“It’s cheaper to buy a private-label item than it is to buy a national item, and when [consumers are] economically challenged, they do everything they can to search for the value… The opportunity for private label is to overcome that statement that people are buying it because they have to. You should be focusing on activities that will make that statement people are buying it because they want to.”
Private-label brand adapts to market trends, retailers focus on brand loyalty
Private-label brands saw an upswing in adoption because of the pandemic, and now, consumers have turned to private-label products to offset higher food prices, Maute said. In a survey of more than 1,000 US shoppers, FMI found that 96% of consumers buy store brands occasionally, and 46% said they buy private brands more or all the time.
Over time, private label’s value proposition evolved from being a generic offering to being on par with name brands on quality, as they’ve become fast followers in the market, Maute said. Now, “traditional grocers and … regional grocers are starting to rethink how [private] brands can play a role in building loyalty” because “higher private label penetration in [a] marketplace equals greater store loyalty,” he added.
“Private label started out as a value brand, generics, inferior product quality to meet a great price point. Then, when that started to grow, they became national brand knockoffs to try to change the value and quality perception. Then they said, ‘Well, I don’t want to be the knockoff anymore because that’s going to minimize my ability to scale and grow, so let me try to become an independent brand,’ and all these companies are starting to launch brands. A lot of these factors are predicated on, in my opinion, the retailer’s equity in the marketplace.”
While private-label businesses are faster to respond to market trends, many retailers now have a “very fragmented portfolio” and are rationalizing their assortment, eliminating SKUs, and rethinking how they market these products, Maute explained. In 2023, Amazon started scaling back its private-label assortment amid competition from Walmart, and Wegmans pulled its branded sodas following last year’s WHO aspartame declaration.
“Some retailers have become a house of brands, and some have become a branded house, and yet the clarity in what that brand is [has] not been clear. So, we’ve seen a lot of these people saying, ‘Let’s step back and try to understand what we need to be,’ and which to me is refreshing because now they’re starting to say this is just not a product that I’m putting on the shelf to offer value and maybe a make a little higher margin on. This is a marketing tool and a branding tool that can help me build loyalty with my customer.”
How acquisitions, differentiation factor into the future of private label
Private-label retailers aren’t only acting faster to market trends, but they also now have the potential to become forward-thinking leaders and innovators, Maute said.
“Retailers now have better buying power. They have more strategic relationships with manufacturers, and they’re starting to innovate more in categories, and they’re starting to lead on the innovation side and partner with manufacturers to bring new and unique and differentiated value or unique products to the marketplace, and I think that will continue.”
Additionally, retailer mergers and acquisitions can provide another opportunity for private-label brands to grow, he noted. “Kroger and Albertsons, if the FTC approves it, is going to create a powerhouse, [and] it’ll give them the opportunity to compete with the Amazons and Walmarts of the world,” he added.
“If the mindset shifted to try to keep the customer for reasons other than price, you’ll see private labels continue to grow. I also do think that if retail consolidation continues to happen in the US, that private label will benefit significantly for that because it gives them scale.”
At the same time, the growth in retailers like Trader Joe’s, Aldi, and the recent entry of Lidl into the US, are showing that private-label can go beyond name-brand alternatives to consumers’ first choice, Maute explained.
“[Aldi, Lidl, and Trader Joe’s] have great staying power and … proves a point that if you do private label well, it can replace national brands. The problem is traditional grocers … have a business model that’s based off of trade dollars, ad dollars, promotional dollars, and brand money, in addition to having unique and differentiated products. So, private label is a very competitive tool and plays a very different role because there’s brand presence.”