Private Label Sales Growth Opens Door to Expand Consumer Loyalty

Mark Field of Prof. Consulting Group discusses the opportunities for retailers to use the current strong consumer demand for private label products to strengthen the connections to where they shop.

The time is now for private label growth in the U.S. retail market, as American consumers look for value & quality, and the opportunity it brings to build consumer loyalty.

Consumers continue to grapple with uncertainty as the cost of living around the world remains high. But there remains a strong sense that the private label category might capture the favorable trade winds of this moment, and rapidly accelerate its share of the grocery market. 

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 store brands. However, in the total market, private label sales are significantly behind levels that we associate with the United Kingdom or Australian markets, 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 understand the prize, let's quickly recap on why a strong private label strategy is important: Loblaws in Canada (probably one of the very best food grocers today) have led the charge with private label. In the early days of the journey, Dave Nichols (head of private label) developed the Ultimate Chocolate Chip Cookie – a box of cookies that were the best tasting cookies in the market. This became a beacon for private label winning on value (quality x price). Delivering on two key objectives, firstly inspiring team members to become ambassadors for their company owned private label products and – equally importantly – a great product that was only available within Loblaw’s stores, driving customer loyalty. Today many of the most successful grocers with strong private labels have their own Ultimate Chocolate Chip Cookie replicating this strategy.

A successful private label strategy gives customers a reason to shop within a particular grocery chain, as they recognize they can only buy these products within this chain, leading to what is commonly referred to as a ‘destination’ to shop. Attracting 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.

It’s important to recognize that we are seeing a plethora of factors impacting consumer trends today, and analysts are increasingly applying the term ‘consumer fatigue’ as the economic environment continues to impact spending habits. 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, American 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 be applied to opportunities in the U.S.: 

  • Increase the percentage 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 recognizing where high brand loyalty will prevent consumers from switching
  • Increased discount for loyalty program members, visual at the point of purchase further highlighting saving opportunities

Additionally, as grocers look to improve engagement with consumers, we are seeing some interesting innovations that include:

  • Digital solutions that take Key Value Items (KVI – the top lines that retailers are regularly price compared on) and making them personalized to consumers, therefore increasing impact
  • Compare and save strategies at point of shelf on key lines highlighting the savings consumers make by switching from the leading brand to a private label offer
  • Price shielding where during promotional activity in a category the private label product remains the best value offer whilst maintaining penny profit levels per product sold

Anecdotal data suggests that in customer engagement panels for branded & private label products, consumers rated taste the most important attribute, followed by price. The highest percent 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 paychecks.

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

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.

Mark Field

Mark Field is the director and founder of Prof. Consulting Group, a food and grocery consultancy. Headquartered in Melbourne, Australia, the company also has a network of offices in the United States and Europe.

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