Understanding private label growth: Private Label performance and trends amidst inflation 2023
US private label food sales are growing faster than those of national brands’ products, and the competition is heating up. Consumers are not only looking for value — they have a variety of reasons for switching.
Retailers can grab the opportunity to better understand their customers by identifying the opportunities that lay within private label growth.
Private label in retail 101
What’s the difference between national brands and private label?
Basically, a national brand manufactures and sells product using a brand name and owned by this company, while a private label is an exclusive product made for sale through a particular retailer. Retailers usually sell a mix of national and private label brands to take advantage of both.
| National brands | Private brands |
|---|---|
| Belongs to suppliers | Belongs to distributors and retailers |
| High consumer advertising and promotions | Low consumer advertising and promotions |
| Mostly high price profile | Mostly low/ medium price profile |
| Widely available | Available in own stores |
| Unique and difficult to copy | Low uniqueness |
| Specific and constant brand identity | Stretched brand identity, somewhat consistent across categories |
| High consumer loyalty to product or brand | Consumer loyalty high to retailer, not product or brand |
| Low/ medium coordination between buyer and seller | High coordination and info sharing between buyer and seller |
What types of private label brands can retailers offer?
There are 4 types of private labels: generics, copycats, premium store brands and value innovators.
Let’s take a look at their different characteristics:
| Generic private brands | Copycat brands | Premium store brands | Value innovators | |
|---|---|---|---|---|
| Value proposition to customer | Sold as cheapest priced product | Sold as same quality but lower price | Sold as best products in the market | Sold as best value/ price of generics but objective quality on par with brand leader |
| Goal | Provide customers with a low price option and expand customer base | Increased negotiating power against manufacturer and increase retailer share of category profits | Provide added value products. Differentiate store. Increase category sales. Enhance margins. | Provide the best value. Build customer loyalty to store. Generate word of mouth. |
| Pricing | Large discount 20-50% below of brand leader | Moderate discount 5-25% below the brand leader | Close to or higher than the brand leader | Large discount 20-50% below of brand leader |
| Packaging | Cheap and minimal | As close to brand leader as possible | Unique and differentiated | Unique and cost-efficient |
| Shelf placement | Less visible shelves | Next to brand leader | Top-eye catching positions | All over store |
| Advertising / promotion | None | Regular price promotions | Featured in advertisement but limited price promotions | In store |
| Examples | No name, black and white packages. Soap, shampoo and bread. | Walgreens shampoo. Osco vitamins | The body shop. Tesco finest. Godiva. | Aldi. H&M. IKEA. |
Why are private label products cheaper?
National brands often spend millions of dollars on marketing.
Without equivalent marketing spend, retailers can increase their exposure of private brands through in-store signage, web and mobile app notifications and clever merchandising.
This goes a long way in making private label products cheaper than national brands.
Why do retailers want private brands?
Profit margins on grocery store goods are thin — about 1.3% on average. Because of this, price competition is merciless. Retailers earn 25–30% higher gross margins on private labels compared to manufacturer brands because it’s easier to keep costs down.
For some products the cost of manufacturing and distributing a private label brand is 40% to 50% less compared to name brands.
Private label brands also allow control over marketing, allowing the retailer to tailor a product to local needs and tastes. There’s also control over production and image that private branding allows. These brands can create a greater sense of loyalty to the retailer.
Following earning results from retailers like Walmart and Target in Q2 2022, we know that retailers are really focusing on their margins and that private label is the higher margin business for them, so increasing the pace of price increases to that of branded products helps them maintain that price gap that consumers were used to in the past years.
Private label statistics
What retailers have the highest private label volume share (in units)?
| Grocer | Private label volume share |
|---|---|
| Aldi | 82% |
| Trader Joe’s | 58% |
| Wegmans | 52% |
| Costco | 33% |
| H-E-B | 29% |
| Sam’s Club | 28% |
| Walmart | 27% |
| Kroger | 27% |
| HyVee | 24% |
| 7-Eleven | 21% |
Source: Numerator Q1 2022
What are the top private label brands in US in 2022?
| Private label brands | Household penetration |
|---|---|
| Great Value | 72,7% |
| Equate | 51,0% |
| Marketside | 44,2% |
| Freshness Guaranteed | 40,0% |
| Dollar tree | 32,5% |
| Kroger | 30,9% |
| Aldi | 30,5% |
| Walmart | 29,8% |
| Kirkland signature | 28,4% |
| Member’s mark | 26,5% |
| Clover Valley | 24,6% |
| 7-Eleven | 21,1% |
| Up & Up | 20,6% |
| Good & Gather | 20,0% |
| Signature Select | 17,9% |
Source: Household penetration Q2 2022, Numerator
What is the private label share of sales in grocery, household and beauty & health, per retailer?
| Private label share of sales | |
|---|---|
| Aldi | 77,5% |
| Trader Joe’s | 59,4% |
| Wegmans | 49,4% |
| Costco | 33,5% |
| Sam’s Club | 30,0% |
| H-E-B | 26,9% |
| Walmart | 23,3% |
| Kroger | 22,1% |
| Meijer | 15,8% |
| Hy-Vee | 15,2% |
| Target | 15,1% |
| Whole Foods Market | 14,7% |
| Publix | 13,6% |
| Amazon | 3% |
Note: Kroger disputes the numbers reported by Numerator and puts its estimated own brand penetration in its food business at 27%.
What shoppers are buying private label?
Low income shoppers are not the only ones purchasing private label. In fact, private label volume share stays stable across all income groups.
In total, about one fifth of grocery units are private label across all income levels.
Also, in an average 4 week period in the food channel alone, 4 out of 5 shoppers buy private label grocery.
| Low Income (under 40k USD) | Middle Income (40k-80k USD) | High Income (over 80k USD) | All shoppers | |
|---|---|---|---|---|
| Grocery | 20% | 21% | 21% | 21% |
| Household | 25% | 24% | 23% | 24% |
| Health & Beauty | 17% | 17% | 15% | 16% |
What channels are better of private label products?
Private Label sales does differ significantly by channel, which loyalty programs having the highest private label volume share.
| Grocery | Household | Health and beauty | |
|---|---|---|---|
| All channels | 21% | 24% | 16% |
| Club | 30% | 35% | 21% |
| Online | 27% | 19% | 10% |
| Mass | 25% | 27% | 21% |
| Food | 23% | 26% | 11% |
| Dollar | 10% | 29% | 22% |
| Drug | 6% | 12%% | 17% |
Source: Nielsen
What are the top private label categories in terms of sales?
| Private label categories | Private label sales in 2021 (in billions USD) |
|---|---|
| Refrigerated products | 40,4 |
| General food | 33,8 |
| General merchandise | 25,2 |
| Meat | 22,3 |
| Health | 17 |
| Frozen | 16,4 |
| Produce | 12 |
| Beverages | 10 |
| Bakery | 7,4 |
| Deli prepared | 4,9 |
| Beauty | 3,8 |
| Home care | 2,7 |
| Deli meat | 1,7 |
| Floral | 0,8 |
Source: Nielsen, PLMA, Winsight Grocery Business
What private label products are power performers?
When we look at specific products in the grocery sector, the private label products seeing the most sales growth are varied. The top 3 are frozen baby food, refrigerated ham, and shelf-stable egg substitutes.
| Private label product | USD sales change 2020 vs 2019 |
|---|---|
| Frozen baby food | 659% |
| Refrigerated ham | 467% |
| Self-stable egg substitutes | 289% |
| Refrigerated salad dressing | 125% |
| Powdered milk | 69% |
| Wine | 54% |
| Refrigerated prickles and relish | 49% |
| Asian food | 47% |
| Fruit/vegetables preservatives (pectin) | 44% |
| Pizza products | 42% |
Source: Private label products with the greatest sales growth in 2020 vs 2019
How does private label perform online vs in physical retail channels?
Purchases of private label consumer packaged goods generally occur more often in the physical or offline retail channel as opposed to online, as consumers tend to buy private label options from brick-and-mortar stores they trust.
However, grocery retailers have tried to overcome their lower online performance, as evidenced by the number of private-label stock keeping units on their websites.
Grocery retailers’ websites private label penetration in the United States as of March 2022, by number of SKUs
| Website private label penetration | Number of SKUs |
|---|---|
| Walmart | 12,133 |
| H-E-B | 10,173 |
| Target | 8,726 |
| Kroger | 7,958 |
| Whole Foods | 5,291 |
| Albertsons | 4,138 |
| Safeway | 3,482 |
| Sprouts | 2,236 |
| Amazon Fresh | 1,811 |
Source: Statista
Understanding private label growth
Why are private labels becoming more popular among shoppers?
To keep it simple, it’s mostly due to inflation.
In July 2022, prices had increased by 8.5% compared to July 2021 according to the 12-month percentage of change in the consumer price index, respectively the monthly inflation rate for goods and services in the US.
Source: Statista
48% of shoppers are concerned about their finances and private label products are more affordable or have a better value.
In addition tho this, shoppers who intend to buy more private label products often mention the following drivers:
- 82% of consumers said that private label products are better value than national products
- 89% said they trust private label as much or more than national brands
- 87% of consumers said that the variety offered within private label is just as good if not better than that of national brands
- 86% said the quality is just as good if not better
- 26% of shoppers purchase private label products only when national branded products are not available
- 12% of shoppers find that private label products are displayed more prominently in stores or have a more appealing packaging
Which retailers’ private label brands are growing fastest?
| Private label brands | Household penetration change |
|---|---|
| Favorite Day | + 4,4 |
| Sheetz | + 2,3 |
| True Living | + 1,8 |
| Member’s mark | + 1,8 |
| Sam’s Club | + 1,3 |
| Amazon Basics | + 1,2 |
| Great Value | + 1,2 |
| Kirkland Signature | + 1,2 |
| Quicktrio | + 1,2 |
| Retailer Aldi | + 1,1 |
| Good & Gather | + 1,1 |
| Rexall | + 1,1 |
| Valuhealth | + 1,0 |
| Up & Up | + 1,0 |
| Walgreens | + 1,0 |
Source: Household penetration change (Q2 2022 vs Q2 2021), Numerator
What shoppers are contributing to the growth of private label (by income level)?
| Contribution to growth in FY 2021 | Contribution to growth in YTD 2022 | |
|---|---|---|
| Low Income (under 40k USD) | 6% | 18% |
| Middle Income (40k-80k USD) | 56% | 31% |
| High Income (over 80k USD) | 38% | 50% |
Source: Statista
We see shoppers on both ends of the income spectrum accounting for two thirds of the growth, whereas last year they accounted for less than half of the growth. It means that the importance of private label to both high and low income shoppers has magnified this year, and that retailers need to consider shoppers across the entire income spectrum.
Specifically grocery has seen a 9,6% YoY private label sales growth between January and April 2022.
Grocery continues to grow as consumers have to feed themselves and their families and the cost of food continues to rise, making private label a better or sometimes the only choice.
When we zoom in on what is happening from a consumer behavior perspective, we notice that the spend per unit increase in health and beauty and household categories has been much greater than that for grocery, which has lead to a greater decrease in both purchase frequency and units per trip for those 2 categories.
| Spend/ Unit | Purchase frequency | Units/ Trip | |
|---|---|---|---|
| Grocery | +5,4% | -3% | -1% |
| Health & Beauty | +12% | -8% | -4% |
| Household | +12% | -9% | -4% |
Source: PLMA, YTD 2022
Which channels are driving private label growth?
| January 2022 | February 2022 | March 2022 | April 2022 | |
|---|---|---|---|---|
| Gas & Convenience | 20% | 22% | 11% | 15% |
| Online | 2% | 18% | 14% | 15% |
| Mass | 6% | 10% | 9% | 15% |
| Dollar | -2% | -2% | 10% | 14% |
| Club | -5% | 2% | 5% | 11% |
| Food | 3% | 3% | 6% | 9% |
| Drug | -3% | -4% | -6% | -11% |
Source: Private Label Sales Growth YoY in the first 4 months of 2022, by channel
Dollar and club sales growth are seeing big increases in private label since price increases took place in Feb 2022, as shoppers are being forced to switch to private label while consolidating trips, and for those who can afford it, stocking up on food in anticipation of further increases.
Which product categories are driving private label growth?
In some categories, the switch into private label after february 2022 price increases has been dramatic:
| January 2022 | February 2022 | March 2022 | April 2022 | |
|---|---|---|---|---|
| Total grocery | 2% | 6% | 7% | 11% |
| Beans and grains | -2% | 1% | 23% | 32% |
| Shelf stable meals | 9% | 4% | 10% | 23% |
| Canned | 0% | 9% | 22% | 20% |
| Pasta & Noodles | 5% | 3% | 18% | 19% |
| Dairy | 2% | 4% | 9% | 18% |
| Baking & cooking | 4% | 6% | 15% | 17% |
Source: Private label sales growth YoY in the first 4 months of 2022
What consumers’ location is driving private label growth?
Consumer context is essential right now. We can then look to understand where growth is happening from a consumer’s location point of view. In this case more growth is happening outside of urban areas for private label, so retailers can devise a strategy that provides a defense in both suburban and rural areas.
| January 2022 | February 2022 | March 2022 | April 2022 | |
|---|---|---|---|---|
| Total US | 9% | 4% | 10% | 23% |
| Rural | 6% | 7% | 12% | 24% |
| Suburban | 12% | 4% | 10% | 26% |
| Urban | 9% | 0% | 4% | 16% |
How many shoppers are switching from national brands to private labels (by product category)?
We know that the growth in private label is being driven by a set of behaviors that can be bucketed into increasing spend (both by new and existing buyers) as well as brand switching. These behaviors are happening across different channels and stores, differing by category and driven by different people.
Consumers switching from national brands to regularly buying private label brands in the US as of January 2022, by product category:
| Household cleaning supplies | 20,3% |
| Over-the-counter medicine | 19,8% |
| Personal care (soap, shampoo, etc) | 18,8% |
| Apparel (jean, T-shirts, underwear, etc) | 15,1% |
| Meat and poultry | 13,1% |
| Beauty products | 8,5% |
| Pet food and supplies | 7,6% |
| Footwear | 7,3% |
| Home furnishings | 6% |
| Electronics | 4,8% |
Source: eMarketer; Bizrate Insights
Let’s recall that private label differs greatly across all channels. For that reason it’s important to understand that price increases are taking place at different rates in each channel. Online and dollar growth in price is greater than the other channels, such as food, mass or club.
Inflation’s impact on private label purchase behavior
How does inflation impact private label purchase behavior?
As shoppers had an increase in spending capacity over the past 2 years, they had been purchasing categories that have now been completely dropped from their shopping list in 2022, and that is affecting private label as well as branded products
Total private label growth has slowed down in 2022 as low-income consumers reduce spend due to inflation.
| Low Income (under 40k USD) | Middle Income (40k-80k USD) | High Income (over 80k USD) | All shoppers | |
|---|---|---|---|---|
| FY 2021 | 3,3% | 7,7% | 4,4% | 5,1% |
| YTD 2022 | -1,2% | 2,6% | 3,7% | 2,2% |
Source: Numerator
However, when we focus on categories that shoppers have to continue purchasing, such as grocery, household and health & beauty, we see an acceleration in growth:
| Low Income (under 40k USD) | Middle Income (40k-80k USD) | High Income (over 80k USD) | All shoppers | |
|---|---|---|---|---|
| FY 2021 | 0,5% | 4,1% | 1,5% | 2,0% |
| YTD 2022 | 4,9% | 7,2% | 6,4% | 6,3% |
Source: PLMA
This shows that growth in private label this year is very different from 2021.
What other circumstances have lead to new consumer behavior?
- End of government stimulus
- Rapidly rising gas prices
- Rising interest rates
- Continued supply chain issues
- Return to the office for many workers
As a result of these factors, we´ve found the following data relating to consumer behavior in 2022:
- Consumers are taking a similar number of shopping trips this year as they were last, though are slightly elevated across certain channels, most notably gas and convenience in the latest week. Trip increases are more noteworthy among high income households. Trips are down in channels such as home improvement, beauty and pet.
- Consumers are buying fewer items per trip. Shoppers are not buying more products per trip– despite spend per trip holding steady or increasing– indicating a higher spend per item. This is occurring across every channel and all income levels.
- Spend per trip is up or steady in most channels. Shoppers are spending more each time they visit select stores, particularly gas, pet and QSR channels. Excluding Prime Day in week 28, spend per trip has been generally down online in recent weeks.
- Prime Day 2022 led to an online sales surge in week 28 of 2022. Beyond that, total sales remain up across most channels the first week of August driven by higher spend per trip. Despite spending more per trip, consumers are purchasing fewer items, indicating they’re paying more for less.
We know that right now the gap between the consumer price index and the producer price index is wider than normal, and prices will continue to increase as the gap narrows back down to historical levels. Brace yourself for evolving changes in consumer behavior as price increase continues and consumers are faced with difficult choices.
Guidance for retailers
How can retailers maximize private label growth opportunities across their portfolios?
Private labels are a way to win customer loyalty. Retailers that seize this moment to reset their private-label strategies can translate short-term switching behavior into long-term customer loyalty.
Essentially, strategies to maximize private label growth should focus around knowing your customer, specifically on these 3 levels:
- Understanding who are the shoppers that are most likely to be switching into private label, beyond just income level. Ask yourself:
- who are they
- what are they looking for
- what are they buying
- identify those needs and then meet them where they shop (channel, aisle, etc)
- reach them where they get informed
- Identify private label opportunities that have been leaked to other retailers. Identify shoppers that are coming into your store but going elsewhere to buy a private label. Ask yourself:
- where are they going
- why are they going there
- identify unmet needs
- adjust value proposition, messaging, promotional activity and even packaging
- Identify high value private label buyers. Ask yourself:
- who are they and what are they buying in your store
- focus on retention
- consider ways to increase your share of their wallet
How data underpins the improvements to retailer’s operations
To see a practical example of how data-driven decision make an impact in the bottom line, let’s take a look at Kroger’s private label sales in 2021 vs 2017:
| 2017 | 2021 | |
|---|---|---|
| Sales of private label (in billions USD) | 20,9 | 28 |
| Total sales (in billions USD) | 123,91 | 138 |
| Share of sales from PL | 17% | 20% |
| Share of unit sales | 29,5% | 31% |
| Number of private label items | 15,000 | 14,000 |
Source: Kroger´s Annual Report 2021 vs 2017
Kroger’s success has come partly through an increased focus on customer data and retail analytics. The grocer captures 97% of annual transactions from 60M households nationwide — more food purchase data than any of its US competitors. This data underpins other improvements to Kroger’s operations.
Next steps
A Customer Data Platform allows retailers to harness the power of customer intelligence in real-time, identify untapped opportunities and adapt on a dime as customers’ behaviors and market conditions change.
Loyal Guru’s CDP handles retail-specific challenges, such as collecting data from millions of shoppers and monthly transactions, managing customer identification and household accounts, connecting to POS in real-time, with specific functionalities such as printing a customer’s up-to-date points balance on a physical receipt, powering cross-border and cross-currency loyalty programs and much more.
Also, developing a robust, scalable customer data infrastructure will allow you to understand your customers holistically and make your customer data accessible across your organization’s staff and systems to help you make data-driven and customer-centric decisions.
If you’re a retailer and you’d like to talk about developing your customers with advanced retail loyalty technology, please get in touch with our team – we’ll be happy to show you examples or talk through your brand’s unique challenges.
