More Than Value: The Rise of Private Label Brands

More Than Value: The Rise of Private Label Brands

More Than Value: The Rise of Private Label Brands 1440 428 Chute Gerdeman

At one time, buying the “store brand” of a product was something shoppers did only to save money. Consumers might shamefully slip the product into the basket and hide it away at home so that no one knew they were getting an “off-label” or “generic” product. All of that has changed, with some private label products going from “less than” to competing on equal footing with brand-name products. In response, The Food Industry Association reports that 83% of grocers surveyed are planning to increase private-label investment and market penetration by about 20% over the next 24 months.

Private-Label Purchasing Accelerates

Less than 2% of shoppers surveyed by the Food Marketing Institute said the only reason they purchased private brands is because other products weren’t in-stock—so consumers are, in almost all instances, choosing private labels over brand-name counterparts. According to Progressive Grocer, the reasons that consumers are choosing private labels include pricing, availability, quality, and taste.

For nearly half of the consumers, buying private labels started as a cost-saving measure. But the discovery that, in many cases, the private label is as good, if not better than the brand-name counterparts, has resulted in sales of private-label brands of almost $200 billion across all U.S. retail channels, or about 17.7% dollars share and 19.6% unit share of all groceries sold.

Dan Buckstaff, CMO of consulting firm SPINS, notes in a Forbes interview that “there’s tremendous growth going on in private label right now, but it’s not uniform across categories. In some categories, there seems to be more price sensitivity than others.” According to SPINS, ” store brand growth is outpacing total category sales by 14% in frozen appetizers, 10% in eggs, water, and cooking oils, over 20% in refrigerated pasta, and over 40% in shelf-stable functional beverages.

Popular Private Labels

Some stores are more successful than others with their private labels. What are these stores doing that others can emulate? Let’s look at a few brands getting it right, and what they’re doing, and how.

Target paved the way for private-label brands to become household names. Retail Dive explores how Target went from modest private-label beginnings in 1995 to a private-label powerhouse with 48 private brands on its roster—10 of which are worth a billion dollars. While other retailers are eager to emulate their success, Target has slowly and carefully built its reputation for having top-quality private-label food and merchandise.

What are they getting right? Target changed consumer perception. Instead of equating private-label merchandise with cheap, low-quality alternatives to known brands, they put their label on high-quality merchandise and received celebrity endorsements, including ongoing partnerships with celebrities, including vegan chef Tabitha Brown and designer Joanna Gaines.

Trader Joe’s private label is synonymous with the experience of shopping there. Trader Joe’s introduced its first private-label granola bar in 1972. Now, 80% of its offerings are private label. They explain on their website, “At Trader Joe’s, you won’t find a lot of branded items. Instead, you’ll discover a store full of unique and interesting products, along with everyday basics, in the Trader Joe’s label.”

What are they getting right? Trader Joe’s has made its private-label products exclusive and desired. When consumers shop at Trader Joe’s, it is because of the private label products—and the promise behind them, best told in their own words:

“Our buyers travel the world searching for products we think are exceptional and will find a following among our customers. To earn a spot on our shelves, each product is submitted to a rigorous tasting panel process, in which every aspect of quality is investigated in the context of the price we can offer. If a product is assessed as an outstanding value, it becomes an essential part of the Trader Joe’s shopping adventure.”

Kroger is aggressively investing in its private-label presence.

The grocery giant reported a 10.2% increase in sales of its private-label products for the quarter that ended Aug. 13, 2022, and the grocer is actively seeking more private-label brands to add to the store mix. It has a list of available-only-at-Kroger brands, including their namesake brand.

Some of Kroger’s private-label brands fall under specialty categories, like Simple Truth, a “wide range of products with easy-to-spot packaging take the chore out of selecting organic, free from, and natural foods,” which just celebrated its 10th anniversary.

What are they getting right? Kroger focuses on collaborating with manufacturers that meet their standards, listening to consumers about their needs, and having a price point that appeals to shoppers without sacrificing quality.

Can a Private Label Become a Powerhouse?

How do retailers tap into this growing private-label phenomenon? There are two approaches required; one is to ensure the products added to the private-label inventory are high quality and reliable. The second is to make sure customers are aware of the private-label options and their quality. Marketing is essential, whether in a grocery circular like Kroger’s, where the brand label is featured prominently, or through influencer marketing and celebrity partnerships, like Target has done.

When private-label brands are properly positioned, retailers can effectively keep consumers engaged. McKinsey believes this is only possible if “retailers develop a compelling private-label strategy and operating model.”

According to McKinsey, almost 20% of consumers are buying more private-label products; the primary reason is affordability. Knowing that consumers are willing to continue to buy private labels incentivizes retailers to position themselves to take advantage of this newfound appreciation of store brands. But to succeed, retailers will need to develop a comprehensive strategy around their private-label products and marketing. Here are some considerations for putting more eggs in the private-label basket:

  • Perception of quality: Building the belief in consumers that private-label brands are high quality can be a challenge. Make sure messaging is clear and points out why the private label is a good choice for the consumer.
  • Tiered labeling: Kroger is one of the many retailers that has chosen to have multiple tiers of private-label products. Each tier needs to be clearly differentiated and targeted appropriately to the consumers seeking that type of product.
  • Pricing: The retailer should have a strategy for pricing. Regardless of what other reasons consumers choose private labels, there is an expectation that it will cost less than the brands against which it’s being compared.
  • Brand storytelling: Telling the story about how a product is chosen or where the ingredients are sourced can help build loyalty to the product.
  • Packaging and branding: Private labels can become status purchases when properly positioned, so considering how to package, logo, and brand the products becomes a significant part of the process.
Private Label Brands

Private Labels Bear Fruit

The benefits of private labels are many for retailers, including higher profit margins, lower operating costs, better brand loyalty, and greater market stability. With the price of food up 11.4% on an annual basis, shoppers are painfully aware of the need to cut food costs wherever they can (just have a look at all the memes about eggs).

Now, the opportunity is ripe for turning consumers into loyal private-label buyers. As retailers develop their private label strategies, they can target consumers more effectively by understanding the six kitchen archetypes. A smart operational strategy and comprehensive marketing can create a win-win relationship for retailers and consumers who seek personalization and a closer relationship with the brands they buy.

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