There’s no doubt, private labeling has changed and grown in popularity in the last ten years. While there used to be a distinct gap in the level of consumer trust between store brands and national brands, this is no longer the case. More than 80% of consumers feel that private brands offer products that are at least equal to national brands, in terms of quality. In 2015, US store brand sales achieved a record high of $118.4 billion, up 5 percent over the past two years.

Recently, we sat down with Wendy Kufeldt, Managing Director at Anthem, to discuss the customer trends that are driving private label growth and how retailers can leverage private brands to extend their relationship with their shoppers.

What do tiny homes and private brands have in common?

A new trend we’ve seen emerge in residential housing is the tiny house movement, where homebuyers are downsizing, or opting for living spaces 500 square feet or less. The cost of real estate continues to climb, and consumers continue to covet home ownership. At the same time, many are spending more on experiences outside of the home, which drives the desire to minimize fixed monthly expenses including large mortgage payments. We see this affordability trend mirror the way many consumers, including millennials, are spending on household products; looking for ways to reduce their grocery spend, and turning more readily to private brands for solutions.

“The much-coveted millennial has fully embraced private brands; they will readily switch out of national brands in favor of lower priced alternatives for many everyday items, while allocating higher spends on products and experiences that have a stronger emotional relevance to them,” says Kufeldt.

This trend applies to both the in-store, and on-line channels. A recent study, conducted by Carbonview Research, sister company of The Gourmet Retailer, took an in-depth look at consumer reactions to Amazon’s recent private label offering and discovered that 97% of respondents shop on Amazon at least occasionally. Two-thirds of the respondents fall into the millennial group, holding Prime accounts; 26% of that group indicate they will buy private brand products when available.

So, what are retailers doing to develop effective store brand programs? We see 3 important strategies appear in the most progressive private brands:

Telling an Authentic Brand Story

As a retailer, building shopper loyalty is key. An authentic, well-executed private brand offering can help establish differentiation and enhance the destination status for a retailer. Elevating the shopping experience in a unique and ownable way, gives shoppers more reasons to return again, and again.

A carefully crafted strategic brand positioning along with a thoughtful and inspired design identity is key to appealing to the desired target. Package design must do some heavy lifting to communicate the private brand story effectively and break through at shelf, as promotional investments are typically lower than for national brands products.

The most progressive private brands are shifting away from trying to look like their national brand counterparts, and focusing instead on carving out distinct and ownable identities.

Shoppers need to easily and intuitively understand what each store brand stands for to effectively break into the consideration set. Are you offering a low cost alternative, a premium organic offering, or a value purchase somewhere in between? Ultimately, long term value and profitable growth is derived from well developed and differentiated brands delivering on their essential promise, consistently over time.

Strategic Product Development and Innovation

An agile and focused innovation and product development process that can address key trends in a timely manner is crucial. Consumers are hungry for news and choice. Keeping a fresh flow of relevant offers from simple flavor extensions and formats, to more unique and unexpected items helps brands attract and maintain interest from new and existing shoppers.

Leading national brands are constantly assessing and evolving their portfolios to stay relevant, address key trends, and explore new whitespace opportunities. The attention they draw to growing products and categories through innovation, packaging refreshes, and promotions can create a natural halo effect.

For some private brands, riding the trends closely as a fast follower may make sense as the go to market cycle can be condensed with the plentiful sourcing options they can tap in to. For other brands, carefully curating unique and premium items at higher price points requires an innovation model that will take more time, but can yield compelling long term return. Whatever the particular strategy, a focused and agile product development process is fundamental.

“The pace of retail is relentless, and portfolios evolve over time. Without clear and well-understood product development criteria informed by solid positioning, many brands have found themselves with disparate or inconsistent line ups that don’t communicate a consistent identity. This can create confusion and dilute the strength of the offering. We’re seeing a move toward more discipline in this area, with many private brands spending more time at the front end of the process than ever before to get this right. Sometimes, the most effective tactic is a re-fresh, cleaning up the portfolio while introducing new items that strengthen the line up,” says Kufeldt.

Thoughtful Promotion Mix That Goes Beyond Price

While a ‘low price’, or ‘value’ based positioning of private label remains important, and is often expected by consumers, moving beyond price in marketing communications both in, and out of store is part of creating a more dynamic relationship with shoppers.

Retailers who have created strong portfolios in ‘better for you’ brands spanning multiple product categories are often a point of difference to national brands. Helping consumers see how brands fit into their modern routines creates a deeper conversation. Consumer consumption patterns, meal occasions, and health trends are all areas that need to inform the messaging.

At the same time, effective marketing and promotion plans that support both national and private brands are vital.

“National brands continue to be very important in the retail mix; their well-recognized, often long loved brands, along with their strong marketing and promotional support, bring shoppers into the store, driving engagement, and dollars through the register,” says Kufeldt.

Consumers expect to see a mix of the tried and true along with the new as part of their regular shopping experience. Helping shoppers discover new products and solutions that cross brands and categories can also be a helpful tactic. Featuring a national brand ‘better for you’ item such as a salad dressing with a compatible private brand product such as a crouton or salad topper is an example. 

What is the outlook for private brands?

Increased quality perception and selection, along with the rising tide of favorable consumer trends, have created strong momentum and broad scale acceptance for private brands.

Man-Scanning-Milk-In-Aisle-Anthem

Private brand sales will continue to increase, particularly in countries around the globe with underdeveloped share such as in North America, which hovers around 18%, less than half of what private brands represent in the UK at over 40%.

“Consumer acceptance is ripe, and retailers are growing more sophisticated in their understanding of the overall value that private brand programs can create. Retailers that invest in developing strong brands, and execute well, have huge upside opportunities to grow share. Players that can carve out unique and authentic brand stories, supported by a well-articulated positioning of their private brand offerings, will be the biggest winners long-term,” says Kufeldt.

To learn about more ways to grow your private label brand, read: “Strategies for Growth: Making Change Work to Your Brand’s Advantage