FMI: Private-brand investment on the upswing

As consumers hunt for more value amid elevated grocery prices, food retailers and manufacturers aim to boost private-label investment in the near term to drive brand innovation and add share, according to FMI-The Food Industry Association.

Ninety percent of food industry executives surveyed deem private brands as extremely or very important to their organizations, FMI said in its “Power of Private Brands 2023: Innovation that Drives Winning Private Brands” report, released last week. In turn, 82% of respondents plan to moderately or significantly raise private-label investment over the next two years.

These executives see a breadth of opportunities to grow own-brand sales and share, FMI’s study found. Creating the best value tops the list, cited by 70% of those polled. Yet a similar percentage consider two seemingly conflicting strategies as key opportunities, with 58% naming best/lowest price and 51% citing premium offerings.

Likewise, approximately the same percentage of executives pointed to several other private-brand opportunities: health and well-being (35%), frozen food (33%), simple/clean/free-from ingredients (32%) and e-commerce/delivery/pickup/online sales (32%). Also cited were expanding tiers, organics, innovation versus national brands and building more scale at retail.

Source: FMI-The Food Industry Association, "Power of Private Brands 2023: Innovation that Drives Winning Private Brands” report.

“Private brands are central to the strategies of a wide range of food industry companies. Respondents have identified prime growth opportunities as they plan to ramp up investments,” FMI said in the “Power of Private Brands 2023: Innovation” report. “The opportunities vary widely, for example including both premium and best/lowest price. The wide range underscores that private brands are adept at meeting the needs of vastly different customer bases.”

Retail executives reported big strides in developing their own-brand programs as a differentiation point for shoppers—but with some work still to do. About 47% said their private-label development is “well along,” and the same percentage described their progress as “midway.” Meanwhile, 7% remain in the early stages of this process.

In terms of dollars, private-brand share across the store averaged 19.5% among the retailers surveyed by FMI, and they aim to raise that share to 21.4% in the next two years. The digital channel looks to be one path for that growth. Sixty-nine percent of retailers’ store-brand assortment is offered online, but just 13.5% of these brands’ sales are made through that channel.

“Retailers are reporting momentum across their omnichannel businesses,” FMI noted in the study. “Perhaps most important, retailers are meeting with success in leveraging their private brands for differentiation.”

Source: FMI-The Food Industry Association, "Power of Private Brands 2023: Innovation that Drives Winning Private Brands” report.

Food industry executives, however, indicated there’s a lot more road ahead for innovation in private label. Only 59% of respondents see the industry “somewhat far along” in private-brand innovation, while others described advances in innovation as “not very far along” (29%), “very far along” (10%) and “not at all far along” (2%).

“After temporary pauses to some innovation efforts because of pandemic supply disruptions and on-going consolidation many food retailers are ready to jump-start innovation in collaboration with their supplier partners,” Doug Baker, vice president of industry relations at FMI, said in a statement. “Respondents said that while new products are always an important part of innovation, the efforts need to go well beyond new-item introductions, including focusing on branding, purchasing, logistics, inventory management, marketing and more.”

Unsurprisingly, value/price headed the list of top areas of importance for private-brand innovation, cited by 80% of respondents. Avenues for improvement, executives said, include emphasizing value beyond price (named by 60%), highlighting value in all store-brand tiers (51%), spotlighting value comparisons with national brands (38%) and focusing on opening price points (17%).

“Inflation-driven price increases throughout the store have also spiked significant consumer interest in private brands as shoppers look for ways to stretch their grocery dollar farther, with nearly 77% of customers who are already purchasing private brands saying they expect to buy even more in the future,” according to Baker.

Source: FMI-The Food Industry Association, "Power of Private Brands 2023: Innovation that Drives Winning Private Brands” report.

Other areas cited as extremely or very important for private-label innovation included appealing to younger consumers (73%), transparency (60%), health and wellness (58%), sustainability (46%), meal solutions (42%) and omnichannel experience (40%). In meal solutions, executives polled named such strategies as bundling items across categories (40%), promoting products with recipes (38%), offering retail foodservice and heat-and-eat items (36%) and focusing on the center store (32%).

“We also know that consumer demand for information about the products they use and consume has remained at an all-time high,” Baker noted. “For instance, many consumers now engage in a hybrid approach to shopping, using in-store and digital touch points to seek package claims.”

FMI’s study also looked along the supply chain to identify key areas for innovation in private label. Retailer/wholesaler strategies prioritized by food industry executives included brand development (cited by 80% of survey participants), new product development (73%), packaging (60%), differentiation and “premiumization” (58%), and marketing (46%).

Ways to promote innovation to advance suppliers, supply and assortment, executive said, include engaging more closely with current suppliers (80%), making longer-term commitments to supplier arrangements (76%), giving suppliers more opportunity to innovate (74%), developing new supply sources (51%) and encouraging enhancements in supplier infrastructure (50%).

“Respondents emphasized the importance of boosting trading partner communications and treating suppliers as team members. They prioritized win-win approaches and bringing suppliers into the ideation/development process,” FMI stated in its report. “Notably, retailers flagged the importance of leveraging metrics and measurements that will help ensure progress. The focus on measurement makes it more likely that partners will align on goals and succeed with these efforts.”