By Mark McKeown, IRI
Walk the aisles of any grocery store and you will see a comprehensive array of store brand products across almost every category. Previously known as private label, these products have transitioned into being now known as private brands as retailers have begun differentiating them to entice shoppers. As shoppers become increasingly loyal to private brands, KPIs such as trips, basket sizes, same-store sales and overall market share has been shown to increase. Interestingly, in a recent FMI survey, 88% of retailer respondents strongly agreed that the role of private brands is to build brand loyalty while 42% strongly agreed that the role is to build margins.
There is little doubt that private brands are helping improve retail outcomes, yet the relationship between retailers and their private brand suppliers remains underdeveloped. And where does this leave manufacturer brands, which clearly are still an important part of consumer purchase in CPG?
Examples of some strong private brand labels include Albertsons’ O organics brand, Whole Foods 365 Everyday Value brand, Kroger Simple Truth and Walmart’s Great Value brand. These brands span the store and have evolved into a tiered system. There are four tiers of private brands and they are currently divided as follows: value, mainstream, premium and organic.
Private brands have also been transitioning into the role of innovative pacesetters within the CPG category, establishing top growth opportunities for unique products, simple/clean ingredients, the perimeter and prepared meals, which is now the #1 growth opportunity for private brands.
Across the CPG spectrum, private brand growth has been outperforming manufacturer brands across the store and has been leading multi-outlet growth year-over-year since 2017.
Yet the accelerated source of growth for private brands is from drug, dollar, club and mass merchandise retailers, rather than from the grocery channel. Younger consumers, especially millennials – 57% of which are heavy buyers of private brands – embrace these brands while older generations do not sway from manufacturer brands as easily. To combat this, retailers are developing exclusive brands to drive sales and brand loyalty.
At this year’s IRI Growth Summit, I presented with Topco’s vice president of marketing on our joint effort to unite retailers and private brand suppliers. Below are some ideas we discussed for retailers to promote private brands and how manufacturer brands can, too, improve their performance against this backdrop of explosive private brand growth.
Here are the five key areas retailers need to focus on to grow their private brands:
- Insights: Use insights to improve business results
- Benefits: Understand own brand benefits beyond sales, margins and loyalty
- Incentives: Incent all managers to drive category and private brand sales and measure results
- Tracking: Track share as well as penetration to ensure sales are coming from the competition
- Results: leverage IRI to deliver top results
At the same time, both private and manufacturer brand suppliers need:
- Portfolio mix: update and optimize the portfolio mix of manufacturer and private brands
- Supply chain: leverage supply chain capabilities as a key point of differentiation and commodities cost offset
- Customers: Identify the “right mix” of customers (brick and mortar, online, channel, commitment to a private brand, etc.)
- Track sales: track annual share of sales from new products; set targets to ensure the portfolio remains relevant to customers
- Test and learn: Build test and learn expertise and product capability
As private brands are now being managed for success, they require expert brand strategy and development, a range of items to meet different shoppers’ needs, a differentiator to build loyalty, and to be analyzed for performance across all aspects of the business, with insights driving improved performance.
For retailers, category growth from their own brands and manufacturer brands is critical. They know that the competitors outside of their four walls, just like with CPG brand manufacturers, are improving how they leverage data for growth too.
If you’d like to learn more about the information I presented at the IRI Growth Summit and/or the latest strategies private brands are using to grow, please contact me at Mark.McKeown@IRIworldwide.com.