Private Label Captures Consumers, Investors
Private label food and beverage products are seeing robust growth. The historically recession-resilient category is growing beyond its value-oriented roots to premium status as changing retail strategies and demographics support accelerated growth and market penetration.
In 2018, food and beverage private label brands generated more than $138 billion in retail sales, growing four times faster than national brands. Market penetration increased to a record 18.5 percent in dollar share—up from 14.7 percent in 2008.
Cadent Consulting Group is predicting a “sea change” in private label, with the opportunity to increase penetration by 8 share points to 25.7 percent from 2017-2027, quantifying the gain at $64 billion, representing significant growth over the next decade.
Even with these gains, private label remains a large, untapped market. In a recent analyst presentation, U.S. pure-play manufacturer TreeHouse Foods (NYSE: THS) cited countries in Western Europe where private label share is as high as 35 percent (Germany) and 42 percent (UK, Switzerland).
Private Label – Premiumization
Premiumization is permeating the industry and driving a reputational shift from “private label” to “private brands” as retailers develop true brand identities to differentiate themselves, improve customer loyalty, and win consumers in an increasingly competitive marketplace. Retailers are offering greater diversity in their private label offerings, growing their premium product selection, and expanding the range of products to the perimeter of the store. Cadent Consulting Group reports “dramatic growth” in the perimeter, citing four times the rate of center store over the past five years.
Store brands are being viewed for their quality, innovation, and exclusivity, reported Store Brands, in its 2018 State of the Industry report, which is leading consumers to seek more premium, niche products. Private brands can add value in areas including product customization, transparency, and sustainability, cited private brands strategy consultant Daymon Worldwide, in its 2018 Private Brand Intelligence Report. Speaking to the robustness of store brand programs, Daymon defines “best-in-class” retailers as innovators, achieving an average of 32 percent in private brand share of total dollar sales—almost double the penetration rate of other retailers.
In an interview with FoodNavigator- USA, Matt Sargent, SVP Retail at consultant Frank N. Magid Associates, identified premium or “aspirational private label brands” as an opportunity that retailers need to seize: “Any retailer that doesn’t have a premium private label brand is in danger going forward.” He added, ”You don’t differentiate yourself by selling the same things as everyone else is selling. This growth will be driven less by demand than by the supply side need retailers have to differentiate themselves.”
Premiumization is driving growth in private label, according to Nielsen, which reports that premium private label products now represent more than 19 percent of store brand sales. “The rise of higher-end store brand products has come hand-in-hand with consumers’ inclination to spend more on store brands,” Nielsen reported. “Discount products still represent the majority of store brand sales in America, but they have ceded three share points in the last three years. Forty percent of surveyed Americans said they would pay the same or more for the right store branded product, while only 26 percent of those surveyed feel that name brands are worth the extra price.”
Private Label – Changing Demographics
Millennials’ acceptance is essential to the success of private brands, as they seek better value, clean ingredients, transparency, and legacy brand alternatives. Now the largest segment of the U.S. population, millennials are influential buyers and“…driving the growth of newer, smaller, more premium brands,” reported TreeHouse Foods (NYSE: THS) in a recent presentation to analysts. According to Cadent Consulting Group, the cohort expresses the most interest in and purchases the most private label products of any demographic. Understanding the millennial shopper and delivering a personalized experience will be critical in building loyalty. A 2017 Retail Study conducted by Cadent revealed strong millennial support, with one-third of surveyed shoppers already heavy purchasers of private brands and half planning to buy more in the future.
Millennials associate wellness with transparency and fresh, areas where private brands can capitalize, according to Daymon, representing a significant growth opportunity. Being transparent with consumers earns their loyalty.
Walmart targeted the “Urban Millennial” with Jet.com’s launch of Uniquely J—a carefully curated line of high-quality, aesthetically-pleasing, eco- and socially-conscious coffee, cleaning, laundry, pantry, paper, and food storage items. Products feature plant-based ingredients, BPA-free plastics, and USDA organic and Fair Trade certifications. At announcement, Jet.com President Liza Landsman commented, “Uniquely J is not just Jet.com’s entry into the private-label brands space, it also furthers our efforts to serve the metropolitan consumer with a select assortment of premium products while also offering them a great shopping experience.”
Looking for a more in-depth analysis of the private label food & beverage industry?
If you are interested in discussing the current state of the M&A and capital markets within the Food & Beverage space, or the broader Consumer industry, please contact us using the form provided below. We welcome the opportunity to learn how we can assist you in navigating today’s dynamic M&A environment and to help you maximize your strategic objectives. Our food and beverage team has deep experience in both private label and branded consumer packaged goods.