Private-label a major disruptor in the US consumer packaged goods

WHAT’S HAPPENING:

  • US private-label CPG sales growth accelerated from 2.2% in 2015 to 5.8% in 2018, according to IRI.
  • Major retailers have rolled out private labels across a range of CPG product categories. Target and Kroger have recently launched new CPG brands.
  • Retailers’ shopper data gives them an advantage in better understanding what consumers want, so they can launch private-label products to match.
  • CPG brand owners are fighting back by adding direct-to-consumer channels and boosting R&D spend for product differentiation.

Private-label products span a broad variety of categories, ranging from food and household goods to health and beauty products. US private-label CPG sales have accelerated in recent years, increasing from a growth rate of 2.2% in 2015 to 5.8% in 2018, according to IRI. Moreover, US private-label CPG sales by value grew four times faster annually than national brands, as of late 2018, according to IRI. This higher growth rate of private labels has significant implications for CPG brands, which once had a more cooperative relationship with retailers: These historical partners may have now become competitors through launching their own private-label products.

Private-label CPG brands have generated a high degree of shopper loyalty. More than half (53%) of US shoppers visit a particular retailer specifically to buy its own brands, according to private brand development company Daymon. In addition, 85% of shoppers trust private brands as much as national brands, and 81% purchase them on nearly every shopping trip. Costco and Kroger have built strong CPG private-label brands. Costco’s Kirkland Signature contributed a significant share of corporate sales in 2018, accounting for 27.5% of total sales, according to company reports. Kroger’s private-label brands accounted for 26.6% of sales by value in the third quarter of 2018.

Target’s Strategy

Target aims for its 2-year-old Goodfellow & Co brand to be a $1 billion brand by 2020, and it took a further step in that direction with selling $8.99 razors in all 1,844 Target stores and online.

“Consumers are willing to try new brands, and they believe in private label, which could be traditional brands’ worst nightmare,” said Ken Cassar, VP of research at ShopTalk. “The Goodfellow & Co razor is priced at a much greater value than comparable razors in the market,” said Christina Hennington, VP, and general merchandise manager of essentials, beauty, hardlines, and services.

Target’s beauty and essentials segment accounted for nearly $18 million in sales in 2018, which was 24% of total company sales. It is its largest category, bringing in more than its fashion and accessories segment or food and beverage. And it continues to boost its points of differentiation opportunities: in August, Target ventured into clean beauty following its chemical strategy push that kicked off in early 2017.

Amazon too

Amazon’s range of private-label brands offer customers better pricing while forgoing name recognition and often glitzy packaging. For example, around 60 percent of AmazonBasics products are less than $20 and fewer than 2 percent cost more than $100, according to ScrapeHero. When it comes to other categories, such as home and kitchen, that shifts: The majority of these products (76 percent) cost more than $50. Its Alexa-enabled microwave, for example, was priced at $59.99.

It’s not hard to see why consumers would be drawn to many of Amazon’s private-label options. While Apple’s Lightning cable is $19.99, the AmazonBasics version is half as much and is even Apple certified. Apple Watch bands, usually very expensive when purchased from Apple are as much as 200% cheaper on Amazon.

Beyond consumer tech, fashion is a key driver for Amazon’s private-label business, with around 86 percent of its brands sitting within this category last year, according to GartnerL2. Those include labels aimed at office wear like Suite Alice, Lark & Ro, along with outdoors brand Haven. Amazon’s clothing and footwear lines are the fourth most purchased on the site — trailing only giants like Nike and Under Armour — according to Coresight Research, as stated in that same SunTrust note.

The bottom line?

CPG brands are losing share to private label and frankly a lot of them don’t know how to respond. Consumers are smarter and retailers like Target understand that while big CPG’s spend months analyzing sales data.

Private-label a major disruptor in the <b>US</b> consumer packaged goods