Risks, rewards that come with private brand growth
Private label brands account for a large amount of the retail and food and beverage industry.
In any grocery or super store, chances are there are just as many private label brands as any other brands. According to Oracle’s Private Label in North America report, the private label dollar volume within the mass retail channel increased more than 41%, from $43.1 billion in 2013 to $60.8 billion in 2018. With this, there are huge brand and revenue opportunities for retailers and store operators.
However, with such opportunities, there are also implicit risks, such as recalls, mislabeling, contamination, etc. In the age of transparency and traceability, establishing and cultivating trust is vital to the growth and sustainability of a brand’s private label products. According to Oracle’s Setting the Bar study, 47% of consumers are more likely to trust emerging brands if they are honest and authentic. We are now in an era of high customer expectations, emerging technology and complex supply chains, and brands are now challenged with being more transparent. However, there are maturing tools, such as brand compliance solutions, which considerably reduce the time it takes brands to determine the facts of an issue and take the needed steps to adhere to problems.
With weighing the pros and cons of private label, retailers and brands may be overwhelmed with making a decision that may or may not be lucrative for them in the long run. Here are trends and takeaways when navigating the risks and rewards of store brands.
The Potential is Limitless
Opportunities are plentiful in the private label industry. In recent years, there has been an increase in the share of dollars for private labels around the world. According to a Nielsen report, in 2019, the market share for private labels increased in 12 out of 19 countries and reached 30% or more in 17 countries. However, at 18%, the U.S. is trailing the likes of the UK and Australia. This indicates that there is far greater opportunity in the private label industry in the U.S. This opportunity also translates into revenue for retailers and brands that can garner 25-30% higher margins on private label products than from branded products.
There is also long-term potential in private labeling through the value of loyal customers. According to another Oracle study, 53% of consumers turn to specific stores exclusively for their private label products. This can lead to brand loyalists over time, as 40% of shoppers usually continue to stay with brands they like rather than try new ones.
Customers Demand Transparency
Today’s shoppers want to know everything about the products that they’re investing in — from what region their bananas were grown in to knowing every ingredient in their toothpaste. Almost three-quarters of consumers value transparency about product details as important. Along with transparency, over half of survey respondents believe that knowing retailers are acting sustainably is a key influence on their loyalty to that brand.
While considering private labels, it’s important to understand that more than half of consumers care just as much about transparency, brand sustainability and ethics as they do the product. To fully comply with these high demands, brands need accurate information about not just their private label products, but their respective ingredients and suppliers, in order to provide full transparency.
Enticing consumers is important when establishing private label products, but staying true to brand promises and upholding a good reputation are imperative. More than one-third (43%) of shoppers are loyal to brands that they think highly of, indicating that consumers have no problem with shifting gears and buying other private label or name brands that align with them.
Honesty is also essential to reputation, and brands must be mindful of how products are marketed. Mislabeling of products can be detrimental to a brand and can even result in litigation. Lawsuits against food and beverage brands were up 9% in 2018, and are expected to increase.
As retailers and brands incorporate new private labels or refine existing ones, making an informed decision and utilizing the right technology is integral for success. Putting the right tools in place to capture and manage granular sourcing and supplier data will provide brands with complete visibility into the supply chain, allowing them to offer customers the transparency they demand and deserve. Retailers and brands will rest assured knowing that their private label products and supply chain are loaded with accuracy, and every reward will be greater than any risk.
Paul Woodward, retail strategy and solutions management, Oracle