are personal experiences are by definition anecdotal, I have noticed that in many very popular categories, (paper, cleaning, shelf stable meals), big retailers like Walmart and Kroger’s shelves are dominated by store brands — as national brands continue to be out-of-stock. Whether this is by design or a function of stressed supply chains, some portion of the private label growth is not by choice, but rather by “having no other choice.”

Ananda Chakravarty
BrainTrust

Private label will continue to grow. Since 2015 through mid 2019, private label grew by $14B in the US. Interestingly, it has grown more in stores with many premium brands than those that sell primarily private label brands such as Aldi or Lidl. Basically a factor of 11% growth vs 4% decline for grocery.

As with any downturn, lower costs remain attractive and private label will thrive. What is needed are solutions that can help spur private label goods on beyond just organic growth, especially with the “premiumization” of private label in the market. Target has set a trend by not skimping on quality for their Good and Gather label. Other retailers will follow, and the pandemic will provide a slightly positive bump in accelerating this trend.

Carlos Arambula
BrainTrust

There are currently more factors driving private label. Supply lines have been disrupted and consumers are being forced to explore different brands, friendlier prices, and drastically changing their purchasing behavior. The pandemic is unlike any past downturn, we don’t know exactly how, but we know it’s happening. All marketers need to reevaluate and adjust accordingly.

wpDiscuz
Braintrust
"The focus should be on what products are on the retailer's shelves that are not available at competing retailers."
"When store brands look and perform as well or better than national brands, retailers will benefit from sales to a higher spending consumer..."
"In many very popular categories, big retailers like Walmart and Kroger’s shelves are dominated by store brands — as national brands continue to be out-of-stock."

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