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National brands are outperforming private label for the first time in years. Will it blow over or is this another ‘new normal’?

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From shuttered schools and offices to canceled vacations and downsized holidays, the coronavirus pandemic has upended almost every facet of daily life. So it comes as no surprise that COVID-19 has also thrown a wrench into private label’s recent domination of national brands.

In 2019, reports the Private Label Manufacturers Association, store brand dollar sales across channels grew more than 2.5 times faster than national brand sales (+4.1% versus +1.5%). And while sales were up across the board during the first quarter of 2020 when panicked shoppers grabbed whatever was in stock, private label (+14.6%) outgained national brands (+11.5%) once again – though not by the same margin, offering a glimpse of what was coming.

In the 12 weeks ended Sept. 6, reports Chicago-based market research firm IRI (iriworldwide.com), store brand sales jumped 9.0% while total CPG sales shot up 11.1%, cutting private label dollar share a third of a point to 18.26%. The story was much the same in the refrigerated department where private label lost a third of a share point (to 30.61%). But in the frozen department, store brands actually managed to add a quarter of a share point (to 22.65%), bucking the larger trend. What disrupted private label’s momentum at a time when more consumers than ever before were open to buying store brands?

Simple availability or lack thereof played a big role, says Spencer Baird, chief transformation officer for Inmar Intelligence, Winston-Salem, N.C. Based on the company’s research, he explains, “Pre-COVID, overall days of supply or on-shelf quantities favored branded items. So I would assume that in many instances, the top store brand items ran into out-of-stock issues fairly quickly.” So even consumers who prefer private label opted for whatever national brand was available instead.

Of course, the problem was exacerbated by the fact that store brand manufacturers, most of which supply different products for different retailers, don’t have the same ability as the national brands to redirect all of their resources to churning out just top movers. So not only did store brands sell out faster, they weren’t replenished as quickly, says Mark McKeown, client insights principal at IRI. Own brand out of stocks were especially acute at smaller retailers as manufacturers tended to service their biggest customers first, he adds. But an even bigger drag on store brand growth was national brands’ pullback on promotion.

“The last thing retailers wanted to do was advertise an item that might not be available,” explains McKeown, who says the focus was on keeping products on the shelf – even at full price. So especially in supermarkets where hi-lo pricing strategies are more common, national brand dollar sales versus last year (when they might have been on sale) got a double boost. In fact, reports McKeown, private label actually outgained national brands in the club and mass merchandise channels where large EDLP chains like Costco and Walmart dominate.

UP TO $20 BILLION MORE SALES BY YEAR’S END

While store brand sales surged early in the pandemic before decelerating in late May, the full-year outlook remains exceptionally bright. IRI projects private label will likely add between $15 billion and $20 billion in total sales in 2020, resulting in a 0.6 point share gain. Why such optimism with just two months left in the year? According to Nicole Peranick, senior director of retail transformation at Stamford, Conn.-based Daymon Worldwide, consumers’ brand-agnosticism early in the pandemic resulted in an unprecedented amount of trial for store brand products. Given the quality of today’s own brands (86% of consumers surveyed by Daymon said they’re equal to or better than national brands), it’s likely a percentage of those shoppers will stick with private label, especially if the post-COVID economy is slow to recover, she explains. “With tighter budgets, shoppers will be more inclined to continue to gravitate to private brands as they seek to stretch their dollars without compromising on quality.”

Kroger adds 50+ new items to its Simple Truth Plant Based collection, including meatless “Chick’n” patties and grinds under the Emerge sub-brand.

In fact, new research from The Food Industry Association (FMI), Arlington, Va., published in its just-released report The Power of Private Brands 2020 indicates retailers are already positioning themselves to better meet the needs of budget-conscious consumers, with 77% planning to focus more on price/value items.

Another harbinger of growth for store brands is the country’s changing demographics. While a third of all consumers say they expect to buy more private label going forward, millennials heading into their peak spending years are the cohort that expects to purchase the most, says Doug Baker, FMI’s vp of industry relations.

He also cites retailers’ strong commitment to own brands as another reason for optimism around private label growth. “When asked how important private brands are to their organization, 93% of food retailers said either extremely or very important,” though most believe a companywide change of culture is needed to take store brands to the next level, he reports.

It’s critical that they get there, however, not just because store brands drive differentiation but because they have such a positive impact on the bottom line. “On average,” says Spencer of Inmar Intelligence, “store brands occupy only 14% of total space in-store despite delivering 26% of true profit, i.e. adjusted gross profit minus transportation, warehousing and store-level costs.”

BEST PROSPECTS FOR PL GROWTH

So where are the biggest opportunities for private label growth in frozen and refrigerated? Spencer says Inmar’s Grocery SuperStudy indicates four categories in the frozen department represent nearly 60% of sales: single-serve meals, pizza, meat and poultry and ice cream and novelties. “But store brands have only a 9% share of total sales in those categories, which have some amazing national brands, and occupy only around 7.5% of the total space in the freezer,” he reports. “In each of those areas, store brands have a solid footing but are under-spaced, which signals opportunity for additional facings and, potentially, unmet needs to explore.”

Whether frozen or refrigerated, meal kits have private label potential as well, says Ken Morris, managing partner at Cambridge Retail Advisors, Plymouth, Mass. “Walmart, Whole Foods/Amazon and Publix are all taking advantage of this segment. With restaurants struggling and the weather getting colder this is an area that should be a focus for everyone.”

Manufacturers also see private label opportunity in the premium tier. So instead of focusing on national brand equivalent items, they suggest retailers “go for the gold.” In the frozen department, “This could include introducing new solutions that support the shift toward healthy eating and restaurant- quality meals,” says Bob DiNunzio, director of category strategy at Daymon. He also recommends retailers offer frozen solutions for consumers following various lifestyle diets – keto, gluten-free, organic, etc. – with a particular emphasis on plant-based options to meet the needs of flexitarians, vegetarians and vegans. Among the first to jump on the trend, Albertson’s added certified plant-based organic frozen meals to its O Organics lineup last September. But many others have since followed its lead.

DiNunzio also sees room for private label growth in plant-based dairy. Although store brands own 34% of total dairy sales, “Private brands are underrepresented in plant-based dairy, with only a 13% share,” he reports, citing opportunities not just in milk but creamers, yogurt and cheese as well. Kroger, for one, has already made some big moves in that direction with its Simple Truth Plant Based collection, to which it just added 50+ new items, including non-dairy cheeses and almondmilk yogurts as well as meatless “chick’n” patties and grinds (under the Emerge sub-brand).

Kroger’s recent additions highlight retailers’ continued belief that the best prospects for private label growth lie in the fresh perimeter. In fact, retailers surveyed by FMI listed fresh foods (83%) prepared meal solutions (79%) and simple/clean ingredient/ free-from (72%) products as categories with the biggest opportunities to grow their private label businesses, reports Baker.

Although unbranded meat, produce and prepared meals are often considered de facto own brands, savvy retailers are developing “real” brands – often distinctive from their center-store private brands – in plant-based meats, heat-and-eat meals, grab-and-go snacks, healthy beverages and other hot-selling perimeter categories. For example, Ahold-owned Giant Food Stores recently debuted a line of pre-flavored Cook-in-Bag fresh meats while ShopRite just rolled out organic kombucha and packaged salad under its new-look Wholesome Pantry label. The store brand’s new tagline “Food Set Free” underscores opportunities in the clean label/free-from segment as well.

PL ‘HISTORICALLY UNDERREPRESENTED’ ONLINE

One potential obstacle to continued private label growth is the rapid pandemic-driven shift to e-commerce. Research suggests more than eight in 10 shoppers plan to make the same amount or more purchases of food and non-food products online in the future, says Daymon’s Peranick. But that could be a problem for private brands, “which have historically been underrepresented on digital platforms.”

The good news is retailers are on it, with 83% of those surveyed by FMI expecting to boost private label strategies for e-commerce in the coming year. For many, says McKeown, that means developing their own platforms instead of using a third-party provider like Instacart. “Retailers that build their own platforms definitely have a sustainable advantage,” he explains, citing the ability of chains like Kroger and Walmart to suggest private label products based on the customer’s shopping list and/or history.

Peranick offers some additional suggestions for retailers looking to boost private label sales via e-commerce: 1. creating dedicated areas on their websites, 2. allowing private brands to top the digital search, 3. driving engagement through integrated online content that showcases private brands as solutions, 4. linking private brands to digital incentives, and 5. establishing partnerships between private brands and social intermediaries to extend touchpoints with the shopper in alternative digital environments (like Albertsons did by promoting its own brands on Pinterest).

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