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Private Label Outpaces Name Brands for 4th Consecutive Year
Year-over-year sales growth of grocery private label hits 13.7% in 2020. While private label’s outperformance narrowed, according to a recent Coresight report, its stickiness will likely continue as retailers invest in product and brand development.
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Photograph courtesy of The Kroger Co.
For the fourth consecutive year, private label in grocery outpaced name brands, with year-over-year sales growth of 13.7% vs. 12.9%, respectively, according to Coresight Research’s recent report, U.S. Grocery Private-Label Market Set to Maintain Growth Momentum.
While private label’s outperformance narrowed—outperformance was 6% in 2020 vs. 55% in 2019, 243% in 2018 and 413% in 2017, the data firm found—with both name brands and private-label products filling baskets as customers stockpiled during the pandemic, Coresight expects its stickiness to endure through continued investment in product and brand development as seen by retailers such as Albertsons, Costco and Kroger.
As the economy struggled in 2020—tightening consumer budgets—and supply chain disruptions led to shortages of name-brand products, many shoppers sought alternatives, leading to trial of private-label products, Coresight notes. Additionally, it said, premium private labels gained popularity with funds previously directed toward restaurant dining and out-of-home entertainment were reallocated to at-home cooking.
“If shoppers are won over by price and quality, turning them into permanent buyers, we will likely see a long-term swell in the private-label category,” Coresight said in the report.
Furthering indicating a consumer switch to private label, Coresight cites a U.S. survey conducted by The Hartman Group in August 2020, which found that almost one-fifth of respondents rely more on private-label products than prior to the pandemic and 52% said they expect to continue purchasing private-label brands once the pandemic subsides.
“Private label has come a long way from its generic roots and copycat phases. Consumer interest in purchasing private-label products has grown due to continuous innovations in quality, packaging and product concepts,” Coresight said. “Retailers also increasingly view private labels as a way to drive consumer loyalty, to increase their profitability and as a point of difference in a crowded retail market.”
"Private label has come a long way from its generic roots and copycat phases."
Retailers Leading the Way
In its report, Coresight identified three retailers—Albertsons, Costco and Kroger—that have established successful private-label ranges that significantly exceed the market average.
Albertsons, which introduced 650 items in its Own Brands portfolio in its second quarter ending Sept. 12, 2020, and announced plans to introduce 800 new Own Brand items annually over the next few years, reported that its private-label penetration reached more than 25% in its third quarter ending Dec. 5, 2020.
Consisting of about 12,000 items across 500 categories—including recently relaunched Soleil sparkling water—Albertsons’ own brands portfolio is worth $14 billion, according to the Boise, Idaho-based company.
Costco’s Kirkland Signature private-label products, meanwhile, accounted for 32% of total sales for its fiscal year ending Aug. 30, 2020, driven primarily by grocery, as well as health and beauty products and home cleaning goods, the Issaquah, Wash.-based retailer said.
And Kroger’s private labels captured a 21.3% share of total sales in its fiscal year ending Jan. 30, 2021. On its earnings call for its latest fiscal year, Kroger said sales of its our brand private-label portfolio reached $26.2 billion in the year, for 13.4% year-over-year growth.
“While grocers have stepped up their private-label efforts over the past few years as they seek attractive margins and means to differentiate themselves, many retailers fast-tracked new private-label products and scaled up distribution of existing portfolios with the onset of the pandemic,” Coresight said. “Encouraged by customer responses amid the economic slowdown, retailers are continuing to extend their private-label offerings and move into new categories.”
Seattle-based Amazon is one such retailer, unveiling private-label food brand Aplenty in April. Aplenty products, which will comprise hundreds of products ranging from confectionery and savory snacks to pantry staples and frozen foods, will be available online and at Amazon Fresh grocery stores by the end of next year.
Target is another: In March, the Minneapolis-based grocer launched food and beverage brand Favorite Day, which is set to feature more than 700 products primarily focused on snacks and treats.
Photograph courtesy of Target
Riding the Momentum
Coresight identified a few ways retailers can strengthen their own private-label offerings going forward.
Focus on introducing or expanding sustainable and natural private-label options. The health and wellness trend seen over the past few years gained even more traction during the pandemic. Coresight said natural and organic products, including those without synthetic color and artificial preservatives or those that meet certain criteria (such as non-GMO), represent a significant growth opportunity for retailers in the private-label market. It also said retailers should promote messages of well-being and sustainability around these products by displaying product origin and sourcing details on packaging, for example.
Curate private-label product assortments to include products such as cakes, ice-creams and desserts. In contrast to health foods, Coresight expects this category to also boost sales and help to sway consumers in their decisions on where to shop.
Take advantage of the rising popularity of plant-based dairy and meat categories. For retailers that already have private-label plant-based lines, Coresight suggests expanding with new and exciting goods. On the other side, it said retailers that have not yet introduced a private-label plant-based product line should consider developing one. Kroger in October extended its plant-based foods, including nondairy cheeses, oat milk ice cream and chicken-less patties and grinds, under its Simple Truth Emerge line.
Leverage the widespread adoption of e-commerce by directing consumers toward private labels as they do their online shopping. Coresight suggests retailers create dedicated website pages and search functions on their websites for private labels. It also said retailers should look to drive private-label engagement through integrated online content that positions their private-label products as solutions.
