Private label offers opportunities to meet underserved needs and to foster value beyond price.

Private label products have long been perceived as utilitarian and, historically, trial of store brands increases during periods of economic uncertainty. But over the last couple of years, these products have found themselves on a trajectory beyond value – to accommodate convenience, health and wellness, and the environment.

This has been an evolution from a basic label and simple packaging to a sophisticated array of unique product offerings made specifically for or even by the grocer as an extension of and representation of their value, according to Doug Baker, vice president, industry relations, FMI – The Food Industry Association.

“In a way, private brands are more than just a label,” he said. “They are an extension of the retailers’ brand and value proposition.”

As inflation-driven food prices continue to spike, private labels, which can wax and wane with economic health, are helping consumers of all demographics stretch their shrinking grocery dollars. FMI found price (68%) and value (67%) as the top reasons for buying more private brand items, with ongoing economic pressures finding consumers seeking out deals.

Perimeter appeal

Although private label gained share over the past three years, its share is lower than it was pre-pandemic. The perimeter bakery department, which accounts for more than 80% of bread and sweet goods sales, is a haven for private label choices, according to Circana, Chicago, where its products are viewed as premium and fresh.

“86% of eating occasions are sourced from retail,” said Melissa Altobelli, senior vice president, Client insights, Dairy and Bakery, Circana, “With consumers continuing to be budget constrained, they are looking for ways to have a restaurant-like experience at home, and bread, buns and rolls in Perimeter can fill that need.”

Breads and rolls are up 7% in dollars and up .4% in units, outperforming Center Store with additional Perimeter growth in flatbreads, tortillas and naan. Although still a small segment, Altobelli sees flatbread, tortillas and naan as an opportunity for further penetration. Circana also found private label growth in baked goods including brownies (+3%), cookies (+2.6%), whole pies (+5%), and multi-pack/assorted donuts (+1.4%).

“Consumers are still wanting to treat themselves but also wanting to meet budgetary constraints and avoid waste,” Altobelli said. “The perimeter also offers pack size variety – an option for the needs of different-sized households and budgets. Assorted packs allow for all-family appeal, offering a flavor everyone likes.”

Where to shop

This year, FMI found that while private label shoppers tended to skew female, millennial or Gen Z and include households with kids, frequent private brand shoppers are similar to the broader population. A 2024 Private Label Manufacturers Association (PLMA) study showed more than half of Gen Z shoppers who participated in the survey said they “always/frequently” choose a place to shop due to the store brands. 67% are “extremely/very” aware of store brands; 64% buy store brands “always/frequently;” and 56% are “extremely likely/likely” to experiment with store brands to find the “best value.”

As consumers continue to increase the number of stores they visit, these private label products can help bring people in the door to shop. FMI found 53% of all shoppers surveyed say a retailer’s private brands are “very” or “extremely important” in choosing to shop there. When used as a way to surprise and delight, private label can be a draw for consumers as witnessed by the number who choose to visit particular club stores and supermarkets to specifically purchase its private label products.

“It’s that stickiness by the consumer and the increased competition among retailers’ own brands to capture store loyalty that’s fueling the continued growth,” said Peggy Davies, president, PLMA, New York.

Additionally, 90% of shoppers said they are “very likely” or “somewhat likely” to continue to purchase private brands if grocery prices decrease – indicating shoppers are defining value with private brands beyond just price. FMI’s The Power of Private Brands 2023 report featuring information from Circana found private brand spending at Club Stores represents 21.7% of dollar share and 22.9% of unit share.

“This is higher than any other channel type with the grocery channel coming in at 16.8% of private brand dollar share and 20.9% of unit share,” Baker said. “I think the value proposition that private brands offer has driven acceptance.”

Pushing visibility

This level of support and acceptance leaves private label manufacturers with a unique opportunity to provide further product differentiation. FMI is seeing the use of store brand packaging to meet consumer demand for transparency and to communicate value beyond cost savings. This includes how and where ingredients are sourced. FMI research found 72% of shoppers say they would switch from a brand they usually buy to a different brand that provides more in-depth product information beyond what’s provided on the physical label.

As a paper bag and paper film manufacturer, AFC Materials Group, Lake in the Hills, Ill., recognizes the importance of brand loyalty in the marketplace. The company collaborates with retailers and supermarkets to design and manufacture packaging materials. This includes collaborating with companies to improve and customize their sustainability initiatives with offerings of certified recyclable packaging designed to reduce environmental footprint.

“Supermarket brand loyalty has become a major factor in the marketplace, and customers may prefer to buy private label product if it’s a supermarket brand they like,” said William Chander, packaging outside customer success representative, AFC Materials Group. “Supermarkets with strong private label sales performance will continue to expand their private label programs.”

Setting the stage

When combined, these factors have the potential to position private label at an important tipping point, especially if private label options are less likely to be viewed as trading down. In fact, FMI found 52% of shoppers see private brands and name brands as being equal when it comes to providing product trust. 62% view private brands as the same or better quality than name brands.

This could open the door for more new product introductions with unique characteristics and an LTO appeal. Examples of this include “treasure hunting” for new Kirkland Signature products at Costco or the YouTube videos of influencers showcasing their seasonal hauls of new products from Trader Joe’s. Could refinement to express innovation and enhanced consumer loyalty be the next step for private label?

That all depends on who you ask. Trends forecaster Suzy Badaracco, president, Culinary Tides, Inc., predicts little reason for further expansion of more private label products without more investment into foresights research, making the purchase of private label products more of a financial decision – trading down for cost savings. “Consumers want authentic, but new experiences, more extreme flavors and global offerings,” she said. But while innovation, surprise and delight are always a positive side effect, this should not take away from the fact that there will always be a segment of shoppers who will view private label as something somewhat less than a major brand.

Future approach

But there remains a common thread of commitment among leading store brand retailers to the quality and value of the products they offer, Davies shared. FMI found 82% of food retailers plan to “moderately” or “significantly” increase private label investment in the next two years.

This points to the ongoing importance of pursuing innovation strategies in private label products and making these products an extension of the store’s value proposition. CRB, Kansas City, Mo., finds that as the cost of major brand products continues to increase, private label’s ability to invest in product improvement and increase their prices becomes more feasible.

“Many private label companies are building brands on trending categories such as gluten- or grain-free, non-GMO, Kosher, all-natural and allergen free,” said Amy Estrada, CRB project manager. “These typically higher-cost categories are increasing presence in the market for private labels and, while their costs are increasing, those increases are less noticeable than major brands.”

Utilizing third-party producers and bakeries can also allow private-label companies to locate the capabilities and flexibilities necessary without a need for major capital investment. As private-label companies expand their market presence, the need for co-manufacturing will continue to grow, she continued.

Altobelli offered opportunities for innovation in bread products in alignment with current health and wellness trends such as keto/low carb, grain and seeded options, and slightly sweeter profiles of Hawaiian, brioche and pretzel varieties. Tried-and-true flavors such as vanilla, apple and chocolate, which drive the most dollar sales across desserts, and plain and blueberry in morning bakery, offer a solid foundation to explore the continuing “newstalgia” trend. Or take a note from the indulgent, pick-me-up flavors finding success in the perimeter such as peanut butter, triple chocolate and confetti rainbow.

By implementing an inclusive approach of packaging, products, categories, flavors, branding, supply, purchasing, logistics, inventory management, merchandising and marketing, private label has the potential to become the model for products that push the boundaries to become top-of-mind consumer choices.

“The commitment and continued innovation of their own brands in response to macro-trending consumer wants and needs are what we believe are the cornerstones for continued success and expansion of store brands,” Davies said. 

“We believe it’s the quality and innovation under the retailer’s own brand that they know and trust that have consumers loyal to their retailer’s brand.”

This article is an excerpt from the June 2024 issue of Supermarket Perimeter. You can read the entire Private Label feature and more in the digital edition here.