Is private label grocery about to go to the next level?

Discussion
Photo: Aldi
Nov 17, 2017
Denise Leathers

Through a special arrangement, presented here for discussion is a summary of a current article from Frozen & Refrigerated Buyer magazine.

What a difference 12 months makes! Last year at this time, we were resigning ourselves to the fact that private label shares in food may have plateaued — and store brands in the U.S. might never enjoy the kind of success they have in Europe.  

Now, a new report from Cadent Consulting suggests private label dollar share could swell as much as eight points to 25.7 percent by 2027. 

Ranking number one among the “sea changers” driving the growth was — no surprise — the Amazon.com/Whole Foods combination. Put Whole Foods’ 365 brand in the hands of one of the country’s top three retailers and “there’s a significant opportunity for private label acceleration,” said Cadent managing partner Don Stuart. 

Online’s influence is also expected to be felt with the arrival of niche sites such as Brandless.com, an online startup that sells a wide variety of own brand essentials for $3 a pop, as well as Walmart-owned Jet.com’s aggressive efforts in private label. 

The expansion of Aldi and Lidl coupled with other chains’ responses to the pair is also seen as a private label growth driver. 

There’s also something Mr. Stuart calls “perimeter power.” In the past four years, perimeter sales have grown at four times the rate of center store sales and many perimeter categories are dominated by store brands. 

And what group shops the perimeter more than any other? “Brand agnostic” Millennials, a generation less interested in name brands than product attributes (clean labels, transparency, shared values, etc.). Stores can take advantage of missed opportunities around all natural, organic and gourmet where better-for-you attributes and transparency can outweigh brand cachet. 

The margin opportunity in heathier products is still expected to be an overriding reason many stores push private label growth. But more retailers are seeing private label as the X factor that differentiates their store from dozens of others that stock the same national brands at the same prices. Said Bob Shaw, president, Concentric Marketing, “They’re stepping off the me-too diving board and asking, ‘How can I build loyalty with unique, my-store-only items?’” 

DISCUSSION QUESTIONS: Do you expect private label expansion in food categories to continue in the years ahead? If so, what do you see driving the share gains? How can food retailers best take advantage of the trend?

Braintrust
"Yes, another private brand explosion is teed up in food, and already underway in other categories. "
"More consumers, especially millennials, are more open to looking at the ingredients and price to make a purchase decision."
"This is the same trend that has allowed department stores to differentiate themselves for years — and to avoid direct price competition."

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18 Comments on "Is private label grocery about to go to the next level?"

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Art Suriano
BrainTrust

Private label brands have a substantial opportunity going forward because the food industry has a chance to pick and choose from several niches that will attract customers. Pick one, do it well and the private label company will see great success. Today we have those interested in healthy foods, those who prefer gourmet foods and those who just like to eat. Some may be price-conscious while others are more interested in quality. Private label companies can cater to each audience with products those customers will like. The grocer who builds their business with a strong focus on the right private label mix blended in with the national brand products is most likely to be more successful than the grocery chains that do not.

Dick Seesel
BrainTrust

I expect the move toward private brands to continue, both at opening price points and in mid-tier pricing intended to capture share from national brands. This is the same trend that has allowed department stores to differentiate themselves for years — and to avoid direct price competition — although it’s arguable whether the shift has driven sales.

It’s not just the Amazon/Whole Foods combo driving the movement (or the growth of Aldi, either). Traditional mid-tier grocers are pushing more branded goods off the shelves in favor of higher-margin alternatives. But “different” doesn’t always mean better: My local Metro Market (acquired from Roundy’s last year) is filling up fast with Kroger-branded product and not necessarily to the benefit of the product quality.

Seth Nagle
BrainTrust

We’ve tried a handful of private label items this past year and have found that some have been adequate or even better substitutes than brand items but we have also found that some just don’t come close. This experimenting has allowed us to save money on a handful of items but also splurge on others (pasta vs. pasta sauce/coffee creamers vs. coffee).

We’ve also noticed that packaging around private label has gotten sleeker and now some retailers have not one or two but three different private labels. As long as retailers continue to supply tier options and keep their transparency I expect private label to continue to grow and brand items that are easily replaceable to lose market share.

Ralph Jacobson
BrainTrust

Private label has been strong for decades outside the U.S. Although growth in the U.S. has been slower, I see a continued upward trend for the foreseeable future for the reasons mentioned in the article and more. Not just Millennials, but older Boomers are looking for value-driven products, so the wave toward private label food will grow over time. Retailers need to promote private label heavily, as I was part of a huge push years ago in Chicago where we displayed one variety of private label cookies on the primary promo space in all stores for thirteen weeks, and after that period that variety eclipsed the national brand’s sales. Bottom line, put it in front of shoppers and it will be noticed.

Dr. Stephen Needel
BrainTrust

Sure private label will grow, but I suspect that most of their eight share points is going to come from Amazon, Aldi and Lidl expansion, not true growth.

Neil Saunders
BrainTrust

My view is that it will expand.

Private label in the U.S. is still well behind the UK and the reason for that, in my opinion, has been a lack of competitive pressure on the main supermarkets and grocers.

A host of reasons means that’s now changing and competitive forces dictate that grocers need to differentiate and look to make margin gains. If it is done well, private label delivers on both of these things.

Private label also allows for effective range tiering and helps to give customers a good/better/best option across every category. Kroger has always been strong on this and other retailers, like Target, are starting to use private label more effectively in this regard.

Carol Spieckerman
BrainTrust

At a time when national brands are ubiquitous, with the only difference being who is selling them, private brands are one of the only ways to differentiate these days. So yes, another private brand explosion is teed up in food, and already underway in other categories. I addressed a new wrinkle on the private brand front, driven by Amazon, in an article published yesterday.

Ryan Mathews
BrainTrust
It’s 2017, can we please stop talking about “private label” brands and start speaking in terms of “retailer-own” brands? What’s the difference? Well, for one I think “private label” strategy is still reactive and positioned against national brands, where “retailer-own” brands tend to define the shopper’s experience. There’s a world of difference between brands that exist just to establish a price point and those that actually define the brand value of a retailer. This is a revolution from the top of the retail food chain, (H-E-B., Whole Foods and Wegmans) to the the value end of the spectrum, (Trader Joe’s, Lidl and Aldi) and everywhere in between. The critical issue here is that, in the past, retailers could make money simply by aggregating national brands and today they themselves have to be the “dominant brand” in the mind of the consumer. You don’t get points for aggregation anymore. Successful retailers will enhance their brands (nameplates) over those of manufacturers and that will organically increase the role retailer-own brands play in their stores. This isn’t a… Read more »
Tom Dougherty
BrainTrust

Privater label is a misnomer. They have brand names. Names like Aldi. The trust in the parent brand is transferred to private label. For the consumer — it’s Aldi’s brand. Whole Foods brand, Harris Teeter’s brand, etc. Not private label. That’s what insiders call it.

Nikki Baird
BrainTrust
Is this about private label? Or is it about the declining power of brands in general? My money is on the latter. It’s not that Amazon or Lidl are private label powerhouses (though they are). It’s that consumers don’t care to pay premiums for nebulous brand promises (though I would argue they WILL pay premiums for value — it just has to match up to their expectations of what value is). I think there’s also something to say for niches. Big brands don’t want to take on the risk of going after niche markets — if it’s not a billion dollar brand, it’s not worth the effort. But there is plenty of money to be made by going after product categories or ingredients or health benefits that meet smaller niches — and in fact, with the granularity of social media targeting, it’s cheaper than ever to reach those people. If big, national brands aren’t going to adapt to fill those niches, then why not private label? The most important thing to remember, though, is not… Read more »
Harley Feldman
BrainTrust

Private label sales will continue to expand, especially in food. Many times the private label product on the store shelves looks identical to the packaging for the branded product. It is very easy to see that it is likely the same product in a private label package. Also, consumers have tried private label brands to find that the quality is high, but the pricing lower.

More consumers, especially Millennials, are more open to looking at the ingredients and price to make a purchase decision. Either the brand is unknown to them or it doesn’t matter as long as the contents are healthy and priced lower. This is why there will be more private label brands in the future. I also agree that unique private label brands can distinguish a store from its competitors, a trend that will grow.

Dan Raftery
BrainTrust

One of the interesting traits of store brands is the cyclical pattern of their appeal. The trend also seems to possess significant momentum. So, now is a great time to throw resources at the opportunity. This goes for suppliers as well as retailers, of course.

And it goes way beyond food, which is typically the focus of these pages. Hard lines, soft goods, apparel — plenty of opportunity to link the store to everyday products, not just consumables. Of course the caveat — quality must be top notch. Store reputation is a fragile thing.

Cynthia Holcomb
BrainTrust

Trader Joe’s is years ahead of the trend. Shop Trader Joe’s, read their mantra on the wall, read the ingredients in their private label products. Natural, clean and tasty products. Not just basics, but tasty specialty foods, on gastronomical trend at affordable prices. Far more difficult to implement than selling basic commodities.

Ricardo Belmar
BrainTrust

Absolutely, private label brands will expand! Better to call them retailer brands I think as that is what they represent.

Wegmans, for example, is extremely adept at this. Shoppers seek out any new Wegmans branded item in their stores as they’ve established their brand to represent more than just value, but quality as well. Plus, the big brands in food actually have their brand reputation working against them in the minds of many younger consumers (e.g. millennials and Gen Z) because they represent everything that was wrong about the food we eat — not healthy, full of preservatives, grown with chemicals and other perceived nasty by-products and bio engineering, etc.

Private label brands are seen by these shoppers as representing fresh, healthy products and that is fueling their growth. It’s much more than Amazon/Whole Foods, although that may make this entire category more mainstream for some shoppers as Amazon presents those positive brand qualities for many of their loyal customers.

Ken Morris
BrainTrust

With very small margins, grocery is one of the most competitive categories in retail. Many grocery chains have established private label brands to maximize margins and some have done it to differentiate their brand. More consumers are accepting private label brands as they recognize that the quality is often just as good if not better than manufacturers’ branded products.

Costco’s Kirkland brand represents 25% of their sales and consumers recognize it for its reasonable prices and trusted quality. Whole Foods’ 365 Everyday Value brand and the Trader Joe’s branded products have also been embraced by a large base of loyal customers. They key to success of private label brands it to establish a brand positioning that will resonate with your customers.

While big brands are often disintermediated by the private label brands which erode their brand equity, big brands are not always losing revenues as they are often the manufacturer of the private label brands. Retailers will establish their brand and increase margin with private label because manufacturers are squeezing them on margin every day.

Min-Jee Hwang
BrainTrust

Brand loyalty is not what it used to be. With increasingly price sensitive shoppers, quality and price often matter more than the brand behind the item. Think of Trader Joe’s. So many of their products are private label (and often branded with a healthy dose of humor!), meaning they can be much more competitive on price — and shoppers can’t get enough. If food retailers can make high quality, unique private label products at a competitive price, then it is definitely worth a try.

Patrick Bachler
Guest

The Private Label industry has incredible potential for smart retailers and their suppliers. It offers better margins than national brands and the opportunity to build unique “destination products” only available at your store.

Yes, Amazon/Whole Foods and the Lidl/Aldi expansions will contribute to consumers awareness and trust in this field as it continues to mature from generic, to National Brand Equivalent to unique high quality destination products.

I invite all to follow this business.

Aakash Varma
Guest

Before going into whether private label will continue in the years ahead, let’s examine why retailers have them. The major reasons retailers have private labels is because brands charge a high margin which retailers can avoid with private label, pass the saving on to customers while keeping the quality of products same. This will help them not only to increase sales, but also create a self brand.

So now the main question is whether private brands will continue in the future or not. I think yes, because retailers can improvise and provide better quality, freshness and healthy choices at lower costs as compared to other brands. But yes, it requires proper supply chain, marketing and management to make it possible!

wpDiscuz
Braintrust
"Yes, another private brand explosion is teed up in food, and already underway in other categories. "
"More consumers, especially millennials, are more open to looking at the ingredients and price to make a purchase decision."
"This is the same trend that has allowed department stores to differentiate themselves for years — and to avoid direct price competition."

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