For those measuring the role private label is playing in the overall grocery sales pie, a look at Kroger’s approach might serve as an ideal guide.
During the third quarter of 2017, the company’s private label products accounted for 28.2% of unit sales and 25.6% of sales dollars (excluding fuel and pharmacy). Sales of its Simple Truth line—which launched in 2012 and now includes 1,400 products across multiple categories—grew by an impressive 19%, and the company has pledged to continue expanding the line r=this year.
Kroger’s private label push is just one example of how retailers are upping their own brands game in response to consumers’ embrace of the category.
As the Private Label Manufacturers Association (PLMA) reports, “By all measures, store brands have never been more popular. Nielsen reports that more than one of every five items sold in the country’s supermarkets in 2016 was a store brand. PLMA estimates that about $150 billion worth of store brands were sold last year.”
And in even better news for retailers who want a bigger piece of the private label pie: There’s plenty of room to compete. Compared to “more mature European retail markets … private label still has much room for growth, especially in North America, where penetration is still relatively low,” says Nielsen’s The Rise and Rise Again of Private Label insights.
Nudging the Needle
Private label programs have been around for decades. But as consumers’ attitudes have changed, so has the category’s performance.
“Consumers and retailers expect more from private label today versus in the past,” says Kirby Harris, chief commercial officer for private label manufacturer Berner Food & Beverage. “Both consumers and retailers have high expectations from private label around the areas of quality of product, consistency of service, and productivity of private label items on the shelf every day.”
Donald Stuart, managing partner for Cadent Consulting, explains the trajectory this way: “Since 1980, private label has been through peaks and troughs, but its share is little changed” until 2017, when private label dollar share for CPG food hit a high-water mark, with a near 18% gain. “While industry experts have often predicted a breakthrough for private label based on improved quality, better marketing, European trends, large price gaps and retailer consolidation, private label’s share has barely budged in the U.S. over the decades,” Stuart says.
However, “We believe this time will be different,” he says, who weighs in on some of the top trends impacting the private label category today.
Boomers = Booming Opportunity
“Boomers are a large cohort, but traditionally they are locked into age-old habits,” says Stuart, who believes three factors will help “tilt the boomer population into a booming opportunity for private label.”
- The emphasis traditional retailers such as Costco, Walmart and Kroger will place on private label and signature products as points of differentiation.
- The growth of deep discounters such as Aldi, and potentially Lidl. “These outlets have approximately a 90% private label share and are true behavioral change agents,” Stuart says. “Boomers on fixed incomes will be attracted to the savings.”
- Voice ordering. “While boomers may not be the first to adopt online ordering, Alexa and other personal digital assistants can lower the barriers of technology and make voice ordering and home delivery a reality for boomers over the next decade,” Stuart says. “The Amazon algorithm is known to select Amazon’s Choice and private label as a default.”
Takeaway: Stuart thinks Kroger’s Simple Truth, Wegmans’ “W” and Costco’s Kirkland Signature brands are the ones to watch. “Marketing private label as a ‘true brand’ with an integrated message, packaging design and positioning can help create destinations with differentiation for grocery retailers,” he says.
Millennials + Gen Z = Bright Future for Private Label
Members of these generations are known as “the brand agnostics.” Studies show that 51% of millennials have no real preference between private label or national brands, compared to 39% of boomers. “If you ask a millennial about a center store brand, the odds are reasonable that the individual has never heard of it,” Stuart says.
Takeaway: To attract these brand agnostics, Stuart says grocers should leverage what he calls “perimeter power,” which will “ensure their store brand is prominently featured around the perimeter in the most innovative ways, from fresh meal kits to natural/organic refrigerated products.”
In Pursuit of Premium
Tiering has always been the traditional approach to private label: opening price point, mainstream and premium. That is changing. Synergies such as that which Amazon and Whole Foods have created “will drive a thrust toward organic, natural, premium and specialty growth where private label development currently lags,” Stuart says.
The USDA Certified Organic seal will also be a great equalizer. “Brands will lose marketing power if consumers trust the organic seal. This will help accelerate organic private labels,” he says.
Takeaway: All growth is on the margins. “Organic, natural, premium and specialty are stealing share from traditional products,” Stuart says. “This is where retailers must focus to drive higher rings and dollar share.”
Innovate and Differentiate
Innovation has traditionally not been private label’s forte. “Other than a flurry of activity decades ago with Loblaw’s and President’s Choice, private label has traditionally followed,” Stuart says. However, it’s decidedly changing, as evidenced by new entrants such Brandless, Boxed and Uniquely J from Walmart’s Jet.com, he says.
Takeaway: Traditional retailers need to follow the lead of their more innovative peers and ask themselves how they can think outside their four walls in terms of innovation and creating uniquely differentiated experiences, Stuart says.
Transparency can mean simple, clean or real food, or it can mean visible products. Ultimately, it is having confidence in the ingredients and their sources in the end product. Fresh or refrigerated products have a much easier time leveraging transparency, says Stuart. And blockchain technology ultimately will play an important role in sourcing transparency, he adds.
“Grocery retailers have the added benefit of private label share in the perimeter that’s double the center store with two to three times faster growth,” he says. “The more retailers can communicate the simple, clean and real benefits through transparency from sourcing to table, the more they will be able to differentiate and insulate their business.”
Takeaway: Having simple, clean and easy-to-understand ingredient labels and nutrition information is a first step. But it won’t be enough. “Tracking products back to the source will be expected of true leaders within the next three to five years,” says Stuart.