Private label evolving; hindered by still tepid economy

By Maggie Hennessy

- Last updated on GMT

Packaged Facts private label maturing

Related tags: Private label, Brand

Private label growth has slowed from the last several years when consumers flocked to the category due to the recession, according to a report from Packaged Facts. While retailers continue to launch and promote store brand products, a persistently sluggish economy and higher food prices have hampered consumer spending on food and beverage products across the board.

According to the report, titled “Private Label Foods and Beverages in the US,” total US retail sales of the overall private label (PL) food and beverage market were $102 billion in 2013, up 2% compared to 2012. The total food and beverage market grew at 1.4% to reach $530 billion in 2013, with unit sales also flat. PL food market retail sales are expected to inch upward by an estimated CAGR of 4% (largely driven by inflation) to reach $98 billion in 2018.

Supermarkets account for the majority, or 54%, of overall PL food and beverage dollar sales as projected by Packaged Facts for 2014. Mass merchandisers, particularly with their large supercenters, account for 20% of sales, while natural food stores including Whole Foods, Trader Joe’s and independents account for nearly 12% of sales. Trader Joe’s is a big contributor to PL sales given that 80% of their sales come from PL products.

Private label on par with national brands in consumer mindset

In the years since the recession, private label has evolved far beyond cheap generic knock-offs to become trusted, quality lines that can effectively compete with national brands. A recent survey of US adults by Packaged Facts found that while 45% prefer to buy national brand name groceries, 60% feel store brand groceries have the same level of quality and often provide better value than their national brand counterparts. Fifty-five percent choose food stores in part for the quality of their store brand groceries.

Indeed, PL often brings retailers higher profit margins than name brands, differentiate them from competitors and build consumer loyalty. The most successful retailers have heavily promoted their store brands as equal or superior alternatives to their national counterparts—often by establishing brand identities that live outside the store itself. Some, like Costco’s Kirkland and Wegmans’ private label, have even achieved (if not edged out) the status of a national brand in consumers’ minds. Whole Foods’ 365 brand and Trader Joe’s PL gain additional prestige from being based in the natural foods channel.

Trader Joe’s and sibling company Aldi are two of the most aggressive and successful private label marketers with an extremely loyal customer base. PL products account for more than 80% of products sold in their stores, and the diversity and strong branding of their PL offerings help cement that loyalty. 

PL strongest in commodity, staple grocery items

Consumers most often buy private label products in commodity and staple grocery segments like milk, bottled water, cheese, eggs, sugar, bread, frozen vegetables, and butter, which have the highest private label penetration rates.

Food, with sales estimated at $80 billion compared to $22 million for beverages, accounts for nearly 80% of overall PL dollar and unit sales. Overall last year, PL penetration of the total market was about 20% in dollars and units. Center-store food—comprising such staples as snacks, condiments, candy, sauces, spices, baking and cooking products, dinners and side dishes, tomato products, vegetables and beans—is the largest PL category, accounting for 27% of all PL dollar sales, followed by dairy foods (17%) and beverages (14%), frozen foods (11%), bakery foods (10%).

No beverages, other than milk and bottled water have high penetration levels due to the presence of strong brands and heavy price promotions in most beverage categories. Moreover, declining consumption of carbonated beverages and juices are hurting both PL and national brands, though PL will likely suffer more because of the powerful brands in these categories. On the other hand, the continual consumer shift to bottled waters—where brand is less important and price is key—will help boost PL growth.

One PL standout in beverage is single cup coffee, which posted a 400% increase in units and dollar sales last year—albeit off a small base. Following Keurig Green Mountain’s loss of patent protection on its widely popular K-cups in 2012, copycat versions proliferated. Retailers across virtually all key retail channels launched and continue to launch their own brands, with some sourcing product from new manufacturers and others partnering with Keurig to produce products under license.

Making ‘better for you’ affordable

As consumer interest several retailers have built private label brands around a position of affordable healthy eating. Several leading retailers have launched new private label brands that evolve natural and organic to more modern wellness positions that shift focus to lifestyle enhancement.

Kroger’s Simple Truth, Target’s Simply Balanced, and Aldi’s Simply Nature all attempt to provide consumers with easy solutions for taking care of themselves and their families. The brands cross many food and beverage categories with affordable, nutritious products that are natural or organic, and free of artificial ingredients. Kroger in particular has been extremely successful with Simple Truth, investing heavily to build the brand, which the company expects to reach sales of $1 billion in 2014.

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