Private Label Brands Find Public Success

Posted by Denis Storey on January 24, 2020 at 4:21 PM

private label brandsPrivate label products – particularly in the food and beverage business – have travelled a long road to mainstream success. Historically decried as “low budget” brand name alternatives made of inferior materials – thus the lower price – private label brands have managed to shrug off the scorn of most consumers and earn respectability.

Costco is a textbook example of private label success. Legend has it that the members-only warehouse wholesaler wanted to stock a brand name soft drink on its shelves but were unable to negotiate the price they wanted. So, in 1995, they made their own soda and slapped its now-ubiquitous Kirkland Signature brand name on it, named after the location of its headquarters at the time: Kirkland, Washington. Kirkland Signature products now account for a third of the company’s total sales. In fact, UBS has valued Costco’s Kirkland Signature private label at $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 private label brand earns at least $1 billion in sales annually. Walmart, which attributes more than half its annual revenue to food and beverage sales, last year kicked off an overhaul of its own Great Value brand in a bid to make them more “trendy,” including the construction of a 12,000-square-foot testing facility. And just last September, Target, which already boasts more than a half dozen private labels, launched its Good & Gather brand with 650 products. A “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, according to Forbes.

Online retail giant Amazon even jumped on the private label bandwagon in 2009 when it started 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

One of the oldest private labels established in the Unites States can be attributed to Henry Sands Brooks, who opened his first location in 1818 in New York City. He would later claim to be the first clothier to sell what he called ready-made garments. Of course, his shop – and brand – would later evolve into Brooks Brothers, “carrying a label that became synonymous with the conservative, well-dressed gentleman of the day.” This private label brand would launch a host of fashion trends.trusted private labels

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, were driven by soft drinks. Chemist Robert S. Lazenby started selling Dr. Pepper as a private brand at his Old Corner Drug Store in Waco, Texas, in 1885. Years later, pharmacist Caleb D. Bradham dreamed up a cola drink 1898 to treat upset stomachs and ulcers at his drug store in New Bern, North Carolina. He originally, and not so humbly, called it “Brad's Drink,” before renaming it Pepsi-Cola when he started selling it outside his drug store.

For What They’re Worth

Private label brands are now big business. One out of every four products sold in the United States is a private label (or store brand), according to the Private Label Manufacturers Association. The group says private label sales grew 4.4 percent 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 percent said they buy store brands “frequently” or “always” and 25 percent are buying more store brands than they were five years ago.

Other telling findings from that survey include:

  • Fewer than one in 10 shoppers say they never buy private label.
  • 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 on each shopping trip.
  • Half of shoppers say they private label brands are “just as good” as brand names.

Private label brands have become so successful, in fact, that major brands are feeling the pressure. “Dollar volume of private label in the mass retail channel grew 41 percent over the past five years compared to a gain of only 7.4 percent for national brands,” according to a PLMA report put together with Nielsen data.

It’s probably not surprising that millennials are driving a lot of this growth. A Cadence Consulting Group study found that 54 percent of millennials said their choice of retailer is influenced by the private labels they sell, while 60 percent of them thought their chosen retailer’s private label products were better than the brand name alternatives.

The rise in ecommerce is another factor driving the growth of private label brands, as Amazon’s success in that space has already shown. Walgreens, for example, has been selling their store brands on Alibaba.com in a bid 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 percent of the retailers it surveyed 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 greater numbers and this latest shift in consumer preference means even more opportunity for manufacturers and challenges for legacy brands.

With so much opportunity, it’s clear that retailers will continue to expand store brand labels, but along with revenue growth, comes more risk. If a name brand is recalled, the retailer packs up the impacted products and ships them back to the company, if it’s online, the product is removed from the website with one click, problem solved. However, when a retailer’s own product is recalled, it gets complicated, and if serious, can be the kiss of death for a store brand. 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 not only gain complete supply chain visibility to spot and address risk, they also gain the reassurance that they’re working with qualified suppliers, ingredients, and items to consistently deliver the high-quality, safe products consumers expect. Learn more here.

Tags: Private Label Manufacturing Association, retail, new product development, Millennials