Viewpoint: Store brands taking the lead. Now they need to own it
If you take a step back and consider some of the macro trends in the marketplace today, it’s clear that the world of store brands is on the cusp of a paradigm shift.
The national consumer packaged goods (CPG) brands, which were the undisputed kingpins for decades, are in some cases losing momentum relative to the fast and vibrant trajectory of their private label counterparts.
This happens to be coincident with the rise of consumer segments (millennials and Generation Z) that care less about the distinction between national and store brands than any group in living memory.
The supply chain continues to undergo an astounding revolution, with ever-increasing diversity and innovation as manufacturers pull out all the stops to meet the robust demand for creative and appealing store brands.
Consolidation means that retailers and manufacturers alike have more power and heft than in earlier eras, further fueling the aforementioned demand. Likewise, the rising prominence of private label among the likes of Amazon is further reinforcing the role of store brands at home and abroad, with plenty of potential for even stronger growth moving forward.
Put it all together and the picture is clear: Private brands are positioned to become true leaders on multiple fronts after decades of following the nationals and responding to — rather than shaping — top trends.
From a certain perspective, the paradigm has already shifted: In an analysis for Forbes, Pamela N. Danziger of Unity Marketing describes a certain epiphany by Warren Buffett: Having invested heavily in Kraft Heinz, the “Oracle of Omaha” complained that Costco Wholesale’s Kirkland Signature brand alone did sales of $39 billion in 2018 — substantially higher than all the Kraft Heinz brands combined. According to the “2019 Grocery Tech Trends Study” by RIS and Progressive Grocer, 81% of grocers recorded higher private label sales over the past five years, and 42% reported “major increases” during the same time. Nielsen described the rapid growth of store brands as “a complete reversal in growth trajectory” compared to the relatively sluggish expansion of manufacturer-branded items.
But now that private label is positioned for higher performance, everyone involved in this field needs to do some soul searching. Leaders should never rest on their laurels. For decades, store brands were about following the nationals. Now is the time to look within and ferret out any remnants of that old mentality. This mindset, after all, is about settling for second best. To capitalize on today’s remarkable confluence of trends, companies need to make an across-the-board commitment to best-in-class store brands that are designed (and supported) to lead, not follow.
For retailers, that means regarding suppliers as collaborative partners, as opposed to seeing them as vehicles for improving price perception. It’s also critical that the priorities, strategic thinking and resource allocations for retailers’ disparate teams (in marketing, merchandising, store operations and more) be aligned with the master brand strategy — the overarching purpose of what you are trying to do as a retailer.
Strategic partnerships with design firms are a key part of bringing that vision to life and communicating it through packaging and other critical touch points. We’re seeing examples of this regularly with the award-winning store brands of Trader Joe’s, Wegmans, H-E-B and Costco Wholesale. However, many retailers still have a long way to go before they can spark the same kind of excitement among their best customers.
Time is of the essence here. Many of today’s top CPG companies have had 60 or 70 years to reach their peak, but still-growing Amazon became one of the richest companies in the world in a couple of decades. How much will the pace accelerate?
The industry is evolving faster than ever, so there is the need for speed. Those that commit to innovation and strong branding stand to capture the spoils of the new paradigm.
Todd Maute is a Partner at CBX, the New York-based brand strategy and design agency. He works with clients across multiple channels of trade including grocery, pharmaceutical, mass, pet specialty, consumer electronics, convenience, office, home improvement, clubs and auto parts supply; [email protected]