According to data from the private label manufacturing sourcing platform Thomasnet.com, the popularity of store brands remains strong despite the recovered economy as illustrate through an uptick in sourcing for private label manufacturing and packaging. Specifically, the company saw sourcing for private label manufacturing climb 25% in August compared to its all-time average. Likewise, private label packaging surged 48% in August compared to the prior month and had 38% more evaluation than average in the last week of August.
In this episode of FoodNavigator-USA’s Soup-To-Nuts podcast, Tony Uphoff, CEO of Thomasnet.com, explains what is behind the strong, sustained growth of private label, as well as how the trend is impacting retailers, national brand manufacturers and startups.
5 factors behind private label’s sustained growth
He explained that there are five main drivers behind the strong and sustained growth of private label or store brand since the recession ended.
The first is the consumer’s increased comfort with store brands and the erosion of the idea that private label products are a lower quality than their national brand counterparts. Hand in hand with this is the second, which is an increase quality and level of innovation from retailers regarding their brands.
The third is the consumer awakening to value and cost-efficiencies that arose during the recession but has been difficult to shake, despite and improved economy. As the fourth driver, the Internet has helped keep cost front and center by creating an easy way for consumers to price-compare products before they buy.
Finally, retailers also have expanded the choice of private label offerings, making them easier to select because they are more prevalent. And finally, the
Private label is earning more shelf space
In response to these drivers, Uphoff says retailers are shifting the balance on their store shelves of the goods they make themselves vs those from other branded manufacturers.
Traditionally, retailers would only give 25-30% of shelf space to their private labeled products, but Uphoff notes as consumer comfort with private label increases, so too is the amount of space retailers give their own products. For example, he noted that 80% of the products Trader Joe’s sells are sourced directly from suppliers and privately labeled. In addition, industry newcomer Brandless, which launched in the summer, sells only private label products and markets them based solely on their product description, such as peanut butter or dark roast coffee.
One of the tradeoffs with reducing the percentage of national brands on store shelves is the need for retailers to reassure consumers about quality of their offerings by enhancing the visibility of their own brand – either on shelf or as a whole shopping experience.
It goes without saying that this shift is causing some consternation among nationally branded manufacturers, but according to Uphoff it is also creating new opportunities as companies look for new ways to reach consumers.
Primarily, he said, brands increasingly are selling direct to consumers online. But they also are redefining how they market to consumers with large corporations buying subscription services or other platforms that help them reach consumers on an ongoing basis.
Another example of how manufacturers are going around the competition – not just from retailers but from other national brands as well – is the Amazon dash button, which is a physical branded button that consumers have in their homes, cars or offices and they tap it when they need the specific product. It is then added to their Amazon cart without consumers ever having to shift through the various competing products in the same category.
New opportunities for startups
Uphoff also says consumers increasing comfort with private label or store brands also is creating increased opportunities for startups or lesser known brands because consumers are more willing to take a chance on a product they maybe previously had not heard about.
For example, he points to the fast rise of handcrafted, small batch distilled spirits.
“These companies again appear to have almost come out of nowhere and they didn’t have major distribution or major funding behind them, and they have gotten a toe hold in the marketplace,” in part because they are tapping into multiple trends, such as small batch, hand crafted and local, he said.
With that in mind, Uphoff added that the direct-to-consumer model and ecommerce have lowered the barriers for entry for smaller and lesser known brands.
“It used to be that if you couldn’t get distribution you would just be stymied because you couldn’t get into one of the big retailers. Now, you can go direct to consumer and build awareness and the retailer would end up having to carry it over time. I don’t see any of those dynamics that we just described decreasing,” he said.
How to make it in the new world
To succeed in this new paradigm, Uphoff advises manufacturers to focus on consumer demand and use the Internet fully as both a vehicle for advertising and direct distribution.
“On the retail side of things, the opportunity is similar, I think, for the retailer to focus on the consumer experience,” including what makes the company unique and pleasurable to visit, he said. “Price and availability as a retailer doesn’t mean anything anymore. That used to be the value proposition,” but now consumers also are looking for an experience.