Private brands in the wake of inflation

A climate of rising commodity pressures and inflationary forces has historically been a catalyst for reduced discretionary income, which in turn drives growth in private brands. In fact, the 2008 recession produced the largest private brand 52-week dollar share gain in recorded memory, with many predicting the post-COVID recovery period to be a blessing for private brand share. As commodities hit record peaks in May, the current Consumer Price Index (CPI) has risen to its highest level since 2008. While the signs are present to spur private brand growth, it has not happened yet, ending this May with more than a 1% decline in share compared to pre-pandemic levels. But why?

Currently, private brand manufacturers are grappling with labor shortages, supply chain disruptions, backlogs of product and unprecedented commodity pressures. The US Bureau of Labor Statistics reported nearly 9.3 million job openings at the end of April, with manufacturing open job rates well above the national average and increasing. This loss in productivity is preventing many manufacturers from restocking inventory levels to keep up with demand. 

Additionally, freight and supply chain challenges continue to disrupt the flow of goods and raw materials globally. Month-long backups at ports have created costly downtime which has added to the pressures — and promises — of new machinery, and added capacity has been slow to materialize.

Despite these challenges, there are signs showcasing the path forward for private brands. Expanded value perception and an increased willingness to shift brands bring good tidings to private brand programs. Nationally, the average retail price per unit has risen for both private and national brands but to differing degrees. Private brand retails are rising slower — expanding the price gap to national brands by nearly 7% in the past year. With expanding CPI, and the consumer’s dollar needing to stretch further, the value perception for private brands is growing. 

Furthermore, pandemic purchasing proved the consumer’s willingness to alter their buying behaviors. As many as 70% of consumers purchased new or different brands during the pandemic. Also, 89% of consumers expressed they trust private brands as much if not more than national brands. Brand switching, expanded value perception, and continued fears over inflation and income security present an opportunity for private brands to establish trust and become a continued staple for consumers.  However, the degree of future success will directly depend on how well retailers collaborate with their supplier partners and activate integrated marketing plans to position themselves to the consumer.

Relationships matter, perhaps even more so in dynamic environments like the one we are in today. Commodity inflation and supply chain challenges can be mitigated through cross-functional collaboration and a re-evaluation of the principles of lean manufacturing and lean inventory management. Extended lead times, long-term partnership commitments, and cooperative forecasting are just a few ways that private brand manufacturers and retailers can work together to increase product supply and mitigate cost pressures.

Along with securing these partnerships, retailers need to re-evaluate how they are marketing to consumers in favor of a 360-degree approach. The surge of social media and online ordering has created an omnichannel necessity for retailers and their private brands, with nearly 40% of surveyed consumers still digitally shopping more than pre-pandemic. Retailers that connect their private brands with consumers through both a physical and digital lens have the opportunity to build loyalty and following across the entire path to purchase. Best-in-class retailers are reaching consumers with tactics including elevating their private brands on their website and social platforms, as well as promoting digital coupons that are accessible for use across all channels to incite purchasing. With these methods, private brands become the destination driver for enhanced margins, sales, and loyalty to a particular retailer.

While challenges remain present, the environment is prime for private brand to take center stage as the growth and loyalty engine for retailers. Through collaboration and improved ways of engaging the customer — retailers and manufacturers will weather these inflationary pressures, and continue to get out ahead of the ever-changing and challenging landscape in order to shape our future rather than allow it to shape us.