Private label gains momentum with much more room to grow in the US, says Euromonitor

By Mary Ellen Shoup

- Last updated on GMT

©GettyImages / PeopleImages
©GettyImages / PeopleImages

Related tags Private label Retailers

Private label or store brands used to be about delivering price and margins, and while many private label product still do provide that cost advantage, the perception of these items continues to improve as consumers see these products as formidable alternatives to national brands, claims Euromonitor.

In their annual consumer survey 'Power of Private Brands' from earlier this year, FMI and IRI found that 69% of shoppers said it was very or somewhat important for a retailer to have a good assortment of private brands in food and beverage. 

While the US private label market has heated up with favorable consumer interest, growing at a rate four times faster than national brands in nearly all grocery store categories, there is even more room to expand, according to Euromonitor, which notes that US penetration rates for private label still lag behind those in Europe.

"Despite the improvements in store brand performance, the competitive landscape of the US grocery market currently stands at a critical moment in time,"​ said Euromonitor.

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. 

Position private label as premium

Going forward, leading retailers should look at its private label offering as a way to drive differentiation and consumer loyalty, Euromonitor highlighted.

"It is not enough to simply compete in price as store brands have traditionally done. Now, retailers must demonstrate that their private label brands can truly compete with national brands in terms of product quality and innovation​." 

US retailers have been improving their private label offerings in terms of quality and have been successful at winning over consumers. 

"One of the main drivers behind the strong performance of store brands is the multi-tier approach with a focus on premiumization. Retailers have achieved success through creating product portfolios for all budgets and by captivating their consumers with store brands that compete in quality and price,"​ Euromonitor added.

Retailers also have a unique advantage over national brands as both the manufacturers and sellers of their products, giving them the final decision of shelf space allocation that prioritizes their own products. 

"We have seen an increasing shelf presence of private label brands in nearly all grocery categories over the last year. Not only can retailers leverage their large distribution networks to cut costs, they can also utilize shopper data for better marketing and product development. Used correctly, these resources can give private label brands a significant edge over name brands," ​added Euromonitor. 

The market gaps

While private label is gaining momentum, store brands are not gaining as much traction in large coastal and Midwestern cities, according to Euromonitor. 

"The size of these markets and their heightened spending power means these regions are critical for private label growth. Poor performance in cities like New York, Chicago, and Los Angeles suggests that private label brands need to change their offerings to cater to higher income consumers."

Language shift: Private label to private brand

As retailers continue to premiumize and highlight their store branded products, IRI predicts there will be a language shift from the term 'private label' to 'private brand(s)'.

"We think everyone is going to start calling it 'private brands' going forward​," said Mark McKeown, principal of client insights for IRI. 

According to an recent IRI industry survey, 58% of the respondents working in the private label industry, whether it's a retailer or a supplier, use the word 'private brands' as opposed to 'private label', up from 31% two years ago.

"That word is gaining and more importantly it means something different; retailers treat brands differently than they do labels," ​McKeown said. 

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