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Private Label Brands Find Public Success

Denis Storey
February 3, 2020

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Private label products – particularly in the food and beverage business – have traveled a long road to mainstream success. Historically thought of as "low budget" brand name alternatives made of inferior materials – thus the lower price – private label brands have managed to earn respectability.

Costco is a textbook example of private label success. The members-only warehouse wholesaler wanted to stock a brand name soft drink on its shelves but couldn't negotiate the price they wanted. In 1995, Costco made soda and added its now-ubiquitous Kirkland Signature brand name to it, named after Kirkland, Washington, the company's headquarters. Kirkland Signature products now account for a third of the company's total sales. Costco's Kirkland Signature private label is worth around $75 billion. Kirkland Signature sales reached nearly $40 billion in 2018, up from $35 billion in 2017.

Costco's far from alone in finding commercial success in private label products, Kroger's Simple Truth store brand earns at least $1 billion in sales annually. Walmart, which attributes more than half its annual revenue to food and beverage sales, kicked off an overhaul of its Great Value brand to make it trendier, including the construction of a 12,000-square-foot testing facility. And just last September, Target, which already boasts more than a half dozen store brands, launched its Good & Gather brand with 650 products. According to Forbes, "full collection of more than 2,000 items — from milk and produce to 'trend-forward' items like avocado toast salad kits and beet hummus" — is set to debut by late 2020.

Online retail giant Amazon jumped on the private label bandwagon in 2009 when it began selling AmazonBasics products, including batteries. According to Marketplace Pulse, "In just a few years, AmazonBasics had grabbed nearly a third of the online market for batteries, outselling both Energizer and Duracell on its site." Over the next decade, Amazon launched 23,000 products under more than 400 brands, including 100 new brands in 2018 alone.

A Long History

Of course, the shop – and brand – would then evolve into Brooks Brothers, "carrying a label that became synonymous with the conservative, well-dressed gentleman of the day." This private form483_blog_03172020_sz_v2-1label brand would launch a host of fashion trends.

While branded food and beverage products wouldn't show up among merchant's wares until the late 19th century, private label brands weren't far behind and, of course, and driven by soft drinks. Chemist Robert S. Lazenby started selling Dr. Pepper as an individual brand at his Old Corner Drug Store in Waco, Texas, in 1885. In 1898, pharmacist Caleb D. Bradham dreamed up a cola drink to treat upset stomachs and ulcers at his drug store in New Bern, North Carolina. He initially, and not so humbly, called it "Brad's Drink," before renaming it Pepsi-Cola when he started selling it in his drug store.

For What They're Worth

Private label brands are now big business. According to the Private Label Manufacturers Association, one out of every four products sold in the United States is a private label (or store brand). The group says private label sales grew 4.4% overall in 2018, "adding $5.5 billion in sales to reach $129 billion and as high as $170 billion."

A 2019 PLMA survey found two-thirds of respondents agreed that "in general, store brand products I've bought are just as good, if not better than the national brand version of the same product." More than 40% said they buy store brands "frequently" or "always," and 25% buy more store brands than they did five years ago.

Other telling findings from that survey include:

  • Fewer than one in 10 shoppers say they never buy private label products.

  • Six in 10 shoppers believe private label products are often from the same manufacturers as brand names.

  • Seven in 10 shoppers "usually" buy at least a few private label products during each shopping trip.

  • Half of the shoppers say private label brands are "just as good" as brand names.

Private label brands have become so successful that major brands are feeling the pressure.

"Dollar volume of private label in the mass retail channel grew 41% over the past five years compared to a gain of only 7.4% for national brands," according to a PLMA report by Nielsen data.

It's probably not surprising that millennials are driving a lot of this growth. A Cadence Consulting Group study found that 54% of millennials said store brands influence their choice of retailer. In comparison, 60% thought their chosen store brand products were better than the brand name alternatives.

The rise in eCommerce is another factor driving private label brand growth, as Amazon's success in this space has already shown. For example, Walgreens is selling store brands on Alibaba.com to penetrate the vast Chinese market. At last count, the company had nearly 2,500 products listed on the site.

Consumers aren't the only ones feeling the love for private labels. Retailers have noticed, too. FMI, the recently rebranded Food Industry Association, found that 58% of the surveyed retailers are "planning increases in space allocation to private brands over the coming two years."

The numbers can be overwhelming, but the message is clear. Private label brands have grown up. Younger consumers and online shoppers alike are gravitating toward them in more significant numbers. This latest consumer preference shift means more opportunities for store brands and more significant challenges for legacy brands.

With so much opportunity, it's clear that retailers will continue to expand store brand labels, but expansion introduces more risk. If a name brand has a recall, the retailer packs up the impacted products and ships them back to the company, and if it's online, the business pulls the product from the website with one click, problem solved. However, when a retailer must issue a recall for its products, it gets complicated, and if severe, can damage the private label and the retailer.

So, what can retailers do to protect the business and the public? The answer lies in avoiding the recall in the first place. With TraceGains, private label retailers gain complete supply chain visibility to spot and address risk for suppliers, ingredients, and items allowing retailers to deliver high-quality, safe products. Learn more here.

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