Brands getting their asses kicked by private label

Private-label foods have come a long way from the days of knockoff Cheerios gathering dust on the bottom shelf. As shoppers look for deals in the face of higher food prices, retailers are stocking shelves with store-owned food and drink brands. Picture: Target’s Good & Gather and Costco’s Kirkland. They’re seeing results, too. Private-label sales have eclipsed prepandemic #s, growing to 20.6% from 18.7% of total US grocery spent.

Besides being cheaper, private-label brands are typically more profitable for retailers because they don’t have the marketing costs of brand names. And shoppers have responded: Costco’s Kirkland Signature brand pulled in $58B in 2021 (and even has its own merch). Walmart’s Great Value sales grew 9% between 2021 and 2023, and Wegmans has grown its store-brand biz to 17K+ products.

 As name brands hiked prices during the pandemic, shoppers started to look at store brands in a new light. Private-label sales grew 8% to $108B in the first half of this year, and 54% of shoppers said they’d continue to choose private labels. This summer, Kraft said that store brands haven’t followed its recent price hikes, which has led to more significant price gaps. That could make name-brand price bumps more challenging to push through.

Private label sales, often called store brands or own brands, have been growing rapidly for several reasons, reflecting changes in retailer strategies and consumer behavior. Here’s why this segment of the market has been expanding:

1. Improved Quality Perception: Historically, private labels were often considered inferior to national brands in quality. However, many retailers have invested significantly in their private label offerings, improving quality to match or exceed branded products. Consumers’ trust in and demand for private labels increases as consumers recognize this value.
2. Better Profit Margins for Retailers: Private label products are generally more profitable for retailers than selling products from other companies. They allow retailers to control production, pricing, marketing, and product distribution, often resulting in better margins.
3. Consumer Trends Towards Value and Simplicity: Economic conditions and a growing market segment interested in value over brand names have driven consumers towards private labels, often offering lower prices for comparable quality. Especially in times of economic uncertainty, consumers look for ways to stretch their budgets.
4. Customization and Differentiation: Retailers can use private labels to fill gaps in the market, cater to local tastes, or respond rapidly to consumer trends. This level of flexibility and the ability to offer unique products is often more challenging for national brands, which are more standardized.
5. Increased Marketing and Branding Efforts: Many retailers have become savvy in marketing their private label products, enhancing packaging and branding to compete directly with national brands. Some private labels are now considered premium brands in their own right.
6. Online Shopping Growth: The surge in e-commerce allows retailers to promote their private labels directly to consumers, bypassing traditional competitive advertising on store shelves. This shift has been particularly relevant in the era of social distancing and increased online shopping following health crises like the COVID-19 pandemic.
7. Sustainability and Transparency: A growing segment of consumers is interested in sustainability, local production, and supply chain transparency. Retailers can often meet these needs more directly with private-label products by controlling the sourcing and production processes.

The combined impact of these factors contributes to the fast growth of private label sales. As market conditions and consumer behaviors continue to evolve, retailers are likely to continue investing in and expanding their private label portfolios.