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Private Label Powers Ahead…But Not Equally

2018 was another banner year for private label. In a report issued by the PLMA utilizing Nielsen data, store brand sales across all outlets grew to $128.6 billion, up 4.4% from a year prior. Total market share from a dollar perspective grew to 18.5% in total, up half a point while unit share rose to 22.3%.  The overall market grew just 1.7%, which means that private label sales continues to outpace those of mass brands.

As always, there are numbers behind the numbers. Consumable private label sales (as measured by Nielsen) in the mass/club/dollar channel grew 8.8% last year, accounting for $60.2 billion in volume. Between 2013 and 2018, private label grew $17.7 billion to reach a 19.3% share in this channel, meaning total dollars grew more than brands, despite private label being on a lower base.

The story is different in the supermarket channel. While private label has grown overall, grocery tells a slightly different story. While dollar volume grew by .5% and rose to $59.8 billion, overall unit volume actually declined for the second year in a row and volume rose slower than national brands for another year.  That mass/club/dollar channel is now larger than grocery in aggregate.  More critically, this channel is continuing to gain market share overall.

I’m not surprised by the stagnation in grocery. Like many trends, this one feels largely self-inflicted, driven by complacency and a general lack of innovation. While category leaders like Kroger now exceed 26% of sales through private label, Kroger is now uniformly being matched. As an example, Kroger has built a $2 billion brand in Simple Truth, which focuses on organic, free from and natural products while at the same time continuing to work on the nuts and bolts of their core national brand equivalent products.

Brian Sharoff, Chairman of PLMA, attributes the problem supermarkets are facing to a much lager macro strategic issue, with private label being a minor symptom of a bigger disease. “The supermarket channel is locked into a product assortment that is less and less relevant every year but doesn’t know how to change”. Their problem, he would argue is not the stagnation of private label innovation but the stagnation of the model. And, every year, new competitors are creating more relevant models, often with private label as a competitive driver.

  • Target has created dozens of new private brands over the past eighteen months, including brands like Cat & Jack which is now over $2 billion. Corresponding with Earth Day, their latest brand, ever spring, recently launched. Focused on sustainable cleaning products (think Method), this is a terrific looking product that in many ways exceeds brand standards from a packaging and presentation standpoint.
  • Costco’s Kirkland brand delivered $39 billion in revenue in 2018 alone (across more categories than Nielsen measures), making up one-third of that company’s revenue and it shows no signs of slowing down.
  • Whole Foods created a private label product around sheet masks, which is a hot, but still small beauty category and Aldi created a line around plant-based products called Earth Grown. While there may not be huge volumes in these categories (yet), Whole Foods demonstrates meaningful leadership and differentiation.
At $128 billion, private label is now a big and maturing business. If private label is going to continue to grow, it will have to innovate. More critically, it will have to innovate beyond simply national brand emulation. More importantly, broader channel innovation needs to occur—the supermarket numbers tell a cautionary tale.

This article first appeared in Forbes.

Neil Stern

Neil Stern is Partner Emeritus of McMillanDoolittle. During his career at McMillanDoolittle, Neil has developed strategies and new concepts for a diverse variety of clients across the retail industry. Neil currently serves as Chief Executive Officer for Good Food Holdings, which operates over 50 supermarkets on the West Coast of the United States under five different banners.

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