Growth Of The Private Label

Consumer behavior is ever evolving. Ongoing advances in technology and instant access to information continue to change how consumers spend and impact what brands they choose to buy. To compete with the digital marketplace, traditional retailers also need to innovate and evolve the private label products or risk being left behind.

Private label has shown an increasingly promising business opportunity over the past few years as retailers around the world invest in private label to stand out with exclusive products that build brand loyalty. Findings of a report released by KPMG in India and Retailers Association of India estimated that between 2019-22, online private labels are expected to grow 1.3 to 1.6 times faster than the growth of e-commerce platforms and will continue to generate 1.8 to 2 times higher margins than external brands sold by these online retailers.

Big box retailers like Walmart, Target, Kroger and Amazon have been expanding their private label brands in recent years. Kroger’s Simple Truth organic food line is now a $2 billion brand, and Target’s recently launched food and beverage brand, Good & Gather, is projected to be the best selling store line.

A Quick Rundown On Private Label 

Private label sales have been increasing over the past three years. In 2019, private label sales increased to $143.4 billion, up $14 billion since 2015. Plus, consumer packaged goods (CPG) private label sales now account for 3% of online dollar sales, up from 1.3% two years ago. Why? Because today’s consumers are a lot more willing to spend their money on store brands versus name brand products made by big brands like Procter & Gamble or Unilever. 

Traditionally, much of private label consumer packaged goods popularity was seated in value grocery stores. According to Nielsen, in 2019 private label items made up 57% of annual CPG sales at value grocery stores in the U.S alone. 

With this in mind, retailers are also investing a lot more time and effort into “premium private label” which is resulting in customers buying more private labelled goods from retailers like Target. The premiumization of private label can be noticed when you look at the pricing tier of products. Discount products represent the majority of store brand sales globally, but in the past three years, they have had to share that space with premium private label products. Premium tiers of private label products have grown in this time, and now represent more than 19% of sales, because consumers are not only willing but prefer to spend money on store brands.  

What Advantages Do Retailers Have?

Retailers have a strong advantage when it comes to private label. Having a direct relationship with the customer and access to customer data from transactions and loyalty programs. The ability to have access to a database where retailers can analyse their customer data and understand how their customers shop is something that CPG brands in retail stores cannot do themselves. In addition to access to consumer shopping behavior, retailers get to control shelf display space. So, retailers can reserve that prominent, eye-level shelf display space for their own private labelled products. This means not only do retailers have the upper hand in quickly incorporating products based on consumer demand, but they also spend a lot less money on marketing, specifically in-store. 

Final Thoughts…

As private labels help drive the success or failure of their respective retailers in the next several years, the space will continue to become more competitive. To stay in the game, companies must quickly learn from emerging best practices while also forging their own paths in order to capture and sustain customers’ interest, appreciation and dollars.