When it comes to the struggle for market share between food brands and private label, there are things we can say with some certainty.
We can say that private-label’s market share has increased in the last year or so.
We can say that the quality gap between branded and private-label food has narrowed.
And we can say that this is an increasingly important and lucrative area for large grocery chains in several markets.
What we can’t say with any degree of certainty is whether brands can recapture the market share they have lost now that some of the headwinds they have faced recently have receded.
Volume gains – but there’s a price ceiling
In a report published last month, analysts at investment bank Bernstein neatly outlined the prevailing situation in the US market.
“Private label has consistently gained volume market share since early 2022, contributing to the volume weakness seen in branded volumes,” Bernstein said.
“Branded companies took greater pricing than private label, translating into expanding price gaps. Private-label volume market share reached 26.9% over the past 12 weeks in US measured channels.”
However, Bernstein said that, since 2022, price gaps between the listed US food companies it covers and private label improved, “falling to 48.1% (year-to-date) in 2024 from 50.6% in 2022”.
Private label has not had the same impact in all categories and across all price points. There is still a feeling held by some market watchers that there is a price ceiling above which private-label’s influence diminishes.
Hamish Renton, managing director at UK food and drink consultancy HRA Global, says: “With private label, there tends to be a ceiling you are happy to pay up to.
“The proper premium segment is the preserve of the brands, which come with more benefits.
“The further they go into the depths of flavour, the supermarkets check out and say ‘we can’t deal at these sort of levels’.
“In reality, private label only goes so far. It can’t go to the high levels. If you want more you have to go to brands.”
No one would deny, however, that private-label food products have had a great run in recent years.
“Store brands’ annual sales have risen by 34% in the past four years and PLMA now projects total 2024 store brand sales will surpass $262bn,” Peggy Davies, president of US-based industry body The Private Label Manufacturers Association (PLMA), tells Just Food.
Cost-conscious consumers
While private-label has grown market share during other times of economic hardship, many view its recent rise to have started during the Covid-19 crisis.
Ironically, there was an initial surge towards brands that were known and trusted during a time of great uncertainty.
“Retailers had little incentive to push private-label products at the start of the pandemic when most people were more than willing to buy branded products, exacerbated by supply chain disruptions that affected private-label products more than leading brands,” Bernstein said in its report last month.
But the ground gradually shifted towards private-label products as some Covid-hit consumers became fearful about their future financial prospects.
Since the depths of the pandemic, manufacturers of all stripes have faced significant inflation caused by supply-chain disruption and rising commodity costs, with the war in Ukraine and associated crop shortages – accentuated by severe weather events – key factors. Manufacturers sought to push through price increases to recover their increased costs and, in many cases, succeeded. In relative terms, private label became a more attractive option.
Olivier Fevre, an analyst with UK-headquartered data and analytics organisation GlobalData – Just Food’s parent company – recently contributed to a report on the private-label phenomenon. He says price is the major factor at play here.
“Price sensitivity, particularly in times of economic uncertainty, pushes consumers to seek more affordable alternatives without compromising too much on quality. From Q3 2022 to Q1 2024, concern regarding the inflation’s impact on consumers’ household budgets remained consistently high, with 86% of global consumers expressing that they are extremely or quite concerned in Q2 2024, slightly down from 90% in Q3 2022,” Fevre said.
“Buying private-label food products is especially pronounced in food categories where there is little brand differentiation, such as dairy products. In these categories, the basic nature of the product leaves little room for brand-specific value propositions, making private labels an attractive choice.”
Quality and innovation
But price alone can’t sustain private-label’s market share, analysts suggest, especially with branded manufacturers seeing those recent headwinds ease.
“Value is an important factor for the consumer. There’s no question when you see shoppers saving more than $40bn a year on grocery and household purchases. However, it’s the quality, innovation and selection that keeps the customer coming back to the store’s brand,” Davies at the PLMA says.
Fevre adds: “The quality gap between branded products and private-label alternatives has certainly narrowed in recent years, particularly with the introduction of premium private-label lines, like Target’s Favorite Day launched in 2021. These offerings have elevated the perception of private-label products, bringing them closer to the quality typically associated with national brands.”
However, Fevre argues a “noticeable difference in quality often remains” between brands and own label from the ingredients in recipes to the way the products are packaged.
“Private-label brands typically need to find areas where they can reduce expenses, which can sometimes lead to compromises in product quality,” he says. “While private-label products can compete more effectively than in the past, especially in the mid-range market, they often still fall short of matching the premium quality offered by established brands.”
The competitive threat brands face from private label depends on the category.
Bernstein says that, of the companies it covers in the US, Tyson Foods, McCormick & Co. and Kraft Heinz are the most at risk when consumers trade down to private-label (although it points out that spices and sauces heavyweight McCormick is a large producer of private-label products so not all sales are lost in a shift from branded to non-branded).
By contrast, it adds Beyond Meat, Hershey and Simply Good Foods “are the least exposed with de minimis exposure to private-label products.” Beyond Meat, of course, has faced stiffer competition from private-label across the Atlantic in the UK, a grocery market where own label accounts for around half of the food sold through retail and where retailers have developed their own significant meat-free ranges.
Reflecting on the UK market, Renton adds: “Categories such as ready meals are very much private label and it’s tough to get a brand away there but other areas are the preserve of brands.”
Brand tactics
Fevre suggests shopping patterns have also been influenced by
consumers becoming aware of brand tactics such as shrinkflation and skimpflation, which can lead to consumers becoming sceptical of paying more for what they perceive as the same product in different packaging.
That may well be the case but Davies at the PLMA, who has skin in the game of course, also points to product innovation as being a factor.
“Yes, consumers are seeking value but they are also willing to try new products. This is not a new phenomenon. In past economic uncertainty, we’ve seen the upswing in consumer product trial and, when the market has stabilised, they continue to purchase those quality store brands they can only find in their favourite retail stores,” she says.
The role of the large grocery chains is key here as well, she suggests.
“The retailer knows their customer and responds by offering their own brand products in categories that appeal to their loyal shopper. So, what may be a strong category in one retail market may not necessarily be true for another.”
Renton describe the situation as “a mosaic of different positions in different categories” but says “time’s arrow has made the shift towards own-label”.
However, he believes brands still hold key advantages. “In some categories, it comes down to where you can innovate and there are some territories where private label can’t go,” he says. “In the higher end of categories, it’s about innovation and who does the best job. Typically, the brands do. Retailers are usually off the pace. They are competing with each other and brands are removed from that war.
“And branded players can just do one thing. They are not involved in NPD elsewhere. Manufacturers are able to flex and focus resources more effectively than retailers.”
Food manufacturers that specialise in private-label supply, boosted in recent months, see consumers mainly sticking to what they have switched to.
Andy Parton, chief commercial officer at UK-based own-label heavyweight Greencore, says: “We can foresee an element of regression back to brand as cost-of-living pressures ease, however not to the previous highs of 2022.
The recent migration into private label has caused consumers to reappraise the quality against brands.
Andy Parton, Greencore
“Customers have seen the value for money that private label offers and, even in the current climate of increased branded promotion, private label is holding up. This has been driven by the right balance between price and quality with the end result being an increase in consumer trust of what private-label ranges can deliver.”
He adds: “The recent migration into private label has caused consumers to reappraise the quality of private label against comparative brands.
“The continued rise and relative lack of response to recent increases in branded promotional activity is the key indicator that consumers do believe private-label quality is on par, or at least justifies the value/cost trade-down.
“The growth seen across the store in premium private label is pushing quality and perception of private label in the eyes of the consumer – a trend we forecast to continue.”
A “compelling opportunity”
Across the Atlantic, the US, for so long a market dominated by brands has, in the last two decades, has seen a significant investment by retailers into store brands.
In the first half of 2024, own-label, including food, drinks and other FMCG products, booked record-high unit and dollar market share, according to data from the PLMA. To the six months ended 16 June, private-label unit market share sat at 22.9%, while the dollar market share was 20.4%.
Last month, TreeHouse Foods, the largest private-label food manufacturer in the US, released its second-quarter results, revealing net sales of $788.5m, down 1.9% on a year earlier and 5% lower on an organic basis.
The company pointed to “commodity-driven pricing adjustments” and its decision to leave some business in coffee and bakery.
“I would like to reiterate the compelling opportunity for private brands growth, which continues to benefit from enhanced retailer investment and consumer tailwinds,” chairman, CEO and president Steve Oakland said. “Private brands outperformed national brands across our categories, driving additional unit share gains again this quarter.”
Manufacturers which offer both branded and private-label products are also happy to see non-branded products prospering.
Peder Tuborgh, CEO of Danish dairy major Arla Foods, was asked by Just Food last month whether the Lurpak butter and Castello cheese brand owner saw private label as a competitive threat to its brands or as a profitable opportunity as a supplier.
He said: “Definitely the latter. Arla has an interest in growing its own brands but we’ve always been a big private-label supplier. I think these segments complement each other.”
Private-label “acceptance”
US management consultancy Kearney, writing earlier this year, suggested “consumers have gotten so used to private label that even a small discount might be enough to get them to grab the private-label product off the shelf”.
Suggesting no end to this phenomenon, it said: “Private-label acceptance, which accelerated during the pandemic-related supply-chain troubles and once again during inflation, is a growing threat to many A-brands, especially in Europe, where private labels have the most traction of any region in the world.”
It added: “Of course, the rise of private label isn’t just a demand-driven phenomenon. These products have reached this state because retailers have invested in their own brands and see themselves as better off for doing so.”
Looking beyond price, Kearney said that even if consumers see a brand as being very high quality, they don’t usually see themselves as making anything other than a modest compromise when they opt for a private-label alternative.
But the consultancy argued there is a factor in brands’ favour: they’re more trusted.
“In explaining their decisions to stick with an A-brand rather than a private-label product, 15% of consumers pointed to brand trustworthiness (consistent product quality over time), while 12% highlighted brand availability (wide presence across retailers),” it said.
Nevertheless, Kearney argued private label has emerged as a “compelling choice for retailers” on multiple fronts. “First and foremost, it’s a financial boon with higher profit margins than branded products,” it said.
And retailers continue to innovate. Market watchers have pointed to the trend highlighted by Kearney by which supermarket chains are increasingly branding their own-label items.
“Supermarket ‘brands’ are bringing credibility and authenticity to specific ranges that private-label can’t lead on, such as health, plant and indulgent takeaway meals,” Greencore’s Parton says.
In April, Walmart announced its “largest private-brand food launch in 20 years” with its Bettergoods range. “Today’s customers expect more from the private brands they purchase – they want affordable, quality products to elevate their overall food experience,” Walmart vice president Scott Morris said.
Fevre at GlobalData says this kind of innovation “is a bigger phenomenon”, pointing to Bettergoods and Target’s Favorite Day.
However, he adds: “It is growing in popularity in Europe with Aldi launching its Plant Menu range of private-label products and, in Italy, Coop Italia has launched its private-label under the brand Gil Spesotti.
“These branded private-labels are strategically designed to address consumer scepticism surrounding private-label products. By creating distinct and credible brand identities, retailers can enhance consumer trust and make these products feel like safer, more reliable choices.”
