Premium Disruption in Private Label

Store brands didn’t used to be sexy. Sure, they were affordable, but what they lacked in pricing was not made up for in value.

That was then and this is now—the proliferation of premium private label products cannot be denied, nor can the accelerated sales growth of this formidable and rapidly expanding market segment.

Store brands drove nearly half of sales gains for U.S. retailers last year, according to Nielsen and the Private Label Manufacturers Association (PLMA), both of New York. Overall, sales of store brands reached $128.6 billion—the highest annual figure on record.

Top 5 Private Label Categories

Source: Nielsen, 52 weeks ending Dec. 22, 2018

But this figure tells only part of the story. Because Nielsen’s data does not include retailers such as Amazon, Costco, Aldi and Trader Joe's—all with wildly successful private brand programs—PLMA conservatively estimates that the total store brands market is closer to $170 billion.

In another first, the mass channel (mass merchandisers, club stores and dollar stores) surpassed supermarkets in total annual store brands volume and dollar sales in 2018, with PLMA’s 2019 Private Label Yearbook reporting that the mass channel sold $60.8 billion in private label products (a $5.4 billion sales increase over the previous year) compared to $59.8 billion in sales last year for supermarkets, according to Nielsen data for the 52 weeks ending Dec. 22, 2018.

Leaders of the Brand 

From Target’s Good & Gather, which launched in mid-September, to Costco’s enduring Kirkland brand and Kroger’s ever-expanding Simple Truth line, today’s successful store brands offer premium quality, cleaner ingredients and the innovation consumers crave.

“Since its launch in January 2013, Simple Truth has become the leading natural and organic brand in the country, with annual sales exceeding $2.3 billion,” Kroger VP of Our Brands Gil Phipps told attendees at September’s Good Food Conference in San Francisco, where he revealed the launch of the chain’s new Simple Truth Plant Based collection, which includes burger patties and grinds, as well as sausages, cookie dough, sauces and more.

Photograph courtesy of Blount Fine Foods

Cincinnati-based Kroger further extended its reach with Simple Truth—a natural and organic brand free from more than 101 preservatives and artificial ingredients—this summer when it rolled out the line in all 39 stores of Niwot, Colo.-based Lucky’s Market. “Our mission at Lucky’s Market is to make more healthful foods more affordable to more people, and this allows us to secure products at a lower price and then pass those savings along to our customers,” a spokeswoman for Lucky’s Market said at the time of the Simple Truth chainwide rollout.

“In some of our existing stores, we have removed a few national brands to make room for the Simple Truth products, but these new Simple Truth products will offer better value to our customers,” the spokeswoman added.

Store Brands’ Dollar Volume

Source: PLMA/Nielsen

Declaring its new consolidated store brand its “most ambitious food undertaking yet,” Stephanie Lundquist, EVP and president of food and beverage for Target, said the Minneapolis-based retailer’s Good & Gather line is a reimagining of Target’s proprietary food brands to “serve up convenient, affordable options that don’t cut corners on quality or taste.”

Developed by Target Corp.’s internal team, Good & Gather products are made without artificial flavors and sweeteners, synthetic colors or high fructose corn syrup. By the end of 2020, the flagship line is expected to include more than 2,000 products across food and beverage, including dairy, produce, ready-made pastas, meats, granola bars and sparkling water. The new line is part of Target’s broader effort to reimagine its own brand portfolio, further differentiating its assortment. Other Target own brand product launches include Everspring, Auden, Colsie and Cloud Island Essentials. By the end of this year, Target has said it will offer more than 25 new own and exclusive brands.

Premium Over Price

“Millennials and young consumers are not sacrificing premium over price,” says Suzanne Caputo, director of retail trade relations for PLMA, which recently presented its 2019 Salute to Excellence Awards in retail private label. “With Trader Joe’s, Costco’s Kirkland and Kroger’s Simple Truth, we’re seeing that more and more store brands are not about price. While price is still important, there is quality, value and better-for-you which are just as important.”

Convenience, fresh and natural/organic are some of the leading trends in store brands, says Caputo, citing the prowess of this year’s Salute to Excellence retail candidates. Winners were chosen by a panel of professional and consumer judges, who evaluated more than 750 store brands in food and nonfoods from 62 U.S. and Canadian retailers.

“On-trend winning products—especially in food and beverage—offered unique flavors and ingredients,” Caputo says, pointing to Salty Snacks category winner Kroger, recognized for its Kroger Cuban Style Sandwich Kettle Chips, and Walmart, which clinched the Spreads & Dips category with its Marketside Dark Chocolate Hummus.

“On the food side, it’s about elevating their store brands through flavorful and unique ingredients,” says Caputo, who adds that “on the nonfoods side, we are seeing more eco-friendly products and packaging” as “consumers are more concerned about the environment, and retailers are responding to this by incorporating it into their store brands.”

In Store Brands We Trust

Annual sales of private label consumer packaged goods are growing far faster year over year than national brands. What’s more, these products have a high degree of shopper loyalty, according to the report Private Label to Drive Disruption in CPG from Coresight Research in New York. “More than half (53%) of U.S. shoppers visit a particular retailer specifically to buy its own brands,” reports Coresight founder and CEO Deborah Weinswig, citing data from Stamford, Conn.-based research company Daymon. “Furthermore, 85% of shoppers trust private brands as much as national brands, and 81% buy them on every, or almost every, shopping trip.”

Retailers are responding with a host of new private label CPG introductions. Store brand launches in personal care last year included Target’s Smartly and Kroger’s Bromley’s for Men. In August, Bentonville, Ark.-based Walmart introduced Earth to Skin, a private label skincare line.

Photograph courtesy of Target

Weinswig also points to Issaquah, Wash.-based Costco as being among the best-in-class retailers to have built strong CPG private brands, noting that sales of the club store retailer’s private label Kirkland Signature represented about 27.5% of total sales in 2018, according to the company’s annual report. “Costco launched its Kirkland Signature private label line in 1995, and now the brand is a driver of foot traffic to Costco, building a reputation for quality at low prices,” writes Weinswig.

What’s the secret of Costco’s success? Affordability—Kirkland Signature sells for at least 20% less than name brands at Costco, according to the company—and high quality, which Costco controls through every aspect of the product line, from ingredients to production, packaging and more, according to Weinswig. “It partners with top manufacturers around the world and co-brands with premium brands such as Starbucks,” she adds.

Quality control from start to finish is the hallmark of newly launched Move, a membership-based digital supermarket offering 100% private label products. Move’s value proposition is collaboratively curated (based on member feedback) best-quality grocery staples at the fairest prices, shipped direct to the consumer.

“You can’t be a radical retailer if you’re selling other people’s products,” says Move founder and CEO Chai Mishra. “We believe that if you want to be a truly great retailer, you have to make your own products, which is exactly what we’re doing. We control every part of the retail journey from design to delivery. That allows us to make products that are tangibly higher-quality, more affordable and more ethical.” 

The Move supermarket is focused on staples from award-winning artisans, prepared meals from Michelin-starred chefs and ethically sourced staples from around the world—all selected by members. 

Lifestyle Brands That Resonate 

Tapping into shoppers’ needs and desires and translating that research into store brands that resonate is an incredibly advantageous practice for grocers looking to grow their private label business. “Private label is a big piece of every retailer’s game plan,” says Robert Sewall, EVP of sales and marketing for Blount Fine Foods, Fall River, Mass. “But if retailers are looking to expand their private brands, they need to look at clean labels and better ingredients.”

Consistency in messaging and a faithfulness to selling store brands that all support the same core message are also key, says Sewall. “For private label products to succeed, they need to make sense to the customer,” he adds, pointing to the consistent messaging behind Target’s Good & Gather and Kroger’s Simple Truth.

Foodservice is another area where grocers can differentiate product assortment with high-quality store brand offerings. “It’s not just the retail competition down the street—it’s also the restaurant down the street,” says Sewall of today’s fiercely competitive landscape. Offering restaurant-quality store brand soups, pastas, proteins and more gives grocers a major advantage in the fight for market share.

And as trust and transparency are increasingly important across all categories in the store, premium private label also has an opportunity to advance the overall store image.

“Private label is no longer seen as a copy of a national brand on the shelf,” says Jessica Phelan, sales director of National Cortina, a supplier of imported and domestic ingredients based in Ridgewood, N.J.

Phelan sees grocers gaining credibility with high-quality store brands. “If a consumer sees a new product in a private label brand, they are more likely to venture to make the purchase because they have trust based on other items they have purchased from the brand,” she says.

“Many retailers have set goals within the next 12 to 18 months to increase their private label offering,” Phelan continues. “They view their private label as a brand that can grow as shoppers are looking for either cost savings or new innovations ... that cannot be found in their competitors’ [stores].”