Why Private Label is Critical to Retail Success
Now is the time for private label to help consumers and expand category presence
Private Label is more of a critical component to retail success than ever before.
While retailers continue to search for ways to provide their customers with the best quality products, store brands offer a way to provide those products at a lower price and build customer loyalty at the same time. Private label and store brands are now an integral part of category growth strategy for retailers across the world.
According to The Private Label Manufacturers Association (PLMA), in the US private label grew by 4.4% in 2018—four times as much as national brands—and store brands’ market penetration set all-time records. Private label sales added $5.5 billion in sales to reach between $129 billion and as $170 billion overall. They estimate that one out of every four products sold in the United States is a private label or store branded product.
Costco’s annual report showed that their Kirkland’s Signature private label brand grew from $35 billion in 2017 to $39 billion in 2018. Other major retailers like Target continue to grow their private label business as part of their overall strategy. Target has over 40 store brands including a new store brand grocery line, Good & Gather, with 650 items. Their goal is to increase the number of items in the line to 2,000 items by the end of 2020. Trader Joes, Whole Foods and Walgreen’s are all gaining significant traction in the private label market.
The growth is not limited to brick and mortar retailers.
The largest online retailer in the world, Amazon.com now sells an estimated 450 of its own brands or brands that are exclusively on Amazon according to TJI Research Inc., a market research firm that tracks Amazon.
Consumers’ perception around private label has changed over the years. In a 2019 Nielsen survey, three-quarters of households agreed that store brands are a good alternative to name brands, and half indicated a willingness to buy more private label items if a larger variety existed.
The increased adoption of private label products is across all demographics. IRI estimates that 99.9% of shoppers are buying some portion of private brands today.
“While shoppers across generations and income groups in 2019 are undoubtedly more price conscious, they are turning to private label because of their positive perceptions of the value,” said Joan Driggs, vice president of Content and Thought Leadership. “Shoppers are buying private brands because it makes them feel good to save money without sacrificing taste, selection or quality. The improved consumer perception of private label value is having a growing influence on store choice, with many leading retailers offering premium private label selections.”
Private label products are not only popular because of lower pricing.
Retailers can differentiate by customized flavors, size of the product, bundling offers and even the packaging. Offering more sustainable packaging than national brands is one way Walmart is working with both consumers and suppliers. At their February 2019 supplier forum, Walmart executives announced that “The company is working with suppliers to expand efforts to improve the sustainability of its private brand product packaging, with an emphasis on increasing recyclability and making it easier for customers to recycle.”
With the current economic conditions driven by COVID-19 (layoffs, job losses, and unprecedented levels of unemployment, etc.) private label brands are likely to experience even higher growth. Historically, during economic recessions there has been a shift to private label products. According to Nielsen, “There were two overarching changes that emerged during the Great Recession: shifting channel preference and reduced brand loyalty. Shoppers sought any opportunity to save money, and the industry could find itself in a similar scenario in the wake of COVID-19.”
As retailers look for ways to deliver private label products to meet consumers’ growing demand for private label products, even in challenging economic times, chocolate should be on the list. Retailers like Wegman’s, Kroger and Hy-Vee offer private label chocolates that feature unique flavor profiles. Chocolate is one of the few items that is considered “recession proof.” Known as an affordable luxury since the Depression, in 2008 when the US was amid a recession, Cadbury’s profits went up 30% and Nestlé’s increased 10.9%.
Private label and store brands continue to increase as a percentage of sales across the world. PLMA estimates that 20% of consumables sold in 2019 were private label. Retailers that that are successful understand that private label and store brands are critical to their success now and in the future.