Private Label,

Private Label growth in the US retail market: American consumers look for value, quality & innovation

Consumers may be grappling with uncertainty as the cost of living around the world increases at a startling rate but having spent the past week immersed in the USA retail market (at the Private Label Manufacturers Association tradeshow, Chicago, and several keynote presentations on the USA market), there is a strong sense that the private label category might capture the favourable trade winds of this moment, and rapidly accelerate its share of the grocery market. This creates a compelling reason to target the market for Australian and NZ food and beverage businesses looking to international markets to support their growth strategy.

For many years, those of us that follow the sector have witnessed the growth and private label penetration of well recognized grocers: global leader Walmart, Texas based H.E.B, or the famous New York grocer Wegmans, each with their well-established private labels. However, in the total market, private label sales are significantly behind levels that we associate with the UK or Australian market as examples. It is apparent from time in stores that a high level of the innovation is being driven by the leading CPG brands and, importantly, available across multiple grocers’ chains.

To achieve the aspirations of growth through effective private label strategies, the USA retailers will be looking for access to co-manufacturers that have high food safety standards, internationally recognized accreditations, and commercially competitive turnkey innovation to help them win quickly. Taking high performing lines or new innovative products that are already in other markets reduces the risk for new launches and accelerates speed of entry ultimately driving penetration.

Is private label growth sustainable growth?

Private label is an essential tool for retailers to differentiate from their competition in addition to increasing profitability based on scale or volume. Internationally, we are seeing an increase in private label sales as consumers switch to lower cost, high quality versions of the leading brands driven by concerns regarding the cost of living. By ensuring consistency of quality and price (quality + price=value) customer retention is achieved, however, one bad experience with a product can be detrimental to the wider brand.

A successful private label strategy gives customers a reason to shop within a particular grocery chain as they recognise, they can only buy these products within the chain (commonly referred to as a destination to shop). Attracting the consumers to a particular grocery chain based on the value or strength of the private label range, generally means that whilst within the store they shop the leading brands, and the grocer wins a larger basket or trolley spend.

mark field

It’s important to recognise that we are seeing a plethora of factors impacting consumer trends today, and analysts are increasingly applying the term ‘consumer fatigue’ as continuing to impact spending habits. All this is happening alongside a low Consumer Sentiment Index of 54.7 (considering that in May 1980 it reached a low of 51.7) that had been running at 101% within the previous 18 months suggests challenging times ahead. Consumers are clearly finding it tough. History shows that in times of hardship, consumers switch to frugality and money saving opportunities which should be good for private label sales.

In general, the USA grocers have made significant progress in improving the quality of private label products and have established a solid basis to further innovate and expand the range of products to further drive profitability.

Some key learnings based on growth of private label in international markets that can help the USA:

  • Increase the % of strategic supplier relationships to maintain supply and to encourage the longer-term investment in innovation. Partnerships drive growth through collaboration
  • Incorporate the Environmental, Social and Governance (ESG) agenda to the private label strategy especially targeting the areas that consumers care about the most – reduction in food waste, sustainable packaging, and social compliance across complex supply chains
  • Understanding where consumers have sufficient trust to switch to a private Label option is critical to success. Growing private label penetration will depend on strong category strategies and recognising where high brand loyalty will prevent consumers from switching

Anecdotal data shared during the week suggests that in customer engagement panels for branded & private label products, consumers rated taste the most important attribute, followed by price. The majority of growth in private Label is coming from the older aged group who have lived through rationing and times of food shortages, alongside the younger generation who need to make their money go further between pay days.

How can USA grocers accelerate their private label strategy to drive growth in sales?

  • Ensure private label has a pivotal role within the corporate and category strategies
  • Ensure that private label products are at least as profitable (%GP) as the national brands
  • Establish clear brand values or a playbook delivering key stakeholder guidance on what the brand stands for
  • Lead innovation with taste, develop great tasting products that are at least comparable to the leading brands, in preference to developing first to a price point
  • Develop clear product tiering covering the essential entry price points whilst also targeting the high value mid-tier or premium products. This helps win the perception of value whilst giving consumers the choice to select more expensive products
  • Win on nutrition, as consumers become increasingly demanding of food with added functionality or enrichment

private label growth

Remember: as saving money becomes important again for those consumers that need to, this will also drive growth into high value items such as meat, coffee and hair care, where spending more within the grocery store actually enables consumers to save money, versus dining out, visiting the local coffee store or stretching visits to the hair salon.

Taking the theme from last week’s PLMA conference ‘that Consumers are back in charge’ this looks to be the case and creates an exciting opportunity to accelerate growth in the USA grocery market.

How Prof helps

At Prof we are proven in delivering private label growth within major retailers and focus intimately on the consumer to help brand owners or contract manufacturers win fast. With a team located in key markets (USA, Australia, UK, and Europe) our team have all worked at senior levels across international food manufacturing or retailing. Additionally, our ESG team is there to help businesses answer the new consumer demands for responsibility, combining brand strategy with effective ESG strategies. This can be a challenge for our clients who say that they don’t know where to start, nor what to prioritise. But working alongside them, we help our clients to understand ESG and its role in their organisation. We assess their current position and guide them to set sector relevant targets while gaining essential senior leadership support.

Through our network of associates and business partners we can help companies on their private label & sustainability journey, no matter what stage they are at. We believe that regardless of scale, all businesses can make a difference now and for the future. If you want to be part of the change, please get in touch.