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02/11/2021

Voices of the industry: Experts weigh in on private label’s future

Dan Ochwat
Executive Editor
Dan Ochwat profile picture

The pandemic’s impact on retail and the private brand industry in 2020 cannot go understated, and it will continue to ripple into this year.

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For more than 10 months of the past year, COVID-19 has had a stranglehold on the supply chain system, pressuring retailers to keep the most necessary items on shelves while challenging relationships with store brand suppliers to keep that supply chain moving the most efficient way it can.

On the positive side, store brands are thriving. As the economy tightens, consumers are buying more private brands. Retailers are taking advantage of brand-switching opportunities and pushing their own brands further than ever before.

To encapsulate this year and how it could play out in the months ahead, Store Brands fielded commentary from more than a dozen thought leaders across retailers, manufacturers and more. Hear their voices:

RETAILERS

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Jeff Bobbitt, interim lead for private brands, Peapod Digital Labs, Ahold Delhaize USA
Last year saw a lot of change across all industries but in retail specifically, we saw a shift in consumer buying patterns toward healthier and more sustainable product options. As consumers weathered the pandemic, it seems more thought has gone into what they are eating and what goes into the creation and formulation of those products, including private brand options.

With this in mind, we are planning to focus on ensuring the private brand products we offer as a service to Ahold Delhaize USA’s local brands and their customers maintain best-in-class standards for safety, quality and sustainability in 2021. We are also focusing on our commitment to providing consumers with cleaner food and formulated nonfood products. Through our clean label commitment, we will remove undesirable ingredients such as synthetic colors, artificial flavors, preservatives and sweeteners, as well as MSG and high-fructose corn syrup by 2025. 

Our sustainable chemistry policy will be to remove any chemicals of concern from our private label formulated nonfood products and our packaging. We are also working toward zero plastic waste from our private brands packaging by 2025. To achieve this goal, we are working to make the packaging we use 100% reusable, recyclable or compostable.

By making sustainable choices, we hope to have a positive impact for consumers and support them in making healthier and more sustainable choices, all at the value they expect from private brands.

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Scott Patton, vice president of national customer interaction services, Aldi U.S.
It goes without saying that just about every aspect of our lives changed last year, and the private label and grocery industries were no exception. That being said, the pandemic has not slowed down our incredible suppliers — in fact, it has strengthened our relationships with them in many ways — and they continue to create the best products out there. We’re very proud of our Aldi-exclusive brands and we know our loyal fan base loves them too.

Our priority for this year remains the same: safety. We continue to prioritize the safety of our employees, customers, suppliers and community partners. And we’re also sticking to our promise of offering the best Aldi-exclusive products at the best prices possible. Our team is always monitoring food and customer trends and we have some exciting new products in store.

As value has become increasingly important to consumers, I expect private label brands to continue to grow and gain recognition from customers. Smart consumers understand that a national or name brand doesn’t necessarily equate to quality. This is something our shoppers know to be true and it’s why they keep coming back to us.

No matter what the next year brings, we’re committed to providing shoppers with the groceries and household goods they want at the lowest possible prices. Customers can trust we will do everything in our power to continue delivering on that promise.

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Brad Studer, senior director of Our Brands, Kroger
2020 presented unprecedented challenges and opportunities for the private label industry. At Kroger, we remained focused on our most urgent priority — providing a safe environment for associates and customers with open stores, comprehensive digital solutions and an efficiently operating supply chain so that our customers have access to fresh, affordable food and essentials. 

We also maintained our commitment to our customers to deliver value, variety and quality across our exclusive Our Brands portfolio, launching more than 700 new products from Simple Truth, Kroger, Private Selection and more in 2020 alone. 

As we look to the year ahead, our team of Our Brands trend experts, product developers, chefs and innovators has identified sustainability as a high-impact opportunity for the private brand sector. 

According to Kroger’s 2021 trends outlook, consumers are more interested than ever before in the environmental impact of their lifestyle choices. A growing number of consumers are also embracing flexitarian living and reducing their intake of meat and dairy products. In the coming year, private brands will need to respond to these consumer trends with an increased selection of eco-friendly products that help customers reduce their carbon footprint with plant-based foods, sustainably packaged products and more. 

At Kroger, we recently introduced more than 50 new plant-based foods to our private brand portfolio, across non-dairy segments, meat-free grinds and more. We look forward to continuing to drive the growth of this category in 2021 through our Simple Truth brand, which exceeded $2.5 billion in 2019 sales. 

We’ve also responded to growing consumer interest in sustainable product packaging through the launch of our Simple Truth Recycling Program, which we’re endeavoring to expand in the year ahead. Introducing new recycling initiatives doesn’t come without its share of challenges for private brands, including new marketing priorities and project management workstreams. Collaborating with trusted partners to develop, launch and manage these programs is key to eliminating these barriers to success.

As consumers’ eating styles and health and wellness goals continue to evolve in the new year, private brands are uniquely positioned to respond with creative, innovative products and services to meet their needs. At Kroger, we believe that everyone deserves to have access to fresh, affordable and delicious food, no matter who you are, how you shop or what you like to eat, and we will continue to innovate and inspire our selection of products to deliver on that very promise for our customers.

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Kirk Lauterback, COO, Shopko Optical
The store brand industry is giving brands opportunities they haven’t had in the past, which is going to increase profitability, help with customer retention, and offer new marketing opportunities. Simply having your private label and logo on store shelves and on a product that customers use every day, acts as a branding opportunity that shows your customers that you’re looking out for them and are interested in saving them money.

From an optical industry perspective, I anticipate several positive changes for the future of private labels. For one, it’s becoming more empowering. Private label has always given optical companies a way to differentiate themselves and create customer loyalty, since patients can’t buy the store brand products from competing retailers. 

For products that don’t change rapidly, and are considered commodities by some patients (such as contact lenses), private labels can give the retailer the opportunity to keep customers in-house since they are unable to get the same contact lenses from a competitor. For eyeglass lenses, private labels can help differentiate the practice with technology and customization that our patients can’t get elsewhere. For eyeglass frames, however, minimum order quantities traditionally have been a barrier to profitability, as fashion styles can change rapidly, leaving the retailer with frames that may or may not sell. Designer brands can overcome those shifts more easily since they have more capacity to quickly change frame designs on a larger scale.

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Stew Leonard Jr., CEO, Stew Leonard’s Grocery
We saw a lot of growth in Stew Leonard’s private label brands in 2020, particularly in our organic offerings. Stew’s organic milk, broths, and tortilla chips all saw a huge uptick in sales.  Similarly, our imported private label items — like our Mediterranean olive oil, French lemonades, and our Simply Marinara tomato sauce from Italy — have almost doubled in sales. The biggest surprise of 2020 was the growth in sales of our Stew Leonard’s reusable bags. With so many plastic bag bans being passed in our communities, we’ve tripled the sales of reusable bags.

COVID-19 really impacted our vendors’ lead times, so our buyers started planning earlier than ever before for 2021. A new 3-liter tin of Stew Leonard’s Mediterranean Blend Olive Oil will hit our shelves soon — we’ve found that so many people are cooking at home due to the pandemic — and I think our shoppers will appreciate the convenience, the quality, and the value. 

We’re also excited to offer a new non-GMO almond milk. With plant-based milk sales being 15% of our overall milk sales, I think plant-based products are going to continue to be hot throughout 2021 and beyond. We’re actively looking for a vendor to supply a private label plant-based ice cream in 2021, in addition to other frozen private label items like frozen fruits and vegetables, a chicken family pack, chicken nuggets, and pizza. We are also hoping to add private label shrimp, spices, new potato chip flavors, whipped cream cheese, and organic sandwich bread to our shelves this year.

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Luke Rauch, vice president of commercial strategy, Walgreens
Walgreens’ private label strategy was on a roll before the pandemic hit, but it has accelerated at a faster pace than ever before. The supply shortages and recessionary impacts led new customers to try private label for the first time, and folks are also more mindful than ever about how much they are spending. Our revamped Compare & Save platform is playing a big role here, as it simply highlights that our Walgreens products offer the same or better quality at a more competitive price — both in-store and online.

This helps customers very clearly identify the value of our products and assures them that we are not making quality compromises.

Additionally, we are working hard to put our brands more at the core of everything we do. A good example of this is how the Walgreens brand is coming to life through our newest platform, myWalgreens. It is a complete reinvention of our customer loyalty program with new benefits, rewards and features. 

Our Walgreens brand is front and center of this launch. For example, customers earn additional myWalgreens Cash rewards on Walgreens-branded products versus the national brands — this allows us to further solidify our value proposition while keeping owned brands at the core of our communication strategy.

In 2021 we will continue to build off our tremendous momentum, while further enhancing our product portfolio and look and feel, while continuing to ensure our value proposition is stronger than ever.

MANUFACTURERS & SPECIALISTS

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Clay Dockery, division vice president, corporate brands, Massimo Zanetti Beverage USA
2020. In one word, a summary of how we will reflect on the many challenges we faced as we mourned those lost as well as the loss of connectivity. However, there are many positives that came out of this pandemic that are worth celebration. Families reconnected. The kitchen was discovered. New recipes were tried. Baking and cooking was not a chore, but rather a shared enjoyable activity. As we look forward to 2021, I am very optimistic about the year ahead. 

Private brands continue to play a significant role in the lives of virtually all Americans. As consumers tightened their belts, there was a discovery about the range and quality of private brands available. During the last recession, consumers who discovered retailer brands remained with those products when the economy improved. Why? Because the evolving relationship between retailers and manufacturers has elevated to a strategic partnership with the consumer at the center of all discussions and decisions. 2021 will be a year of very positive growth for our industry.

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Rich Sorota, executive vice president and president of consumer self-care Americas, Perrigo
As a leading global provider of quality, affordable self-care products, heading into 2021 Perrigo is uniquely positioned in a world where both our retail partners and their consumers are placing far greater emphasis on self-care, value and digital/e-commerce. 

As the COVID-19 pandemic continues to take hold, retailers are proactively pursuing high-quality products that offer differentiation in the marketplace, not only to increase their overall self-care basket but also to build customer loyalty and trust as well as drive foot traffic to their stores and online. The innovation and customization necessary to create unique self-care product offerings is a point of differentiation and core capability of Perrigo which we will continue to leverage into 2021.

The pipeline of Rx-to-OTC switches seems to be reemerging as an opportunity for growth, with the number of approvals in 2020 far outpacing those in the previous five years. While it remains to be seen if this pace will continue, increasing affordable access to needed remedies is a core tenant of our business and we continuously monitor opportunities in this area. 

Lastly, consumers are not only demanding quality, affordable self-care products, but are also procuring them through various channels, making the availability of our products via e-commerce, store-pickup, etc., critical in 2021. Over the past few years, we have invested in digital capabilities, technology and the know-how necessary to support our retailers in succeeding online. 

What remains to be seen in the new year are the potential supply chain implications associated with the pandemic and the impact of continued lockdowns and restrictions on consumers shopping behavior. Some of the raw materials needed to manufacture essential products are continuing to experience high demand. We are intensely focused on returning Perrigo and retailer inventories to normalized levels to ensure all products are available to consumers when and where they are needed. 

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Aimee Becker, senior vice president of strategic advisory, Daymon
As the grocery industry moves into 2021, private brands have an opportunity to experience tremendous growth. With increased consumer trust during the pandemic, private brands are uniquely positioned to support the changing needs of consumers.

The most significant consumer change is with the continuation of working from home and e-learning, they are eating more meals at home. The pandemic has also caused Americans to have an increased interest in health and wellness, with a focus on food as a solution. And, with the evolving role of e-commerce, shoppers are expecting more than just product procurement. We believe private brands can play a key role in supporting these three focus areas. 

Home (Continues) To Be the Hub: With 71% of U.S. adults currently working from home, and with e-learning continuing, the home is the center of entertainment and meal consumption. Consumers are looking for solutions from pantry-stocking items, to frozen, to meal kits to meal inspiration, and there is an opportunity for private brands to meet shoppers needs at every meal. For example, with fewer people commuting to work there is a renewed interest in eating breakfast at home. 

Refocus on Health and Wellness: As an effect of COVID-19, 2021 will bring a greater consumer interest in health, wellness and immune building. Shoppers are looking for ways to not just eat healthier but be healthier, and are seeking ways that food, beverage and vitamins can enhance their health. Private brands have an opportunity to add “better for you” ingredients to everyday products to support consumer concerns such as improving gut health or fighting inflammation. With this refocus, we will also see the increase in consumer demand for plant-based products in new categories. 

Evolving Omnichannel with Private Brand in Mind: Grocery e-commerce soared during the pandemic, and 7 in 10 shoppers plan to continue to shop online in 2021 and beyond. Moving forward, all retailers must consider the evolving omnichannel environment and its impact on private brands. The first obstacle is ensuring your private brand items are well represented on your website. Shoppers can’t buy what they can’t see, so the digital shelf is critical. Retailers should dedicate digital real estate to private brands through product features on their home page, dedicated brand landing pages, features on social media platforms and digital couponing.  

Another potential opportunity is rethinking the traditional grocery list to be a differentiator in the digital world. With Americans spending an increased amount of time at home, they are shopping in real-time building their basket as needed. This means, unlike the physical store, they know the total value of their basket before checking out. Leveraging your private brand as an option along this journey can help shoppers better manage their budget and grocery spend.

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Jen Gaeto, senior creative and strategy director, Equator US
In the last year, many large retailers streamlined their offerings, removing low-performing items and refining the core brand. In 2021, they will be looking to flesh those offerings out once again. Having shaved off the extraneous and underperforming, they’ll have created space for a host of fresh innovations — exploring new ingredients, textures and flavors.

Widespread consumer attention on health and wellbeing will continue to drive performance of products in the private brand health crossover space — like electrolyte-infused water, for example. Today, retail heavyweights are emphasizing health-related callouts and choosing earthy palettes which underscore natural ingredients and provenance.

Private brands are in an excellent position to deliver “attainable” luxury, satisfying consumer appetites for indulgence as the pandemic continues to restrict our lifestyles. In premium, glitter and foils will continue to be replaced by more sustainable options as brands respond in myriad ways to public concerns over plastics pollution and climate change.

Expect to see a greater shift towards packaging which aids post-consumer recycling, including integrated digital watermarking. Although this isn’t new technology, digital barcodes enable “smart sorting” and do not interfere with design. Eventually this will increase the availability of high quality of recycled substrate, supporting brands with circular economy objectives.

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Doug Baker, vice president, industry relations, FMI – The Food Industry Association
One of the many consequences of the COVID-19 pandemic has been the reduction — or complete halt — of product innovation as brand owners and manufacturing partners worked to address the significant demand on the food retail supply chain. Still, a silver lining emerged for food retailers during this challenging time, with one-third of consumers surveyed in our July U.S. Grocery Shopper Trends tracker saying they expect to purchase more private brands, and 13% expecting to purchase much more than before the pandemic. This shopper sentiment for increased product trial suggests a renewed commitment to innovation.

To meet unprecedented consumer demand, companies suspended and ultimately eliminated several slower-moving products to create efficiency in the supply chain. Arguably, the byproduct opened a clear runway for product innovation beyond jus products or flavors. In fact, companies suggest considering a variety of topics like occasions; sustainability; transparency; health and well-being; partnerships; e-commerce engagement; and social media where innovation can enhance private brand appeal, build loyalty, and drive sales.

As private brands continue to grow into robust brands in their own right, it’s more important than ever to get the word out to shoppers. Retailers must be creative and use the tools they have within their arsenal, since marketing budgets and merchandising strategies are managed differently than large, national brands. We are also reminded that food retailers already employ the largest salesforce: Their store associates serve as ambassadors of their private brand programs.

One hundred percent of retailers surveyed in our Power of Private Brands report said it would have a “major impact” if store associates became more engaged. That stunning level of agreement is rare and needs to be taken very seriously, especially since most respondents — 65% — said store associates are only currently somewhat engaged with private brands.

It’s important to consider what store associates need to know about private brands in order to advocate for their adoption. The future of private brands suggests new ways of thinking and aligning with the shopper, and we encourage senior executives to consider these approaches for 2021 strategic planning. We learned in FMI research that it remains crucial to put both talent and resources against growing equity in private brands in order to continue the growth afforded by the pandemic.

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Sarah Stieby, marketing manager for Fresh-Lock Zipper, Presto Products
Private labels have a huge opportunity to win with guests by taking a leading role in sustainable packaging, the demand for which has been growing year over year. 

Retailers are in a unique position to create a drop-off program and use a multi-touchpoint platform to educate consumers on how to use it. This can be achieved by including clear instructions and icons on packaging that are tied to drop-off bins, store signage, reusable shopping bags, and even rewards programs and campaigns. These instructions can give consumers the knowledge and incentive to properly recycle sustainable materials like flexible packaging.

Many store brands already have these types of programs in place, which is fantastic, but now is the time to shine a light on them to increase participation. When eco-conscious consumers feel they are helping the cause, they will share their experience with others and drive repeat business and consumer participation. Retailers can enjoy this as well as a smaller carbon footprint, thanks to better packaging materials and more recycling through their program. 

By creating these types of programs, and educating consumers about sustainable packaging options, private label brands could actually see a circular economy and likely influence national brands to follow.

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James Butcher, CEO, Solutions for Retail Brands
COVID-19 has put health at the center of people’s lives, and this has impacted how they shop, eat and cook. Therefore, successful store brands will need to continue to react to this demand. Importantly, not just with specialist organic or free-from ranges, but everyday products which are healthier but remain accessible and cost effective to consumers.

The economic impact of 2020 is unavoidable and therefore value will be a key battleground in 2021, no more so than in store brands. But successful store brands will resist the proverbial race to the bottom. After a pause in 2020, several retailers have confirmed they are resuming or increasing new product development and the focus should be value and consistent quality at an affordable price. For example, recent research by Cleveland Research confirmed the most important things to increase food convenience sales was quality (ahead of price and choice).

Therefore, store brand teams will need to focus not only on the speed of development but how they engage suppliers to ensure consistent quality after launch. So that customers who try new store brand products return for more.

To achieve cost reductions without compromise to quality, there will be an inevitable continued reduction in choice. Range rationalization will be used to support price, and this will mean store brand teams will need to be more agile in their response to opportunities and competition. It is inevitable that 2021 will see continued investment in collaborative tools for private brands.

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Jim Wisner, president, Wisner Marketing
There is no question that private brands have become a dominant force at retailers and with consumers. As a result, we are entering what will clearly be a golden age for private brands. Here are just a few of the reasons: Continuing retailer emphasis: In the third quarter alone Kroger launched more than 250 new private brand items, the most ever for a single quarter. Albertsons recently announced a private brand penetration goal of 30% and now offers more than 12,000 items. Most all retailers have announced they are taking a similar path. Our research has demonstrated that the number of private brand SKUs in a category is by far the strongest determinant in growing share.

Industry support: On top of its highly impactful Power of Private Brands series, FMI is now launching Private Brand Management: A Shopper-centric Approach, a comprehensive program for its members to better leverage the enhanced profitability and consumer loyalty that results from private brands. This new approach is expected to replace category management and refocus product management to better benefit the shopper in the retailer.

Innovation: Many leading CPG companies have announced a significant de-emphasis of product innovation, directing manufacturing capacity towards their core brands that have benefited from increased sales during the pandemic. In the meantime, private brand is assuming the lead with new product concepts, particularly with premium, better-for-you, and lifestyle brands.

Consumer embrace of private brands: Private brand quality is uniformly high at virtually every retailer, and in many cases, is exceeding that of many leading national brands. Private brand products are increasingly becoming a first choice for shoppers, rather than merely a lower-cost alternative.

Online shopping: Digital grocery orders create a new dynamic with the shopper in which 100,000-sq.-ft. stores are reduced to as little as 14 sq. in. What the customer sees first is controlled by the retailer; by strategically inviting comparisons and offering private brand options, most all retailers now report that private brand penetration is significantly higher in their rapidly growing e-commerce business.