What comes to mind when describing store brands? Words and phrases like “cheap alternative,” “plain packaging,” and “knockoff” …or “visually appealing,” “delicious,” and “high-quality”?
Recent grocery trends indicate that consumers are leaning toward the latter.
Store brands, also known as private-label brands, have been mainstays in the grocery aisle for decades. Brands like America’s Choice and Kirkland have been in high demand almost since their inception, especially for consumers on a tight budget or during times of economic hardship. Recent growth in the private-label sector initially sparked by the prolonged recession, it has now taken root and has become a preference for many consumers, in lieu of traditional, established brands.
According to Nielsen, in 2016 the private-label market was $150 billion and represented approximately 20% of items bought in U.S. supermarkets, an increase from previous years. The top five U.S. vendors in the private-label food and beverage market are Costco Wholesale, the Kroger Co., Trader Joe’s, Wal-Mart, and Wegmans. For these retailers, in particular, the private label brands were a significant factor in why consumers chose to shop there.
Consumers associate the Kirkland brand with Costco and will often go to Costco specifically for the Kirkland products they have found to be reliable and cost-effective. Known for its reasonably low price and high product quality, Kirkland is responsible for about a quarter of Costco’s sales, significantly higher than the industry average of 17% for private-label sales. Similarly, since 2008, Trader Joe’s, a grocery chain that relies on private-label food and beverage items for its sales, has increased revenues 10% annually, suggesting that consumers are drawn specifically to these offerings. Whole Foods is responding to this consumer demand too by introducing a new line of stores, “365 by Whole Foods Market,” and its private-label “365” will comprise half of the store’s nonperishable items. The market is changing, and these retailers, as well as established brands, are taking notice.
So other than economic reasons, what caused the positive shift in consumer opinion?
Although private-label items were once considered replacements for essential items, such as milk, flour, frozen vegetables, or cereal, now private-label items are including specialty items like granola and salsa and fresh items like bakery, deli, and seafood. In addition, private labels are paying more attention to consumer trends that extend beyond price. Organic, vegan, kosher, and GMO-free private labels are proliferating, especially at chains like Whole Foods and Trader Joe’s. While these specializations often cost more than the more basic private-label items, they still provide another option for health-conscious or purpose-driven shoppers and may be at a lower price point than established brands.
Furthermore, in recent years, grocery chains have become more likely to stratify their private-label offerings to offer a broader range of quality and price. For example, in the UK, which boasts a 45% private label market share in grocery, the supermarket chain Sainsbury’s offers a private-label “Sainsbury’s” line and a “Sainsbury’s Basics” line for even less expensive items. Shortly, we can expect to see a multi-tiered system of private-label items.
What does this mean for established brands? As the quality and reputation of private label brands continue to increase and diversify, consumers may develop more brand loyalty for private labels—and brand loyalty, convenience, and reputation are some of the main factors that can give an established brand an edge. To remain competitive and foremost in consumers’ minds, established brands must lead the market in innovation, providing products that are healthier, tastier, and of a higher quality. By keeping an eye on consumer preferences and looking toward future trends rather than relying on the status quo, established brands can maintain a healthy consumer base and stay ahead of the curve.