As private labels grow, innovation and trustworthiness are a challenge
- A report from private label management firm Trace One finds consumers around the world are embracing private label brands, but many consider national brands to be more innovative and trustworthy, according to a company release.
- For instance, 85% of global consumers claim they buy private label products more than once a month, but 69% say national brands are more innovative and 62% say their packaging is more attractive.
- The study finds U.S. consumers are unique in their preference for “regular tier” private label products versus economy or premium items. Forty-three percent of American consumers say they only buy regular-tier private label products compared to the 31% global average.
Private label’s 19% dollar share in the U.S. is well behind European markets such as the United Kingdom where store brands enjoy a 41% market share and Germany where they have 34% penetration. That gap is closing fast, however, as American retailers expand and revamp their private label collections to compete in an overcrowded market.
Kroger has grown its private label portfolio into a $20 billion business, while Whole Foods’ 365 brand has become invaluable for the natural and organic retailer (especially now considering its under pressure to grow sales and lower prices). Every major grocery chain in America has grown its store brand selection in recent years. Even Walmart, the industry’s largest supplier of national brands, is expanding its private label assortment with CEO Doug McMillon noting its Great Value and other brands are key to its future success.
According to Nielsen data, private label sales last year topped $150 billion, with significant growth coming from the club and dollar store channels.
A few key trends are poised to help private label’s growth and development in the years ahead. Retailers are finding private label can be a key differentiator in an increasingly crowded industry. As consumers continue to reject national brands in favor of emerging ones, companies are finding store brands can meet that demand for new and engaging products.
And then there are the discounters, Aldi and Lidl, for whom private label comprises more than three quarters of their product assortment. Both chains are in the early stages of a nationwide offensive — Aldi is remodeling its stores, while Lidl will open its first U.S. locations next week — and their success or failure will shape private label strategies across the industry.
The Trace One study points out that most private-label growth in the U.S. is coming through so-called “regular tier” products. As acceptance of store brands grows, American retailers are broadening their assortment to include premium and value selections. Southeastern Grocers recently introduced a three-tiered private label that includes a value “SE Grocers Essentials” line, an “SE Grocers” mid-level line, and a “Prestige” premium line. Other grocers have ventured into natural and organic store brands. Kroger, for instance, generates $1.5 billion annually from its Simple Truth line.
Follow Jeff Wells on Twitter