- Private brand performance across retail dramatically increased last year, posting sales of $138 billion in the U.S., according to a new report from the the Food Marketing Institute and IRI.
- Still, supermarkets face major competitive challenges and are experiencing steady losing store brand share to other retail channels — including mass and club operators — which have been performing much better in private label brands. Grocers took in $68 billion, a .1% decline compared to the prior year.
- According to the report 69% of consumers said it’s very or somewhat important to have a good assortment of private brands in food and beverage.
Both retailers and shoppers love store brands. Shoppers save $30 billion annually, according to the Private Label Manufacturers Association, while stores earn higher margins and lock in customer loyalty. Kantar Retail's grocery analysts have predicted private label growth between now and 2022 will outpace the previous five years.
For grocers, in-store brands give retailers more control of what goes into the products and offer key points of differentiation in an increasingly competitive market. But competing channels have continued to make life tough for food retailers. To get sales growing again, they'll need to carefully invest innovation and promotions. Although store brand market share averages 16.5% across grocery, some retailers like Kroger have boosted that percentage above a quarter of their total sales as they regularly roll out new products.
Millennials, who are notoriously brand disloyal, are a prime target for grocers's private label efforts. But companies may want to adjust their focus a bit, as slightly older consumers seem to account for a higher sales share. As FMI's Doug Baker said in a statement, “In fact, Generation X is responsible for 31 percent of all dollars spent on private brands across all outlets, compared to 19 percent each for older Millennials and younger Boomers.”
Competing channels will continue rolling out private labels — particularly mass merchandisers and online retailers, which are leading growth, according to the FMI/IRI report. Costco is a prime example. Their premium private brand makes up about 25% of total sales, according to a Market Realist report — well above the industry average.
Naturally, CPG companies are feeling the strain as private labels consume shelf space, which means branded product volumes are likely to drop and competition is likely to increase. However, there is one ace card that CPG companies can play. With their deep pockets, these large companies can invest in innovation and work to be the first to create (or acquire) the next big product. A report from Trace One showed that although more than 85% of consumers buy private label products multiple times a month, 69% say national brands are more innovative. Consumers also find national brands more trustworthy.
Grocery stores, on the other hand, can innovate on a smaller scale and tailor their products to correspond to local trends and preferences, allowing them to offer more personalization with their private labels and limit distribution to encourage consumers to shop at their local supermarkets rather than big box stores. Alternatively, retailers could do more to expose consumers to their store brands through low-cost methods such as in-store events, recipe suggestions and online marketing.