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The U.S. Private Label Trade Show in Chicago is PLMA’s annual industry event. The show features daily speakers and seminars, and more than 1,500 companies exhibit at the event. After attending presentations and speaking with industry professionals, we gained new insight into the future direction of private label and retailing. Below are our three main takeaways from the event.
While growth and more favorable consumer perceptions are promising for private label brands, what should be most exciting for grocery retailers is that store brands still have plenty of room to grow. In terms of value sales, store brand products are growing four times faster than national brands in almost all grocery store categories. Furthermore, an increasing number of consumers now view private label products as comparable, sometimes even higher quality alternatives to name brand products.
Despite the improvements in store brand performance, the competitive landscape of the U.S. grocery market currently stands at a critical moment in time. Private label’s market share in the U.S. sits below the global average and well under most European countries. This comparatively low share can likely be attributed to the highly localized nature of private label’s strong performance.
Store brands have yet to gain popularity in large coastal and midwestern cities. The size of these markets and their heightened spending power means these regions are critical for private label growth. Poor performance in cities like New York, Chicago, and Los Angeles suggests that private label brands need to change their offerings to cater to higher income consumers.
It is not enough to simply compete in price as store brands have traditionally done. Now, retailers must demonstrate that their private label brands can truly compete with national brands in terms of product quality and innovation.
As consumer perception of store brands improves over time, the penetration of these products will continue to grow. Retailers have done a fantastic job in recent years to differentiate among their own private label brands. From basic to premium products, grocers have excelled at making store brands more attractive for consumers than national brands.
One of the main drivers behind the strong performance of store brands is the multi-tier approach with a focus on premiumization. Retailers have achieved success through creating product portfolios for all budgets and by captivating their consumers with store brands that compete in quality and price. As Jim Hertel from Inmar Analytics mentioned at his seminar on retail fundamentals, private label puts a face to the name of a retailer, and when executed the right way, it becomes the force behind the store choice.
Grocery stores must also capitalize on their two-sided role in the private label market – they are both the manufacturers and sellers of their products. This gives them a unique set of advantages over national brands. For example, retailers determine shelf space allocation, and they often prioritize their own store brand products.
We have seen an increasing shelf presence of private label brands in nearly all grocery categories over the last year. Not only can retailers leverage their large distribution networks to cut costs, they can also utilize shopper data for better marketing and product development. Used correctly, these resources can give private label brands a significant edge over name brands.
Neil Stern, Senior Partner of McMillan Doolittle, spoke of the future of retailing in the US by showing how new technologies, such as AI and VR, are present in today’s retailing environment. The “new retail” model blends both online and offline worlds at the store.
It is essentially an online marketplace with a physical retail store which offers mobile payments and even autonomous delivery. This “new retail” is as fast and convenient as online shopping but with the attention to detail and real product selection that comes from a brick and mortar store.
In the US, we are already adopting some of the new retail model with Amazon’s Go stores. These stores use facial recognition and cashier-less payment for a seamless checkout experience. With this in mind, we should not view China as an isolated incubator of retail innovation. We believe it is only a matter of time before we see the “new retail” model growing in the United States.
This leads to the following question: If this new retail model continues to grow in the U.S., how will that affect private label brand performance? We believe a possible outcome could be an increased loyalty to retailers’ private label products. As retailers become more differentiated by the shopping experiences they offer, consumers will likely become more loyal to their stores. For this reason, in addition to their product offerings, retailers need to focus on their in-store experience to captivate customers and achieve a dominant position in the market.