How Private Labels Can Own 2022

If it was less clear earlier this year, it’s abundantly evident now: Grocery shoppers will find no relief from inflation pretty much wherever they steer their cart.

Though the sharpest price hikes have occurred in fresh proteins—with retail beef prices up 20% since October 2020, pork prices up 14% and egg prices up almost a dozen percent, according to the Bureau of Labor Statistics—no aisle at this point is untouched.  

And so many customers are finding higher prices for their coffee and for the sugar or other sweetener that they add to it. Their whole-grain or keto-friendly bread is more expensive; their favorite peanut butter or other nut butter likely is, too.

The center-store sticker shock that consumers are experiencing at the close of 2021 is likely to continue into the new year, as well: Recent projections from market-research firm IRI have inflation for consumer packaged goods possibly hitting 8% in the first half of 2022 before moderating back down to a still-elevated 4% in the back half of the year.

For retailers, if there is a silver lining (beyond inflation’s favorable effect on dollar sales and thus comp sales), it may be a compelling opportunity to increase private labels’ penetration and share of basket as consumers seek ways to keep their grocery spending in check.

Private brands saw increased trial at the start of the COVID-19 pandemic, often out of necessity as consumers found their go-to national brands for select items out of stock. “Consumer trial of private brands hit record highs due to the COVID-19 pandemic,” Doug Baker, VP of industry relations for FMI – The Food Industry Association, wrote in June. “Consumer trust is strong and growing.”

That hard-won enhanced trust is great for retailers and private-label suppliers, but owned-brand products from cleaning essentials to breakfast cereals took a back seat again for many consumers in the first half of 2021 as the pandemic environment shifted. With stores’ inventory levels rising and consumers seeing a financial lift from stimulus payments and pandemic assistance programs in the first part of the year, many consumers went back to their favorite brand names—they could find them and afford them at the store.

While private brands achieved “considerable growth and product trial” early in the pandemic, FMI noted in its 2021 Power of Private Brands report, owned brands overall sales performance has been mixed this year. “In 2020, private brand sales grew 12.1% versus the prior year, compared to 10.2% for national brands,” FMI noted in the report. “However, in 2021, a period in which sales comparisons were up against the sharp gains of 2020, private brands were off 4.6% versus the year-ago period, while national brands achieved slight growth of 0.2%.”

The Story With Private Label

Could things swing back around in 2022? IRI President of Strategic Analytics KK Davey thinks so. “We expect people to become much more price-sensitive” in the year ahead, Davey said in a November webinar on the outlook for CPG in grocery. “People are going to begin to trade down as prices increase.”

Retailers’ recent investments in building out their own brands should have them better positioned than ever to ride to inflation-weary consumers’ rescue: 91% of retailers and manufacturers surveyed for the 2021 Power of Private Brands report said they plan to moderately or significantly increase overall investments in private brands in the next two years, and 58% said they’re working to add new private brands.

But effectively leveraging private brands in 2022 to boost customer loyalty will require not just a wider assortment of owned-brand options on store shelves but also smarter marketing and promotion of owned brands, especially online—where owned brands’ biggest fans are more likely to shop, according to Charisse Jacques, SVP of global customer-centric retail services at Symphony RetailAI.

Households that favor owned-brand products, what artificial intelligence platform Symphony RetailAI calls owned-brand-sensitive households, “really tended to have much higher e-commerce penetration,” Jacques told WGB.

That makes it that much more important to ensure that there’s a consistent, compelling storyline for owned brands online and that both new and established private-label products factor prominently into the mix that shoppers find online, Jacques says.

“Everything goes back to the story that we tell that really connects with that shopper,” she says. “The retailers who truly have a story with their brand, and it’s not just done as a value play, but there’s really a story and they play up that story across all of their assets, whether it be the website, what they do in the store, experiences that they offer … to me, that is what I see as being successful.” Consumers, she noted, “really just want to make an easy choice—they want to know that the brand has done the work for them.”

FMI’s Baker and Allison Febrey, manager of research and insights at the association, noted in October: “Online shoppers (47%), and particularly frequent online shoppers (53%), are more likely than non-online shoppers (32%) to connect private brands to their selection of a primary store.”

Jacques points to Cincinnati-based Kroger Co.’s Simple Truth label, launched in 2013 and continually expanding since then, as with a plant-based line in 2019, as an example of successfully meeting a broad consumer demand—specifically, for “free-from” products—and continuing to evolve with consumers while maintaining a consistent brand story and identity.

Along with Simple Truth in the category of multibillion-dollar owned brands is Target’s Good & Gather, which launched in late 2019—also with a lineup of products made without artificial flavors or sweeteners, artificial colors or high-fructose corn syrup—and racked up more than $2 billion in sales in 2020. In August, Target Chief Growth Officer Christina Hennington noted that the Minneapolis-based retailer’s owned brands—10 of which had at least $1 billion in sales last year—outperformed sales overall in the company’s second fiscal quarter of 2021 and said that private labels are a “huge part” of Target’s strategic imperative. More than 300 new products are joining the Good & Gather assortment this holiday season, Target noted in November, to offer more convenient, high-value choices for holiday entertaining and family meals.

“Private brands really can be a key asset in raising the switching cost for the shopper,” Jacques says, “and I think if retailers thought about it that way, they’d really think about how to use their online assets differently, how to make sure they’ve got the right products, how to think about having the right assortment online, with private brands playing a key role.”

What can this look like for retailers, as consumers seek out value-oriented options that still meet their standards in terms of product characteristics in 2022?

Two vital components: Making it easy for consumers to find new and favorite choices from their trusted owned brands on the retailer’s website and mobile app, and meeting consumers where they are online—i.e., social-media channels including Pinterest and TikTok. Bonus points for retailers that tap into the power of influencers (even, for regional grocers, local celebrities) in boosting brand exposure and helping steer buying decisions: Deloitte’s 2021 holiday retail survey found more than half of respondents saying they look to influencer-generated content on social media for gift-buying inspiration, for example.

FMI’s Baker and Febrey cited a handful of recommendations from consultancy FitForCommerce for boosting private brands’ presence online, including giving owned brands their own category in dropdown navigation menus and creating a dedicated section for private-label products on a new-products page.

Not only will dedicated groupings such as these help private brands’ biggest fans—those more likely to be shopping online in the first place—find and discover a wider range of products from labels they know and trust, but also they represent an efficient way for a growing cohort of price-conscious consumers to more easily shop an assortment that revolves around everyday value.

Give Them What They Want
Positioning an owned brand purely as a “value play”—not targeting any specific customer segment or consumer interest (other than saving money vs. national brands)—is unlikely to build the kind of loyalty that retailers should be looking to enhance with their owned brands, says Symphony AI’s Charisse Jacques.

“Retailers who haven’t thought about how their private brands connect to each of their meaningful segments, I think it becomes hard to build equity with their brands,” Jacques told WGB.

Understanding what different customer cohorts are looking for—and how concentrations of these cohorts might vary by region—is crucial for both formulating and marketing private-label products that will resonate, she says.

How are retailers and manufacturers meeting that challenge? West Des Moines, Iowa-based Hy-Vee, for one, focused on gluten-allergic and gluten-avoiding customers with the launch of its new Good Graces gluten-free line in November. Good Graces’ assortment includes pantry staples such as pastas, soups, oatmeal, pretzels and baking mixes as well as frozen items.

U.S. Alliance Paper, which manufactures private-label paper products, introduced a line of paper napkins, toilet paper and paper towels made from 100% recycled paper and up to 80% post-consumer content and whitened without chlorine bleaching. The Earth One line lets retailers “offer your environmentally aware consumers a certified sustainable household paper option,” the Long Island-based company says on its website.

Heightened interest in sustainability is a clear customer trend for Jacksonville, Fla.-based Southeastern Grocers, whose award-winning lineup of private-brand products includes paper straws and compostable bowls from the Winn-Dixie parent’s Naturally Better line.

“Over the past few years, we have seen a growing desire for healthy and sustainable products which is why we have remained focused on delivering affordable high-quality products that are good for our customers and for our communities,” Gayle Shields, VP of owned brands for Southeastern Grocers, said in a statement to WGB.

It all gets to a critical point about what effective, loyalty-boosting innovation really looks like, indicates FMI VP of Industry Relations Doug Baker. “Innovation is more than just a new ingredient or product,” Baker wrote in June, “it's also how the product is packaged, what and how you communicate on the package and even the importance of how you communicate information that cannot fit on the label.”