Private Label Isn't What It Used to Be
Private label isn’t what it used to be. Grocers are no longer filling the gaps in their shelves with generic products, they’re making way for exclusive private label brands. Shoppers are going out of their way to pick up an exclusive private label product that can only be found in a specific store.
History of Private Label
Historically, private label within the U.S. market has been thought of as “generic” or “second tier.” This second-tier status led to growth during periods of recession, when consumers were willing to trade their preference for national brands, which were perceived as having higher quality, for a lower-cost private label option. Given this situation, private label would also fall out of favor during periods of prosperity, when customers felt comfortable spending more for higher-quality products.
The long-term positioning of private label described above is shifting to a new dynamic that’s essential for grocery players to understand. Not only are brands investing in developing higher-end, premium private label products, they’re also building loyalty for these brands, which in some cases consumers don’t even recognize as “store brands.” Despite overall economic prosperity today, private label is growing as data from Nielsen POS demonstrates.
Much of this growth is due to expansion beyond traditional categories and the growth of physical stores that focus largely on private label, such as Trader Joe’s, Aldi and Lidl.
Supply ‘Drivers’ Behind the Change
Three supply side issues are driving the shift in private label positioning:
- Need to differentiate: The key advantage of convenience that grocers once enjoyed has been eliminated by intense competition from mass retailers and ecommerce players. Traditional retailers are struggling to create a reason for people to maintain their physical shopping habits. Unique store brands present a reason to go into a store.
- Cost control: Private label brands allow retailers to remove or significantly reduce marketing costs.
- An explosion of options: Direct-to-consumer (DTC) players are offering consumers new ways to engage with unfamiliar brands and products every day. One example of the DTC dynamic is ecommerce power player Brandless, which touts its ability to eliminate the “brand tax” that retailers pass onto consumers. DTC options like Brandless are forcing traditional retailers to create their own brands to keep option-loving customers engaged.
Three demographic trends are combining with the supply-driven trends mentioned above to increase consumer interest in private label brands. These three trends, while seemingly contradictory on the surface, are essential to understanding the new wave of private label:
- Brand love and the Millennial myth: One huge myth in marketing today is that Millennials don’t care about brands. This is a massive misconception. Millennials love brands, as evidenced by Magid’s “2017 Retail Pulse” study. In fact, Millennials have greater preference for established national brands than Gen Xers and Boomers.
- Brand trust: Millennials, like all customers, have a higher desire to trust the brands they are engaged with, and this is even more important in grocery. Brand trust is rated far more highly in grocery than eight other major industries that Magid measured in its “2017 Retail Pulse” study. This desire for brand trust, combined with a growing distrust for large national brands, has cultivated an opportunity for retailers to create private label brands that people feel are better designed for their personal preferences.
- Brand switching: While Millennials love their brands, they’re not as brand loyal, and they prefer to “discover” brands. This can be seen in the large number of Millennials who shop three or more grocery stores each month.
The Retail Imperative: Shoot for the Moon
Retailers shouldn’t undervalue their private label offering. Keep it premium. Falling into the “low-end price trap” just to draw traffic will not serve brands well.
Understand customer preferences. Recognizing that every audience is unique and heightening a customer’s shopping experience will lead to success in retail. Don’t try to be everything to everyone. Given that customers are opting for more grocery options means a retailer doesn’t need to carry every brand and option. In fact, offering too many brands may water down the unique message you’re creating.
Create a private label story that understands category differences. Building store brands, especially if there’s strong store recognition – e.g., Whole Foods 365 or Trader Joe’s – that covers multiple product lines allows for the most opportunity. Identify categories where offerings are limited, or where your shoppers are frequency purchasing.
The growth potential that private label offers retailers is significant from both a defensive and offensive perspective. Defensively, building a unique and engaging brand will allow grocery retailers to maintain traffic and differentiate themselves in an increasingly crowded space. Offensively, this strategy allows retailers to reach more affluent consumers who are more likely to purchase higher-margin products.