A McKinsey & Co. study presented at the Private Label Manufacturers Association (PLMA) Annual Conference in Chicago this week revealed that $55 billion in annual sales could shift from national brands to private label if retailers concentrate their resources on the effort. The result of the shift could move private label's dollar market share to 24 percent from about 16 percent in 10 years.
The McKinsey report, titled New World of Brands: The Next Wave of Private Label, starts by identifying the retailers who "have successfully used private label as a key differentiator and to build consumer loyalty," including the usual suspects - Wegmans, Safeway, H-E-B and Kroger. These retail leaders have an average private label dollar share of 22 percent, well above the industry average of 16 percent. Moreover, these "share leaders" have posted higher levels of overall sales growth versus non-leaders, 5.3 percent versus 3.4 percent over the last three years.
According to the research, "the bulk of retailers" are lagging behind, with a dollar market share of less than 16 percent. If these lagging chains, which include Albertson's and Winn-Dixie, begin to emulate the private label share leaders and boost their store brands to drive growth and build consumer loyalty, part or all of the $55 billion in annual sales could move from national brands to private label.
Among the categories that hold the greatest opportunity for store brands, according to McKinsey, are natural cheese, bottled water, snacks/ nuts, cereal, paper towels, batteries and soap.
Brian Sharoff, president of the PLMA, said in a press release, "What we are seeing today is the transformation of food retailing from regional and local grocery chains to national supermarkets, supercenters, warehouse clubs, and specialty gourmet chains that are committed to making their own brands into nationally-known brands. And they are succeeding beyond anyone's estimation."
"The launch this week of Tesco's new Fresh & Easy stores in California is one more indication of this trend," Mr. Sharoff said.
Discussion Questions: How do you think the market for store brands will change over the next decade? What categories are most likely to see the biggest shift from national brands to private label? What will a major shift to store brands mean for the operating models of supermarkets in the U.S.?