From Our Print Edition

Private label is growing twice as fast as the national brands. Spoiler alert: it’s not just inflation.

How can you get back market share after losing it? That’s the question that consumer packaged goods companies must be asking themselves after seeing the Circana Unify+ report, where private label sales advanced 11.3% last year — twice the growth of the national brands.

THE BLAME GAME

I’m sure many are simply blaming the gain on inflation and supply chain issues. Yes, history shows that private label does better in hard times. But what should be of greater concern to CPG companies is the year-over- year steady gains that private label continues to tear out of the hides of the brands.

Let’s take a closer look at this. Private label has long offered a better value than national brands, but as time has gone by, many private labels have focused on quality improvements. This has been especially true in the areas of health, sustainability and pack- aging. As a result, private label is now the predominant pantry selection in many homes.

Private label has long offered a better value than national brands, but as time has gone by, many private labels have focused on quality improvements.

The pandemic didn’t help either side, as supply chain issues and panic buying caused disruption for all. But it did a few important things that helped private label and hurt the CPG folks.

With shoppers buying online and not coming into stores as often to make their purchases, CPG companies lost some key tools that always helped them drive volume. They tried to promote new items online, but it just wasn’t as successful as in-store promotion.

Coupons also suffered in this environment. What’s more, shoppers couldn’t easily make one-on-one shelf comparisons. Promotional displays suffered and demos pretty much dis- appeared. All these factors, one way or another, played into the hands of private label.

CPG companies, meanwhile, were being hurt by inflation and supply chain issues that led to spotty deliveries. Shoppers often tried private label when their favorite brand wasn’t on the shelf or had huge price increases.

So where does this leave us? Well, Attest, the consumer research firm, says 71% of consumers are switching from their favorite brands to cheaper alternatives to save money. Attest’s surveys found that 74% of the U.S. consumers would “definitely” or “probably” keep buying store brands even after inflation eases. Thus, the goal of recapturing market share just got even harder.

When building store brands in my career, I looked at private label as the alternative to the national brands and not replacements. After all, national brands do a lot of the heavy lifting that enables private labels to tag on free of charge.

We looked for areas where the national brands were performing poorly. Was it cost/retail? Was it quality/ value? In most cases it was both. We came to believe the CPG companies felt that coupons, temporary price reductions, reduced pack sizes and displays were the way to the customer’s heart and wallet. Many CPG companies felt new flavors or SKU proliferation was the way to keep private label at bay. Others tried bundles or value packs to help hide the lack of value and price differences. Others just lost shelf space because of their inability to supply their products during the pandemic. This left the customer free to try other brands.

Many CPG companies who were faced with supply issues during the pandemic and even now have been forced to limit production of items, slow or stop new items. Some ship only to retailers close to their plants to cut trucking and fuel costs, just as they had to during World War II.

While several of the reasons why CPG companies have lost market share to private label may not be within their control, some are. Their primary focus has too often been on cost, margin and marketing their “message” rather than listening to consumer demands. Consumer demands are plain for all to see: they want better quality, healthier foods, sustainability and a better value for their hard-earned buck. For some brands, these basics seem to have been in a blind spot for years.

Consumer demands are plain for all to see: they want better quality, health- ier foods, sustainability and a better value for their hard-earned buck.

These CPG companies thought they earned brand loyalty from constant advertising, marketing gimmicks and promotions. But that loyalty continues to shift to private labels that in many cases have equal or better quality, at a better value. Private brands in most cases have been filling voids that were not part of the CPG playbook.

Perhaps artificial intelligence will help CPG companies focus better on the real needs of the customers versus just their bottom lines. And offering items that consumers want instead of what the companies “think” they want will help them recapture some share.

We can also hope that artificial intelligence will replace the marketing departments’ smoke and mirrors approach with useful data on trends not fads, having the right items, selection, inventory, cost and retails that will get back some of the shares they’ve been losing for years.

IT’S UP TO THE CPGs

So yes, CPG companies can get some of their market share back. But how much, how quickly and how profitably they will be able to do so is
up to them. In the meantime don’t be surprised to see private label continuing to march forward with steady increases no matter what the conditions are.

Bob Anderson is the retired vp/gmm at Walmart, where he worked for 17 years. He can be reached at [email protected].