- As European discount stores continue to take hold in the United States and the Amazon-Whole Foods merger moves forward, private label brands are expected to become a larger threat to existing CPG companies, according to an article in The Wall Street Journal.
- Private label brands currently have a 17% market share in the United States — about half of their market share in Europe. However, the vast majority of products sold at Aldi and Lidl stores are private label. Additionally, Whole Foods has made a push into the space, too, with its private label 365 brand.
- According to The Journal article, this growth can impact traditional CPG brands in two ways. As retailers start stocking more private label products, shelf space for manufacturers' brands will come at a premium, meaning volumes are likely to drop and competition is likely to increase. Additionally, sales of private label products can help retailers bolster their margins — which are always notoriously slim and have taken a beating recently with food price deflation.
Even without Aldi's nationwide expansion or Lidl's grand plans to become ubiquitous in the United States, private label has become much more of a competitive force in the food business. A Bain & Company report referenced in The Wall Street Journal's story states that the success of private label brands as a concept is not tied to the performance of discount stores. As more chains invest in diversifying and improving their private label lines, Kantar Retail's grocery analysts have predicted private label growth between now and 2022 will outpace the previous five years.
Private label has been one of the biggest market forces shaping the food and grocery businesses in recent years. Consumers started buying more private label products during the recession and kept buying them because of the quality and cost savings. According to the Private Label Manufacturers Association, shoppers save $30 billion annually by choosing store brands.
Many grocery chains have put significant investments into their private label brands. Southeast Grocers has created different tiers of private label products, ranging from premium ones containing natural ingredients to more baseline variations. Walmart, which has been burned in the U.K. by consumers choosing private label products over national brands sold at its Asda banner, is doubling down on private label in the U.S., expanding options at both its namesake Walmart stores as well as its Sam's Club warehouse outlets. This year, Albertsons even created a position for president of private label brands to lead the company's stores in innovation and product development.
The private label strategy seems to be working, with natural and organic grocery chain Sprouts reporting earlier this year that private label accounted for more than 10% of sales at its retail stores. Aldi recently won awards for the high quality of its private label products.
With this migration toward private label, what should traditional CPG manufacturers do? Amping up their innovation and playing up their history can help. A report from Trace One showed more than 85% of consumers buy private label products multiple times a month, but 69% say national brands are more innovative. Consumers also find national brands more trustworthy.
CPG manufacturers should continue their innovation pipeline and work to be the first to create (or acquire) the next big product. While private label brands may attempt to emulate those products, consumers will likely be able to associate the item with the national brand. Also, some national brands have a backstory that private label counterparts cannot compete with. Playing up that story on packaging and in marketing campaigns may help reinforce that the brand that has been trusted for generations still deserves consumer trust today.