KANSAS CITY - When shoppers go about choosing the foods to put in their baskets, they are paying less and less attention to the brand of the product itself and more attention to what that product is offering them — whether that be value, an attribute such as natural or sustainably produced, or a sense of transparency. It’s often different for each customer, and retailers can leverage both privately labeled and nationally branded products to reach consumers.
“Younger demographics are very agnostic to brands and more focused on what does the product deliver to their own personal requirements?” said Doug Baker, vice president of private brands for Arlington, Va.-based FMI – The Food Industry Association. “It really comes down to consumer attitudes toward products in general: is it helping me with my health and well-being? Are they produced responsibly? Attributes are driving those decisions.”
For fresh perimeter products, quality is one of the most important attributes that shoppers take into consideration. In fact, when it comes to produce, 76% of consumers say that high-quality fruits and vegetables are the number one factor that comes to play when choosing a grocery store.
Coming into the pandemic last year, private brands were well positioned for success, noted FMI’s 2020 Power of Private Brands report released in the last quarter of 2020. In 2019, nearly half (46%) of consumers said store brands were very or extremely important on store choice. And aside from the second quarter of 2019, private brands were experiencing faster growth than CPG brands in the grocery category.
Early in the pandemic, private brands saw strong performance. When lockdowns began in mid-March private brands experienced a 70.9% increase, while national brands clocked an increase of 54.1%. As time progressed, though, national brand growth began to slightly outpace private brands at the end of May, and private and national labels have been toe-to-toe ever since.
It seems that early in the pandemic, when shelves were quickly emptying, private brands were less likely to see out of stocks, and as an often-cheaper alternative in a financial crisis, private brands saw an early boost. But as all brands came back in stock, consumer preference has really come down to trust in the product that comes with a name on the package, said IRI’s team lead for fresh, Jonna Parker.
“There used to be a larger share of products that weren’t aligned with any brand (private or national) and that has shifted predominantly toward more third-party packaged items in the bakery and deli in 2020 because of the pandemic,” she said. “Consumers are preferring branded over unbranded because there is a trust factor that is more synonymous with third-party brands—whether they be private label or national brands—consumers just want to know where it’s from, that it was packed safely and that it wasn’t overly handled.”
Brands can ease the load on retailers
Historically, private-label food item programs have seen the most success with center store items, with fresh items boasting the name of nationally known brands or, as Parker noted, products without a brand label at all.
As consumer attitudes have changed, there is plenty of room for both private labels and national brands on the shelf, with each having their own advantages. There are several areas where national brands can easily step in to help retailers meet consumer needs.
Unlike private brands that usually have products throughout every department in the store, national brands focus on specific categories that lend to a leading presence and ready-to-go story to give consumers the transparency and product attributes they’re looking for.
“Partnering with a brand can help bring extra emphasis to drive credibility of that category,” Parker said, pointing out that national brands can also lend a helping hand when it comes to promotion and educating consumers about products.
Most national suppliers have easily accessible websites shoppers can visit to learn more about where their food is coming from and get ideas on how to use them.
With the wide variety of national brands accessible to retailers, it’s also easy to offer a wide range of products that can cater to varying consumer preferences. For example, retailers can partner with brands that are known for their vegan products, or a brand known for indulgence, or a brand known for sustainability, that they may not be able to emulate with their own private brands.
Retailers can still build on product attributes with their own private brands, but with national brands, the reputation is already there.
“Whether you’re a retailer who frankly has an appeal to everyone, and you have a broad chain name, or you maybe don’t have a sub-brand or the marketing dollars to support a strong private brand around health and transparency claims, that’s where the national brand can give you that instant credibility,” Parker said. “That lets you put the brand on your shelf, where they are taking care of those transparency issues in the supply chain, and marketing messages. Where they can come in because they’re only making that type of product.”
Private brands offer increased flexibility
The unique thing about private brands is they are usually seen as a reflection of the overall image a store, pointed out Anne-Marie Roerink, president of 210 Analytics.
“Private brands really provide stores with the opportunity for unique offerings, and also an opportunity to create affinity that rises above individual categories,” she said.
For example, Publix has a premium-tier private brand that offers tasty ice creams. If a shopper tries that ice cream and likes it, they’re likely to try that same premium brand in the meat or bakery department, expecting the same high-quality experience.
Andrew Moberly, director of category solutions for Stamford, Conn.-based Daymon, calls this the “halo effect.”
“The correlation between private brand and fresh creates a unique halo effect over not just the category but for the store banner,” Moberly said. “This halo effect communicates quality, elevates the retailer and has a positive effect that transcends to center store as well.”
Over the last few years private brands have evolved from simply being a low-cost alternative to national brands to being real competitors and offering category innovation.
“Grocers realize that for private brands to work, it’s not just about low prices,” Roerink noted. “It’s about value for money. Private brands hit big during the Great Recession and there has been no stopping them ever since.”
While store-named and -owned brands take a lot of operational strength on the retailer side, private brands offer the benefit of being an asset that the retailer has control over, pointed out Ethan Chernofsky, vice president of marketing for Los Altos, Calif.-based Placer.ai.
“It’s an asset that you control, so you can play with the pricing, focus promotional aspects toward that brand,” he said. “It’s another way to reach your customers with the ability to create a product. The upside lies in the control and the ability to deepen the relationship with customers and touch other revenue channels.”
Retailers can use their private brands to connect with shoppers through merchandising those items in a way that resonates with consumers. For example, retailers can meet a need by cross-merchandising an assortment of private-brand items to create meal-time solutions.
For online shoppers, retailers can highlight their brands by creating shopping lists and recipes that direct shoppers to privately branded products.
"Fresh and the perimeter both have a unique opportunity to connect shoppers to the brand and the banner; leveraging merchandising as a means of promoting and capitalize on their Private Brands,” said Moberly. “Best-in-class retailers focus on connecting their online content to in-store displays in fresh and the perimeter showcasing private brand items from center store such as marinades, spices and sauces.”
Filling in the blanks
Innovation and point of differentiation are becoming increasingly important focuses for private brands, Baker pointed out.
In fact, according to FMI’s 2020 Power of Private Brands study, 83% of retailers said new products and innovation are very or extremely important for retail leaders to grow private brands.
Baker suggested looking for those white spaces in the store. What are the gaps that aren’t being filled?
“Identify those areas where you can exceed quality perception above and beyond any other brand,” he said. “Or if there’s not a brand available that has the high penetration in the marketing area then you can put a private brand there. What I like to call ‘whitespace innovation’ is what really makes a private label successful.”
Rather than looking at items individually, Moberly suggested that retailers take a holistic look at their private brand program to determine what new items would be a good fit within the already existing assortment.
“Consider if there are any holes within categories balanced with what types of items are driving innovation,” Moberly said. “If your private brand program is strong across the store, there will be no need to decide between which items to include or exclude.”
To start, retailers can take a look at where their private brand items are most successful and think about how to integrate that success elsewhere in the store. Baker used marinades as an example. If a retailer’s private brand has a marinade that’s a customer favorite, then an easy next step is pairing that marinade with a private-branded meat to offer customers unique marinated options in the meat department.
“If you have a category where private brand penetrates higher and consumers are more apt to buy private brands, then you also have a responsibility to continue to innovate and accelerate them,” said Baker.