- Private label brands are more adept at offering trending products to consumers than mainstream brands, Brian Sharoff, president of the Private Label Manufacturer's Association (PLMA) said in a story from Food Ingredients First.
- Private label particularly excels in the health and wellness space with products that are organic, vegan, sustainable and free-from, he said. Convenience also is another category where private label is innovating to keep pace with consumer demand.
- "[Retailers] can also track local changes more efficiently, and also trial products and if they don’t work, pull it from the shelves. A-brands are stuck with this concept of mass marketing, the product they make has to sell globally," Sharoff said.
Today's grocery shopper is a fickle customer. Where big national brands used to be able to capture a consumer's preference and hold onto it, now consumers are more interested in chasing trends. Whether that's free-from products, organic or grass-fed beef, shoppers are driven by a curiosity to try new better-for-you options. But with this penchant for new experiences, big brand manufacturers who are notorious for taking a a long time to develop a product are struggling to deliver.
Part of the reason for the arduous timeline is that national retailers release products for a national audience and hope that a large majority of the population will buy in. Private manufacturers, on the other hand, are able to create products that answer the demands of their retail customers. Developing private label offerings is not only beneficial for consumers, but also for retailers who are able to generate more revenue thanks to lower costs associated with manufacturing.
Particularly for grocers such as Kroger, the profit margins on private label can be enormous. The nation's largest grocer brings in more than $20 billion annually through its store brands, which is 26% of the grocers' sales dollars.
"The beauty of this business is we wake up in the morning and there is more opportunity than when we went to bed," TreeHouse Foods CEO Steve Oakland told Food Dive in February. "We’re fortunate that the categories that we have in front of us have a unique and substantial opportunity for growth.”
Private label is growing across the board. In 2018, private brand dollar sales grew 4%, nearly six times the growth of national brand sales. Some predict the market could reach $220 billion by 2020. A report from retail consulting firm Daymon found 85% of consumers say they trust a private brand just as much as a national brand. It also determined that 81% purchase a private brand product during every shopping trip.
However, there are still places where private label could improve. According to research from IRI, store brand assortments don't line up with consumer spending and preferences. IRI and the Food Marketing Institute's Power of Private Brands released a report that found dollar share of grocery private label in the premium (24%), value (18%) and organic (6%) segments has remained unchanged since 2015 despite shifting industry economics. In that time, organic sales have grown by more than 15%, according to data from the Organic Trade Association.
As the private label industry is constructed to take a flexible approach to getting consumers the products they are asking for in a timely manner, there is a good chance that those making these brands can keep adapting to changing preferences.
In particular, health and wellness is a trend that shoppers can't seem to get enough of. From plant-based meat and dairy to vegan meal kits with functional ingredients and ethnic flavors, consumers are continually asking for creativity, but at the right price. Companies such as Amazon have responded by providing their own-label brands. The web giant has begun to rely on third-party manufacturers to produce private label offerings exclusively for them. TreeHouse Foods also has taken a long, introspective look at its portfolio and begun paring it down to bring its offerings more in line with what consumers are asking for.
Although an endeavor, focusing on offering premium, better-for-you products at a value price could really up the ante in the space and allow these knockoff brands to become true knockouts. Already store brands make up 17% of all grocery sales, according to the Private Label Manufacturers Association. If manufacturers can focus on tailoring their products to the loyal customer, they stand to increase that percentage and their margins.