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September 6, 2024
How Dominant Will Private Label Products Become?
Numerator.com recently released a comprehensive report detailing the latest trends in the private label sector.
Over the past year, private label products have represented 24% of unit volume across 10 major product categories. General merchandise categories, including office supplies, home and garden items, and tools and home improvement, have seen the highest share of private label products. Conversely, grocery, health and beauty, and household products have experienced the greatest household penetration for store brands. Club, office, and mass retailers lead in private label sales, whereas beauty and electronics stores report less than 10% of their unit volume from store brand products.
Among 20 of the biggest U.S. retailers, ALDI and Trader Joe’s stand out for their extensive reliance on private label goods, with store brands constituting over two-thirds of their total sales volume — 80% for ALDI and 69% for Trader Joe’s. In contrast, Amazon’s private label offerings make up just 3% of its sales, marking the lowest share among major retailers.
Kroger’s “Smart Way” brand, launched in late 2022, has emerged as the fastest-growing private label brand, boasting a sales increase of over 100% in the past year. Other notable performers include private label brands from Dollar Tree and Dollar General, which feature prominently among the top 15 fastest-growing private labels. Additionally, drugstore brands from Walgreens and CVS have also made significant strides. Walmart’s private label brands lead the market, with more than half of U.S. households purchasing them over the past year.
So far this month, multiple retailers have already announced new developments regarding their private label brands and products.
For example, according to Store Brands, “Walgreens has expanded its own brand assortment of beauty products with the launch of a premium skincare line the drug store chain is touting as offering premium quality products without a premium price tag.”
Also, on Sept. 4, Albertsons Companies, Inc. announced details about its first major private label in recent years, named “Overjoyed,” designed to enhance consumer connections through everyday moments. This new brand will focus on a variety of baked goods, including “cupcakes, candles and liners; cookies; chocolatey trail mixes; cheesecakes and sprinkles.”
“At Albertsons Cos., we are dedicated to bringing people together around the joys of food, and our newest Own Brand, Overjoyed, underscores this commitment by helping shoppers celebrate the joys of every day and connect with loved ones. We are constantly evaluating how well we’re meeting our customers’ needs through our Own Brands portfolio, and we realized we had an opportunity to create a brand to celebrate life’s every day, special moments. With Overjoyed, we look forward to helping our loyal customers create an emotional connection and lasting memories from hosting a hot fudge sundae party to surprising the family with cupcakes for dessert to treating a teacher or neighbor with holiday trail mix ‘just because.’”
Brandon Brown, senior vice president of Own Brands for Albertsons, via Albertsons
Ultimately, Numerator.com’s latest report highlights the growing significance of private label products, which now account for nearly a quarter of unit volume across key sectors. Other findings from the report include that 58% of shoppers believe that “private label brands offer an above-average value for their price.” Additionally, 43% of consumers buy private label products with the goal of saving money, and 29% think these brands are “just as good as name brands.” As the private label market continues to evolve, retailers are increasingly focusing on innovative and consumer-centric product offerings.
Discussion Questions
How will the rise of private label products affect major retailers’ long-term strategies, especially regarding brand loyalty and consumer perception?
How could private label brands moving into niche and premium markets change the competitive dynamics for national brands?
What future trends or innovations might we see in private label strategies to meet diverse consumer preferences and market demands?
Poll
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Kai Clarke
CEO, President- American Retail Consultants
Kristin Shane
EVP Chief Merchandising and Marketing Officer, The Guitar Center
Lucille DeHart
Principal, MKT Marketing Services/Columbus Consulting
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Private label has been on a sales spurt ever since the pandemic. It was initially fueled by out of stocks and is now being driven, in part, by higher grocery prices. But greater consumer familiarity and comfort with private label, allied with innovation by retailers, is also resulting in the fast growth of mid- and higher-tier private label products. Recently launched Bettergoods from Walmart and Overjoyed from Albertsons are great examples of this new wave of growth. By international standards, the US (20.5%) is still a long way behind countries like the UK (approaching 50%) in private label penetration. I except some convergence as the US continues to catch up.
Private brands has been and will continue to be a key strategy for most retailers. It allows retailers to control their destiny across a multitude of facets – staying on trends, managing margins, controlling instock positions and maintaining relevance with the customer, just to name a few. It also gives retailers a deeper understanding of their customer and allows them to continuously differentiate from their competitive set to drive loyalty. Most retailers (with a few exceptions) need both private brands and national brands to win the hearts and minds of customers.
Private label products will continue to grow in Market share and Margin contribution to many Retail verticals including CPG, Packaged foods, Clothing, Clubs and Mass Merchants. in addition to offering consumers with a lower cost value alternative Private label brands offer retailers the opportunity to build retailer loyalty by offering high quality private label products. The importance of Private label products for retailers who manage them properly will continue for the rise for the next several years.
Media has splintered into a thousand channels. That makes it pretty tough for brands to mass market. Without mass marketing it’s hard to drive brand name demand. When there’s less brand demand, there’s less loyalty. And when consumers feel the pinch, loyalty is out the door. Which opens the door to private labels. Since it’s become a well-known fact that brand names & private are often produced on the same production line—just switch out the packaging—this is a trend that will continue & likely accelerate.
More retailers will invest in private brands to differentiate their offerings with quality and innovation as they compete for loyalty, big baskets and frequent visits. Consumers gain more choice and retailers gain more sales from their private labels.
As more private labels move into premium-tier offerings, national brands may invest more ad spend in retail media to stay competitive and avoid margin erosion.
Looking ahead, expect more private label strategies to align with enduring consumer needs like value, diversity, health and sustainability.
Funny, I was just thinking the opposite about brands’ retail media investments. If they spend in proportion to their ACV distribution, it’s possible that they might need to reduce their endemic retail media investments if they lose share to store brands.
This might even prove to be a form of leverage against retailers who emphasize their store brands too much. After all, why would a brand marketer want to effectively subsidize a retailer’s profits with retail media spending if it means they could sell their own-label products at a lower margin?
Wheels within wheels here!
Throughout the past few decades, private label has evolved in a variety of ways. “Knockoffs” and plain labels were initially sold at low prices to consumers, typically 40 percent below that of national brands, and with a margin of 60% for retailers.
In the early 1990s, I worked closely with one of the nation’s largest retailers to change their philosophy regarding private labels.
Different items in major drug chains, food chains, and mass merchandisers were given brand names according to their categories.
A true story: I recall meeting with Kmart, then the largest retailer nationwide, and explaining that even their best customers don’t want to rub “Kmart” on their faces, (aftershave, presheaves, lotions, etc.) or wipe their “behinds” with “Kmart.” (toilet paper). It was up to the CEO whether to throw me out of the building through a plate-glass window or accept the “insult” as part of an important initiative!
In response to the latter option, we created exclusive brands for each category, 22 in total, which was a resounding success, not only for Kmart, but for all retailers.
As a result of the efficacy of pharmacy names, chain drug stores preferred to keep the names Walgreens, CVS, Rite Aid, and so on as their “brand names.” This would change, in some respects, in the future.
My method of enforcing private brands as true brands was to use ads, displays, fanfare, and strict rules for requiring third parties to test each product for equivalency with national brands.
We would brand our packaging in good taste and not overdress it. It was important to portray quality without appearing expensive. I found it to be very effective.
In Canada, Loblaws offers the “President’s Choice” approach to every item in its store, but in certain categories it offers better or different products than the national brands. Later on, Trader Joe’s would take this approach to a whole new level.
The goal was to make private brands very strong even during good economic times. Volumes grew rapidly, and brand prices ranged from 60% to 80% of the leading national brand.
Likewise, private brands grow significantly when economic conditions are poor or when inflation skyrockets, as has been the case since January 2021. Db
Private label brands have been on a growth spurt for at least the last 10 years, and for some categories even more. Private label rules in the grocery categories, where every category has at least 1 private label brand, and some even more, where minor players are competing strictly on price (fresh fruits and vegetables, dairy, meat, etc.) and finding a category which does not have a private label brand is almost impossible. Private label will continue to grow, as consumers pay less attention to the name on the package and more attention to price and value.
Striking a balance between PL and national brands is an art form in merchandising. The mix has to align with whatever is the value proposition of the retailer. That mix can be influenced by other factors as well such as the consumer sentiment and economic concerns. Brands, PL or not, always need to have a clear POV and serve a need. If a PL brand is launched without clarity of the customer or an aesthetic that overlaps a national brand you have a recipe for cannibalization. There have been many retailers that have let the pendulum swing too far one way or another. Some of them are no longer around. Based on this I expect to see continued discussions around finding the balance as it becomes increasingly important.
Retailers LOVE private label. There are no “brand taxes” associated with a national brand, and advertising is for the brand as a whole, so costs are a bit less. During the Great Recession, Publix did a great rotating promotion: Buy a national brand, get a private label equivalent free. I think they did 3 skus per week. Effective way to warm people up to it.
My opinion? It has ALWAYS been about price for the consumer. Sidebar: I would buy more private label OTC drugs if I didn’t have to pay the penalty of having to use tools to open wrapped pills (think decongestants). I don’t trade down if there’s an out of stock. I just buy something else.
PS It has always been so. Out of stocks have/had nothing to do with it. And….Kroger’s private label is doing well because in places like Miami where they’re just here for delivery, you can’t BUY anything else from them. And that’s why I still shop at Publix.
Love Publix. Usually it’s all about price (Stevia tastes the same whether it’s a private label or national brand; why pay more for erasers when Amazon Basics’ are much cheaper?) except for certain premium-tier private labels. Loblaw’s President’s Choice brand has always been about quality and innovation that distinguishes the line. Substitutes don’t come close.
I agree. Most good retailers have tiered (good, better, best PL offers). Tesco has this with Finest as its top tier. Target now has Good & Gather Signature. Safeway has Signature Select across a number of categories. None of these trade on price; it’s about quality, taste, etc.
Disagree very strongly on out of stocks, Paula. During the pandemic, consumers switched a lot for some items because they couldn’t get their usual brand. It may have been a forced switch, but it boosted private label sales.
And it may *have* been about price, but that is shifting. The fastest growth in private label is now in mid- and higher-tier brands. As US consumers have become more confident in PL and retailers have become more innovative, the added-value part of the market is growing. The US is behind the curve in this, but it is becoming more like European markets: most of M&S, Waitrose and Mercadona’s PL success is not at all focused on price, for example.
COSTCO drove private labels into the stratosphere with Kirkland. Kirkland is a $56 billion brand (bigger than Nike) and accounts for about 25% of all COSTCO sales.
Jeff Sward, this is perhaps more of a threat to traditional retail and brands than TEMU and SHEIN? 😉
Hard to say if it’s more or less of a threat, but safe to say that all the above are BIG threats to national brands.
Private label is great for the retailers top and bottom lines, not to mention the inevitable strengthening of the parent brand. What is the difference, really, between store label bleach and Clorox??? Case closed.
A chain like Kroger has played it smart with its private brand management, by offering a “good-better-best” strategy. Its opening price private label goods offer significant value compared to national brands, while its “Private Selection” products offer a high degree of quality. (We are fans of “Private Selection,”) The ability to manage margins and shelf space is definitely higher with smart private label management.
Generally speaking, private label is good for the retailer and for the shopper. For retailers, they can control the production, pricing, and keep more of the profits. And for shoppers, our research shows the quality is perceived on par (and many times better) than national brands along with a better price. So it’s a win-win situation.
Retailers are relying on private label to drive higher margins, as they are more profitable than carrying wholesale brands. This is not a new business strategy, but does require stores to build private label brand awareness–think Charter Club and Macy’s years ago and now Bowl and Basket at Shoprite. In many cases, private label products are advantaged with better display space and marketing support in store and through retail media, however, there is a great deal of investment needed to build consumer trust and fulfill value expectations. Consumers will, as usual, ultimately decide which products they favor and which can be made interchangeable.
The investment comment is apt, as foregoing the national brands also means going without the co-op dollars and placement fees that come with them. The merchant is fronting 100% of the marketing and development costs.
On point, Scott. See my exchange with Lisa Goller above.
It’s always been in the best interest for retailers to convert customers to their house brands. Better margins, drives loyalty. It certainly makes sense for retailers.
Private label delivers on its promise of more value for less brand recognition when products are not formulaic (i.e. ibuprofen). When private label also becomes more of a matter of taste, such as food or fashion, it requires the retailer have a sophisticated operation of understanding consumer tastes and the ability to keep up with trending, which is where brands excel. Private label will dominate formulaic areas and push out incumbent brands in increasing numbers. What will be interesting to see is how many retailers pursue brand studio models or even acquire early stage brand upstarts based on the unique first party customer and purchasing data they have. It’s early and exciting.
Private labels are an absolute imperative for retailers. They can provide the level of distinction, differentiation and value that are critical in today’s market. The logic and incentives to do private labels are slam dunk easy to understand. Actually executing a strong private label turns out to be reeeaaallly difficult.
It might be that ‘private label’ is too brand an umbrella. Retailers have been knocking off branded key items for decades. Duplicating a proven best selling item at a lower price point is not difficult. Creating and executing a full fledged owned or proprietary brand is difficult…reeeaaallly difficult, as many retailers have learned. Target is brilliant at it. Kohl’s not so much.
Whether it’s private label items or multi-classification proprietary brands, they are an essential part of a retailers arsenal these days. And any national brand is at risk of being knocked off, regardless of product category. So nothing is easy for brands these days. The pressure is there on every front, whether it’s SHEIN/Temu or proprietary brands. (Good point Michael Z!)
Private label as a concept is virtually unknown outside this community. For most shoppers, private label brands are simply different brands with similar quality at a lower price. Retailers move away from store brand named products to house brands with high quality graphics and branding was a genius move by retailers. Offering tiers of quality gives retailers a way to reach more shoppers. As long as quality persists, private label will continue to thrive.
Meanwhile, brands are expanding their direct to consumer efforts.
Private brands can be one of the key strategies that retailers (grocery) retailers can utilize to help ease the problem of the challenged customer food budget. When customers see a new unique flavorful Better Goods bag of chips versus the average $6 bag of chips, the private brand is not only solving a problem but also adding a little bit of fun and anticipation in the shopping trip.
Retailers that launch premium food products with unique flavors or benefits can disrupt the category for national brands, especially the categories where growth has mostly been driven by price and not customer penetration. There’s always room for improvement and innovation and most national brands will remain in the driver’s seat in the category as long as they take care of the customer and drive the innovation that matters.
Private labels have become much more than just a cost saving measure; they’re a powerful tool for retailers to build brand identity and foster customer loyalty. By offering better value items at lower prices and unique offerings that resonate with shoppers, retailers are setting themselves apart. As private labels become increasingly popular, they will be key to long-term retail strategies, delivering significant benefits for both retailers and customers.
The rise of private label products will force major retailers to rethink their strategies. They’ll need to strengthen brand loyalty and improve consumer perception to compete. As private labels move into niche and premium markets, national brands might face more pressure and lose some market share.
Retailers will likely focus on unique, high-quality offerings and better pricing to stay ahead. I think we’ll see more innovation in private labels, like personalized products and sustainable options, to meet diverse consumer needs and adapt to changing market demands.
The rise of private label products will positively affect the longevity of a brand. Private labels enhance profitability because they often have higher profit margins compared to national brands due to reduced marketing costs and direct control over the supply chain. They also improve customer loyalty because retailers can offer high-quality private-label products that meet or exceed the standards of national brands, which can create a sense of exclusivity and encourage repeat purchases. Furthermore, private labels can help retailers stand out from competitors. By developing unique product lines and branding, they can create a distinctive shopping experience that sets them apart from their competition, while also attracting new customers. Finally, private labels can be a benefit to a retailers long-term strategy because they provide risk mitigation. Diversifying product offerings with private labels can help retailers mitigate risks associated with relying solely on national brands. If a national brand faces challenges, retailers can rely on their own products to maintain sales and customer satisfaction.