Private Labels’ Rising Success

Leveraging their relationship with consumers, retailers are pushing their own brands for large profits.

October 14, 2019

ALEXANDRIA, Va.—While big name brands are well known throughout the nation, retailers have enjoyed accelerated sales growth from their private labels, reports GroceryDive. With sales averaging about 2.2% in 2015 and rising to about 5.8% in 2018, many stores are attributing the success to a more personalized relationship with consumers.

Utilizing access to their basket-level consumer data, major retails such as Target and Kroger have recently made moves to up their game with their private labels. Target, for example, revealed its new private grocery brand “Good & Gather,” while Kroger launched “Simple Truth Plant Based,” Other retailers such as Amazon, Aldi, and Lidl have also made similar efforts to expand their profit margins. However, Costco’s Kirkland remains at the top of the private-label success chart, with sales exceeding $39 billion a year, according to Coresight.

In Coresight’s report, it’s noted that, “Retailers control ‘prominent shelf and display space,’ which they can save for their own brands.” Additionally, as they utilize third-party manufacturers and are not forced to eat the facilities cost of production, they are able to create private labels at a lower cost, leading to lower costs for the retailers and consumers, allowing for higher margins for the retailers.

Private labels also may get another boost as fears of a possible economic recession grow. During periods of economic downturn, private labels do well. From 1981 to 1982, sales of private labels rose to 17% of U.S. supermarket sales. Later in 1996, this average landed at 14%. During the most recent recession of 2008-2009, private labels soared again in sales.

The counter to this, though, is that since 2009, private labels have been growing “steadily but at a slower rate” instead of teetering off in profits. Private labels are no longer the “back-up” purchase when money is tight. Rather, the slow growth indicates that many consumers now prefer these options to CPG brands, a positive for retailers, but a challenge for CPG makers, who continue to make new products and flavors to rival their private label counterparts.