The Global Terrain of Private Label
Private label has transformed the landscape of many FMCG industries. In the visual below, we have mapped the US$400 billion worth of private label sales across eight FMCG industries where private label is most prevalent. The mountain size shows the potential prize for retailers by targeting private label in each industry.
Private Label Sales Across Eight FMCG Industries
Note: In the chart, each bar represents a category. Its width represents global market size for that category, or sales of all brands within the category, whereas height represents private label share of these sales. The area of the figures represents private label sales (product of category market size and private label market share). Additionally, the figures in brackets above the chart indicate total private label sales in every industry. All figures are in US dollars and refer to retail value sales.
Majority of private label sales in packaged food
Globally, tissue and hygiene has the highest presence of private label; 16% of global tissue and hygiene value sales are represented by private label. The highly commoditised nature of the industry and the subsequent importance of shelf price have created a favourable environment for private label to grow its share. In tissue and hygiene, private label varies from 5% in sanitary protection to 40% in cotton wool/buds/pads.
However, it’s packaged foods where the largest prize for private label currently is by far. Packaged food constitutes the majority of global private label sales (US$293 billion out of US$400 billion). This is hardly a big surprise since packaged food is the largest industry, with global retail value sales of US$2.3 trillion in 2014; 13% of which is coming from private label. Given the size of many packaged food categories and the relatively high share of private label, it is no surprise that many of the largest packaged food companies see private label as the top competitor, and the recent Kraft-Heinz merger, was in part motivated by private label threat as well.
Within packaged food, the highest private label penetration is in processed products – frozen processed vegetables (36%), potatoes (30%), fish (26%) or ready meals (27%); the lowest penetration is in baby food, where brand trust tends to outweigh low-pricing considerations.
Several other examples of private label success are pet care (leading with cat litter (22%), wet dog and cat food (16% and 15%)) and soft drinks which is the second industry in terms of total private label sales with its categories. Interestingly, private label sales in bottled water and juice make up for more than private label sales in the entire Beauty and Personal Care industry.
In beauty and personal care, private label penetration remains low (3%) which can be partially explained by the importance of brand image in categories such as fragrances (where private label has a share of less than 1%) or colour cosmetics (2%).
Overall, private label tends to be highest in mature and established categories, which are less dependent on innovation and where price is one of the strongest consumer demand drivers. One of the reasons why private label is successful in such categories is the ability to save on marketing expenses – private label typically does not need advertising support, as retailer marketing alone is enough, subsequently enabling lower prices for consumers. This puts private label in a good position to win consumers who are more price-conscious and have less loyalty to brands.