Private labels are no longer labels. They are brands. And in some cases, even more specifically, “lifestyle brands.”
This is the term Mark McKeown, a principal with IRI, said his research firm, along with FMI — The Food Industry Association, devised to recognize the power of retailer store brands that cross categories, aisles and departments.
“That’s a significant competitive advantage for the retailer,” McKeown said. “If they’re competing against other retailers, and let’s say Kroger can execute Simple Truth, and do that across multiple categories, then a consumer will trust that brand when they go into a new category because they’ve had a great experience with that brand in maybe eight or 10 other categories in the store.”
Thus is the state of the private label industry. Even as private label becomes a permanent part of most mass retailers’ merchandising strategies — and grow to generate as much as 25% of total store sales — retailers and suppliers continue to dance around how they can do even more for the category.
He said private brands also are seeing growth, including a compound annual growth rate that’s two-and-a-half times larger than national brands, per Nielsen, because retailers have more relationships with private brand suppliers that enable them to build quicker, more agile innovation cycles, and the expansion of private brands helps improve the retailer’s overall margin and growth.
The State of Supplier Relationships
With this success though, what kind of stress is being put onto the relationship between retailer and private brand supplier?
McKeown says the first thing suppliers need to do is to start thinking more like the brand they represent, admitting that it’s tough to change when a supplier has been using the word “label” for 30 to 40 years.
“That’s the first change, is getting the private brand suppliers to start talking about their customers brands and thinking about them the same way,” he said. “They are a brand.”
After that, there is a big issue over supply and demand. Retailers need to work with multiple manufacturers to keep up with the demand for products in their private label lines, especially those that fall under the clean label, fair trade, organic and sustainable categories. “I think you might find a different contractual and partnership agreement between the supplier and the retailer in those tiers,” he said.
Steven Howell, a consultant with Solutions for Retail Brands, a software and consulting company that works with private brand manufacturers, said the suppliers are the true experts in their categories and retailers should lean on them more for insights. A lot of the company’s work is with retailers whose private brand missions include organic, premium, fresh and sustainability.