There is a huge economic force driving the demand for private labels: as costs to consumers rise, a … [+]
Grocery stores have long been a place where brands fight, but lately private label has won. Walmart retailers
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While Walmart’s private brands reach the most consumers, others are growing their private brands faster. Aldi, target
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The power of private label
Private label itself is nothing new. Costco’s Kirkland brand has been valued at around $75 billion, and stores such as Trader Joe’s, Aldi, Lidl, Kroger
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Private label sales in U.S. supermarkets in 2021 were strongest in chilled foods at $40.4 billion, followed by general groceries at $33.8 billion and general merchandise at 25 .2 billion, according to Statista. Consumers spent approximately $22.3 billion on private label meats, $16 billion on health items, $16.4 billion on frozen foods, $12 billion on produce, $10 billion on beverages, $7.4 billion in bakery, $4.9 billion in prepared deli meats and $3.8 billion in beauty products.
Who wins?
Traditional brands continue to dominate consumer purchases overall, but private labels are trending. Collectively, private labels control less than a fifth of the total grocery sector, but it’s still a huge share. Private label makes up 17.4% of grocery sales, while branded goods make up 82.6%, according to numerator data released in August. But which private brands are gaining market share and reaching more consumers?
The Great Value brand is purchased by 72.7% of US consumers, while Equate is at 51%, Marketside at 44.2% and Freshness Guaranteed at 40%. What do they all have in common? These are all Walmart brands. dollar tree
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Giants like Walmart and Costco control bigger brands, while Aldi, Target and Amazon are growing rapidly. Smaller-format grocery stores, however, hold the largest private label CPG shares, according to Numerator. More than three quarters or 77.5% of Aldi’s sales are private label products, followed by Trader Joe’s at 59.4%. Wegmans has 49.4% of private label sales and Costco 33.5%.
The outlier, Amazon, only has 3% private label among grocery, household, general health and beauty products. But even Amazon’s overall numbers are growing.
“While often regarded for its own-brand electronics and household products,” according to Numerator, “in the grocery, home, and health and beauty sectors, Amazon consistently boasts one of the highest brand shares weakest distributorships of most major retailers”.
What drives private label?
Various economic forces, beyond potential savings for consumers, are fueling the private label rocket. Stores are building customer loyalty with private label brands, which typically offer higher margins, and private label is growing in frozen, processed and prepared foods. Retailers outsource manufacturing, so stores still rely on others for product.
We are seeing the increase in private label that I predicted a few years ago. But there is another huge economic force driving the demand for private label: as consumer costs rise, so does the willingness to consider private label.
While inflation is bad news for most, it may be one of the best things to happen to private label in a long time. The Numerator said in August that “grocery prices have started a new uptick after a slight plateau,” adding that “grocery prices continue to set new records,” ending July 15 up, 4% compared to a year ago. Grocery prices rose regardless of demographics, exploding 16.1% in suburban markets, 15.5% among low-income earners and 16.3% among Gen Z consumers .
Inflation fuels the engine
In the grocery category, inflation for snacks and beverages continued to “outpace the total for groceries,” with prices for snacks up 19% and beverages 18.1%, which makes them good targets for house brands. Meat prices were also not immune to inflation, rising 14%, while produce rose 9% and alcoholic beverages edged up 3.7%, represents a “delay in relation to the total grocery store”.
“As inflation continues to rise, price is becoming more important than brand name for many consumers,” according to Numerator. “In recent months, the number of consumers saying price is more important than brand name has increased across all income levels.”
Where is the MDD?
Private label among groceries is particularly prevalent in the club channel, where it accounts for 32.1%, about double that of other channels, according to numerator data. In the retail circuit, private labels represent 22.6% of grocery store sales, while online, they represent 20.2%. So who buys MDD? It may not be who you think.
Contrary to what one might expect, the share of private label grocery stores is lowest among low-income households. According to Numerator, private label represents only 17.1% of low-income consumers, less than 17.9% for middle-income consumers and 17.2% for high-income consumers. It seems that people in all income brackets are looking for and finding value in house brands, while still buying traditional brands in most cases.
“High-income consumers have the most favorable opinions of private label products,” according to Numerator, which reports that 56.9% of high-income consumers rate the value of private label products as above average or excellent . That’s more than the 55.2% of middle-income shoppers and 52.5% of low-income shoppers.
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More than a third or 39.5% of high-income consumers and 38.8% of middle-income consumers buy private label products as a cost-cutting measure. “More and more middle- and upper-income consumers are buying private label products to save money,” Numerator added.
Everyone, regardless of income, likes to save money, creating an opportunity for private label. If inflation drops soon, it could dampen sales of private label products, but consumer habits, loyalty and preferences have changed. Private label is going nowhere and is expected to continue to grow, as the retail revolution continues. Time will tell which retailers and private labels will prevail. But it’s clear that retailers aren’t just looking to sell anymore. Many want to build loyalty, profit and generate revenue
