Source: RetailWire
How Can CPG Brands Recapture Market Share Lost to Private Labels?
Inflated grocery prices have thrown a spotlight on the battle for market share between national and store brands.
Branded CPG manufacturers’ top strategies for competing with private labels include marketing their brands’ quality, cited by two-thirds as a top-two strategy, followed by launching innovation (55 percent), according to Advantage Solutions’ “Manufacturer and Retailer Outlook Spring 2023” study.
CPG manufacturers also seek to offset the private label threat by increasing trade promotions, cited by 32 percent among their top-two strategies; executing in-store shopper marketing programs, 27 percent; and lowering everyday prices via list price reduction, five percent.
PLMA’s “2023 Private Label Report,” produced by IRI Unify, found private label sales advanced 11.3 percent in 2022, nearly twice the growth of national brands, up 6.1 percent.
The gains were attributed to consumers looking for savings amid “persistent inflation.” Another driver was store brands being more transparent about their make-up as consumers post-pandemic have become “more concerned about how products are made and what’s in them, from their raw ingredients and holistic health attributes and qualities to their sustainability.”
In the first quarter, store brand dollar volume jumped 10.3 percent, nearly twice the 5.6 percent gain of national brands, according to PLMA’s latest findings.
“The Q1 results are particularly impressive since they are compared to 2022 sales figures, which were historically high for U.S. store brands,” said PLMA President Peggy Davies.
A recent survey from Attest found 74 percent of U.S. consumers would “definitely” or “probably” keep buying store brands after inflation eases.
CPG vendors, according to the Advantage Solutions’ study, were found to be less inclined to raise prices in the March survey versus a survey taken in December as inflation has lessened but also showed few signs of resetting prices lower.
The top manufacturer’s tools to remain competitive at the shelf, according to Advantage Solutions’ study, were (respondents selected three):
- Off-shelf merchandising, 55 percent;
- Digital couponing, 45 percent;
- Supporting retail-focused marketing programs, 42 percent;
- More aggressive promotional price, 35 percent;
- In-store shopper marketing programs, 27 percent;
- More frequent temporary price reductions, 27 percent;
- Promote in multiples, 23 percent;
- Lowering everyday price, nine percent;
- Shelf POP to match brand-marketing message, nine percent.
Discussion Questions
DISCUSSION QUESTIONS: Do branded CPG manufacturers need a new playbook to reverse or slow the share losses from retail private label brands? How do retailers determine the proper mix between national and private brands?
Poll
Loading …BrainTrust
Lisa Goller
B2B Content Strategist
Ryan Mathews
Founder, CEO, Black Monk Consulting
The CPG vs. private label battle is won in the store. More specifically: at the shelf. The challenge is knowing where and how to merchandise in store. Getting accurate data—including where SKUs pull better within a store—could actually help both sides. General store traffic and shopper flow is good, but using sensors to measure shopper interest and purchase intent for specific SKUs in specific locations would make the most difference.
Traditionally we have used the four “P’s” of product, place, price, and promotion. But in today’s world we need a fifth P, and that is people. Video analytics (with built-in privacy controls) now make it possible for CPG and retailers to capture the elusive interaction with the customer that has, until now, been the eCommerce advantage. This could change everything.
I’d add a sixth “P”, “personalization,” to your list, Ken. Scattershot promotions no longer cut it in the world of digitally-influenced retail. True relevancy requires collaboration and transparency between trading partners with respect to data sharing, retail media, and strategic use of store loyalty programs.
Just as the Chinese symbol for crisis combines danger and opportunity, so too does the threat of private label capturing a growing share from brands. It’s no surprise that American consumers have gravitated toward private-label brands during rising inflation, and big-name brands may have trouble winning them back.
But, it’s not CPG manufacturer’s first rodeo. They’ve weathered this storm before and retailers have continually balanced their assortment to include both national and private brands. Branded CPGs can win back favor by taking some key steps:
1. Product changes – innovation remains the key driver. Whether in delivery form, ingredients, or packaging, brands can attract shoppers.
2. Pricing changes – although largely a short-term tactic, brands can reintroduce shoppers to their products through temporary price reductions in promotional prices.
3. Promotion – with its back seemingly against the ropes, a brand can double-down on its advertising and promotional activity to raise awareness and win back consumers.
4. Partnerships – find an “uncommon” partner to expand reach, messaging, and increase focus on a few core brands.
Most big brands are coming off of two record profit years, primarily because they have taken price. But they’ll have to get a bit more creative because consumers are tired of paying high prices at the shelf, which is why we are seeing double digit growth of store in brands. My counsel would be a combo strategy: lower price, increase promotions, roll out new innovative products and double down on in-store merchandising. CPG’s have to win back consumer’s confidence & trust. This can’t be done with a singularly focused strategy.
You are correct. This will be an uphill battle for them. Cost increases, lack of supply, and SKU rationalization have hurt them and I believe that there is a good chunk of the business that they will not get back because customers have made the move to the private label equivalent, liked it, and have stayed with their choice.
This is where my head went when I read the article. Large CPG brands are meeting Wall Street targets over the last 2 quarters by raising prices. As long as the price increases continue in the current economic conditions then CPG brands should expect to see shoppers trade down to private label. Agree with your points about innovation, promotions, in-store merchandising but constant price hikes need to be addressed.
CPGs are coming off record profitable years as shoppers stopped going out to eat during the pandemic and rediscovered home cooking. Inflation has been their enemy, making private label products look more tempting. Couple that with the trend towards better tasting/performing store brands, and CPG has a problem. Yes, they can buy their way into the house, but that’s never been a sustainable strategy. For retailers – keep on pushing PL – your shoppers are more than interested if you can make a quality product.
Emphasizing brand trust, quality and innovation helps CPG brands compete against private labels. Shopper insights and emotional appeal differentiate brands, command a premium and earn loyalty. As marketing masters, brands will invest in more advertising across physical and digital retail media touchpoints.
Monitoring performance data will reveal the optimal mix of national and private brands in retailers’ assortments.
So right, Lisa. Well said.
Thanks, Dave.
How bizarre that all the tools mentioned are either about price or promotion. What about performance? What about the quality/value equation? If the private label product I switched to performs as good or better than the national brand, why would I ever go back? If I try a private label and it just doesn’t perform, then OK, I tried and now I’ll switch back to the national brand. But that’s because the private label failed, not because I had a coupon for the brand.
Getting the mix right is the tricky part. Lots of people have an emotional connection with national brands. There’s a comfort level buying a known, long time friend. That’s part of what will bring customers back after they have flirted with a private label. National brands have to remind people of that long time friendship.
To consumers, “store brands” are just brands at this point – and ones that often deliver on quality and expectation at a more competitive price. Retailers from Costco to Target have proved that consumers don’t have to make major sacrifices in quality. And manufacturers didn’t help themselves when years ago they opened their own lines to make private label products – as always prioritizing short-term gains over long-term strategy.
The way to win is simple – showing better quality but in a way consumers care about and notice.
To consumers, “store brands” are just brands at this point – and ones that often deliver on quality and expectation at a more competitive price. Retailers from Costco to Target have proved that consumers don’t have to make major sacrifices in quality. And manufacturers didn’t help themselves when years ago they opened their own lines to make private label products – as always prioritizing short-term gains over long-term strategy.
The way to win is simple – showing better quality but in a way consumers care about and notice.
Once upon a time, the idea of private labels was simple…price, price, price. Then several retailers developed two-level PL. They found that quality near or equal to the national brands at a lower price was a winning formula.
The problem for the CPG companies was that once shoppers realized they could get national brand quality at private label prices, there was no turning back. Whenever there has been an economic hiccup that moved shoppers to PL, the gains stuck.
What is the correct mix? CPG brands have lost their relevance over the years. Read Costco, Whole Foods, or Trader Joe’s.
While CPG companies understand the pressures consumers face, historically, most executive teams have never managed through this level of inflation. While historically, there’s been a balance between private labels and brand in each category, when ruptures in the status quo occur, equilibrium resets, and right now, that is in favor of the retailers and private labels. I expect CPG brands to recapture some but not all or most of the lost market share as consumers gain trust and comfort with store brands and reset their spending behavior.
1. Double down on branding, brand story, and brand love. 2. Start to understand that retailers have made the choice to go to D2C with PLs and they need to increase their activity in the space. 3. Embrace new sales/tech channels and more closely marry the eCom/Sales/tech teams.
We have had a long period of high inflation which has resulted in consumers not only trying own label but liking it and forming the buying habit. This is hard for CPG brands to fight back control of the shelves and consumer mindset. However, it is not good for retailers to have weak brands, they need the innovation and marketing spend to help with their promotional and marketing strategy. The Brands need to work with the retailers rather than fighting them, make sure they get good display and shelf space, usually by paying for that privilege, and promote with the retailer in price and also advertising and in store promotions. Brands will not recover all the lost share but they will play a very important role in the retail mix.
Sorry, I find this whole subject SO last century.
There are no “private label” products anymore, there are just “brands” – in the classic CPG sense – and “retailer controlled brands.” What has happened is that retailers have advanced branding more effectively than corporate branders by finally waking up to the fact that they own “the” brand the consumer thinks of when they go to a store.
Now, add in the fact that in most cases these retailer controlled brands are cheaper and, in many cases, better, and now appearing on perishable lines that may have previously been essentially unbranded – bakery, deli, etc. and how is it a surprise that these retailer controlled SKUs outsell more traditional competitors?
So, yes, CPG players need a new playbook, one that acknowledges the limitations of mass market push strategies and the viability of alternative branding strategies.
As to the final question the answer is simple, “Listen to the consumer.”
Thank you for your very well-stated response, Ryan. I was intentionally being soft with my response, but you squarely hit the nail on the head. Listen to the consumer … yesterday’s playbook should be abandoned.
Thank you Dave. You’ve said it all and in one sentence.
Thank you for your very well-stated response, Ryan. I was intentionally being soft with my response, but you squarely hit the nail on the head. Listen to the consumer … yesterday’s playbook should be abandoned.
An extremely important “P” is the package. Remember, “unseen is unsold”. Just because a product is on the shelf doesn’t mean shoppers notice it. As private labels have improved their packaging, from the blank/all white generic look to something of higher quality appearance, there has been more motivation to try them. The pandemic, of course, convinced consumers that saving money with private label did not mean forgoing the level of satisfaction they were used to. And if major manufacturers are making the product behind the private label, all the more reason to consider it. Retailers have been building brand equity with their store brands for years and I do believe the journey began by re-designing the package to get attention, consideration and compete more directly with national brands.
Store brands used to be perceived as ‘lower quality’ but retailers have worked really hard to shift that perception. They’ve invested in building loyalty and trust in their own store brand, which has translated into more trust in their private label brands. CPGs will need to up their game in terms of product transparency and positioning that aligns with the modern buyers needs and preferences in order to maintain their market share.
Regaining share lost to private label is an increasingly uphill battle. So many private label products are just as good or even better than national brands. At a time when everyone is looking for savings, private label is a natural choice and often becomes the default selection going forward. Retailers are compelled to expand their private label offerings given their positive profit margins.
As other’s have pointed out it’s really Brand competition, whether a private label “brand” or a “national” brand. The opportunity to talk to the consumer and build loyalty through innovative and highly targeted methods has never been more greenfield. Those who innovate in building brand loyalty, communicate benefits will win the market share battle.
The key to food retailing success is ‘to think like a brand & act like a retailer’. For far too long retailers viewed brands as the products on the shelf. Now, the better retailers realize that the assortment of those brands on the shelf, define their brand positioning. No longer will own brand be simply the national brand knockoff, based primarily on price. Now, retailers offer differentiating products that other retailers don’t have. Face it, every retailer carries the leading national brands. For CPG companies, innovation is the best long range strategy to defend against own label.
CPG companies need to launch more innovative products and lower prices. In a time of food inflation, all shoppers care about are low prices,
I believe food retailers should take a moment to reflect and ask themselves: besides price, what are the main reasons why customers choose to shop at our stores? Is it convenience, the overall shopping experience, product quality, or perhaps our loyalty program? Once they have a clear understanding of these driving factors, they can start figuring out the right mix between national and private brands.
It’s also important for retailers to consider if they’re trying to attract a different customer segment. They should take into account the demographics and preferences of that specific group when making decisions about their brand assortment.
While numbers can provide valuable insights, they can also be manipulated or misinterpreted. That’s why it’s crucial to seek out different voices, opinions, and viewpoints. By doing so, retailers can avoid biases and arrive at well-rounded conclusions that truly reflect the diverse needs of their customers. Let’s remember, it’s about making informed choices that benefit everyone.
CPGs long-term need to own their category in superior insights as well as in the mind of the consumer in order to build a more defensible moat. By owning the insights, they should know their category and category shoppers better than any retailer so they can fuel their innovation pipeline and provide value in the retailer relationships. Consistently delivering great products, much-needed innovation, and relevant branding can give the CPG manufacturer an opportunity to gain back share and own the category. This happens when consumers no longer say that they need facial tissue products but they need “Kleenex” as a category. Private brands and other competitive brands are no longer in the competitive set.
CPGs have more opportunities than in the last recession to gain these insights through brand communities and the various DTC digital touchpoints. Integrating analytics and listening to their top brand consumers will help ensure strategies and innovations are on target.
The irony of private label is that without the CPG braded products, it would usually not exist. In fact, when a private label knock-off takes too much market share, unit sales, and even dollar sales, from the brand it shadows, the original brand itself is put in jeopardy of its own survival, and should that same brand disappear, then, the private label item will serve no purpose any more.
When private label is the leader of any given category it usually means the category, itself is lacking in brand-loyalty, which results from at least two factors.
a. The only perceived difference between the brand and private label is price.
b. Most brands in a given category, if not all, are perceived as just commodities. The consumer is buying the most basic benefit, rather than what the consumer believes works the best, taste the best, has the best quality, and meaningful points of differentiation.
CPG brands should take note though that if the retailer carries a private label knock off of your brand, it does usually indicate that your brand is strong enough to merit there being a private label. So, there is a silver lining.
In order for a CPG brand to stay ahead of private label, I have a few recommendations.
Do what private label doesn’t do. Advertise, promote with brand-fanfare, give the brand an ethos, and constantly make tweaks in your packaging design, or delivery system, or even a certain ingredient, that will take months, if not years, for private label to catch up with and imitate.
1. Your package design and image needs to be sharp, unique, and give the impression of quality. When a brand has those, and other unique traits, private label has a difficult if not impossible task of not looking cheap and inferior when next to your brand.
2. Staying ahead of private label with unique dispensing, new shape of bottle or box, or hard-to-imitate non-PMS color, adds expense and inconvenience for the private label manufacturer, who might not even have the tooling or resources to look or feel just like your brand.
3. Slow down private label imitation any way you can, with the above suggestions, but especially with a change or modification that is harder, or takes a lot of time, to replicate, because of the need for the right equipment, tooling, re-formulation, new processing, etc.
Having worked hard on both sides of this battle through the years, brand and private label, one mostly true conclusion I can draw is that private label is only a passive competitor. It won’t compete with your brand on anything other than price. The brand still has a great advantage if marketing is handled smartly. – Db
There’s no mystery: a brand needs to have a meaningful difference to a generic/store product to justify a premium price. People will tolerate small differences – indeed such can perpetuate the aura of superiority (real or not) – but the idea that a branded item can command multiples of price is folly; people aren’t stupid: they can look at the ingredients, and if they see they’re identical the jig is up.
Retailers may pad their margins a bit with private brands, but they need national brands to satisfy all their shoppers and be perceived as destinations.
Unlike most brand marketers, retailers have a distinct advantage in that they can build a private brand across numerous categories. Take Safeway’s O Organics as an example. The halo effect that this generates is nearly impossible for national brands to match.
Consumer products marketers need to tell highly compelling stories about their brand personality, actual product benefits, value and unshakeable TRUST in order to maintain consumer loyalty.
I think the proverbial Genie is out of the bottle here. Store branded items are increasing in quality and Branded CPG items carry a perception that much of the price delta is due to advertising. While the battle for shelf space will continue, I believe the scale is tilting in favor of store brands.
The retail private labels are gaining market share because of the improved quality, better marketing, efficient procurement and distribution. Ten years ago, there was a clear gap in the level of quality, marketing and branding between private-label and brand-name products but not anymore.
Private labels have developed market share beyond the traditional staples such as milk, canned peas, paper products such as diapers, and soft drinks etc. Private labels are available in a wide range of categories and are positioned as lower cost alternatives to national brands.
Retailers must consider shoppers’ needs in all category management decisions, including which products to carry, how to shelve, price and promotion. Other decision making criteria will be to determine which formats, banners and/or store clusters match best with their brand(s) and understand store brands at a category level, utilize category assessments and tactical analysis.
While the marketplace can be imperfect, it rarely lies and in many instances, major brands have been riding on name recognition and cachet rather than differentiating themselves with quality or value. This left the door open for lower priced private labels to grow their footprint and change people’s buying preferences. And in looking at the list of solutions above, they’re all financially-based offers or doubling down on promotion. I don’t have a problem with that but it would be nice to see some mention of turning up the volume on product differentiation raising people’s value perceptions of the brand.
Brand vs Private Label has been a thorn in CPG side for decades, and will continue to be. In the end, there are no winner’s in price wars, so there is little upside in fighting PL on price.
The biggest advantage CPG has is in their ability to scale innovation. But price sensitivity due to inflation may put a damper on meaningful innovation. Still, even incremental innovation that widens the gap between branded and PL could make a difference.
Brands that take no action at all may find the sobering reality that once consumers switch to PL, they are slow to switch back to branded, if at all.
All the points mentioned in the article are relevant. There are a few other strategies that can be employed:
1. Explore alternate sales models like D2C, especially if you play in high-value categories like sneakers, high-end apparel, and electronics.
2. Deeper focus on understanding and tracking customers’ product lifecycle and buying patterns. It’s all about pitching the right product to the right customer in need at the right time.
3. In a crowded space, it’s important to focus beyond the product on factors like experiences, brand association, brand identity and brand recall.
There are lots of branding/marketing things that can be done – the other folks that are smarter than me have covered those here.
One of the easiest things to be done? Help your retailer understand what the optimum gap is to branded so you both prosper. It’s hard to upsell when the gap between a branded product and private label is 50% or more. (which is common)
When you’re trying to win in store – don’t make it hard for the consumer. Find the right gap – so the consumer understands what they’re choosing. Too big of a gap hurts private label, too small of a gap hurts branded.
Find the right gap in price and the consumer can choose right and feel good about their choice. This is a win for both branded and private label brands, doesn’t sink more investment into competing when really both sides should be winning.
Multiple commentators have suggested that Retail Media is likely to be a large revenue generator for retailers in the future.
It could well be that this is a perfect use case – when a consumer is considering an private label product, a paid advert regarding the benefits or special offer associated with a branded could be presented – with the brand owner paying for this.
CPGs can succeed based on total current value. Look at Coke and Pepsi. Despite plenty of private label competition, they remain the powerhouses in their market.
The rise in private label brands has changed the marketplace dynamics in many categories – they are no longer seen as budget brands; in fact many retailers find private labels to be more profitable. Ultimately, the proper mix between national and private brands varies based on the retailer’s unique positioning, target market, and business objectives, but retailers need to track these assortment dynamics in a much more granular way – real-time, shareable assortment data is the way to determine the right mix of branded vs. private label products at the store level. This type of data, provided by Datasembly, can immediately highlight incomplete store assortments that are driving consumers to alternate brands or even alternate retailers.