Private labels are transforming the food industry. Brands that specialize in creating private label food lines are shining due to the benefits for consumers, manufacturers and retailers.
So what are private labels? Have you ever noticed when you walk into a Trader Joe's how there is an overarching cool and healthy vibe throughout the store and the product packaging, giving the store a similar vibe and not all over the place like a Safeway or CVS? This is because a majority of Trader Joe's products are private label, giving them the capability of portraying this vibe. Shopify defines private label as, “manufactured by a contract or third-party manufacturer and sold under a retailer’s brand name. As the retailer, you specify everything about the product – what goes in it, how it’s packaged, what the label looks like – and pay to have it produced and delivered to your store.”
Once upon a time, private labels were targeting low-budget shoppers, today private-label product sales are outpacing branded products by 3x. With access to information online, shoppers are more aware of what they want and the quality of the specific product that they are looking for. Due to this, consumers purchasing process is not only driven by the brand but from a knowledge of the products. The access to product information has made consumers aware that private label products are equivalent to multinational brands.
The US private label market has sparked much consumer interest, growing at a rate 4X faster than national brands in nearly all grocery store categories. Recent Consumer Confidence Index reports show that all regions, except Africa/Middle East, have indicated private label growth. The United States, for example, is starting to catch up with Europe, who for years has had a strong private labels presence. According to IRI data, private label makes up a 39.4% dollar share of retail sales in Europe compared to a 14.9% share in the US. It is important to note that studies show during economic downturn, or when currencies devalue or collapse and inflation increases, shoppers will want to purchase more affordable goods and services. It is important for brands during economic disruption to ensure that price and promotions are adapted to shoppers expectations.
In the wine industry, for example, private label for the supplier offers a willing buyer, an important incentive in an industry where it is widely acknowledged that it is harder to sell wine than it is to make it. In the U.S. the private label wine market has more than doubled since 2012, reaching a total of 12% of wine sales and predicted to reach a value of more than $20 billion by 2021, with wine private label share increasing to as much as 17%. In Europe, private label wine can account for as much as $30 of the market.
Furthermore, private label provides benefits to not only consumers but for manufacturers and retailers as well. Private labels permit retailers and manufacturers to price their products more competitively and keep the higher profits, exclusivity to be distinct to customers, gain customer loyalty, wholesale income, and unique branding capabilities. According to CB Insights, retailers earn 25-30% higher gross margins on private labels compared to manufacturer brands.
Kroger grocery store recent stock price rise is due to its successful private label offerings. According to CB Insights, “Kroger’s Our Brands” as of March 2018, accounted for 29.5% of the company’s unit sales. Sales of its “Simple Truth” increased 19% year over year in Q4’17. Total sales for Kroger store brands over $20B, higher sales than famous brands J.M. Smucker and Campbell Soup.
Amazons addition of Whole Foods has accelerated Private Label growth. With Whole Foods private label brand, “365,” their products are giving consumers a message of cleanliness, health, and trust; three things millennials are choosing over national brands. Cadent Consulting Group estimates that the Amazon and Whole Foods merge could produce an incremental 2.0 share points for Private Label in $800B (static dollar assumption) Consumer Packaged Goods food market over the next 10 years.
Private label has various opportunities for growth around the globe. Private label can be an opportunity in countries recovering from economic decline and stagnation as well as being an opportunity in developing countries and faster-growing economies. If your company hasn’t jumped on the private label bandwagon, then we highly recommend that you do. In order to be successful in such a competitive industry, companies must stay on top of trends and incorporate them in order to continue making cash. Go ahead, do your private label research, and join the private label club!