Grocers Ramp Up Investments in Private Labels
It's no secret that over the past several years, grocers have been stepping up their private label efforts. With loyalty to national brands on the decline, retailers are pouring more money into the development and marketing of high-margin, own-brand products.
The proof is in the numbers. Nielsen reports that private labels already accounted for one in five products sold in U.S. supermarkets in 2016. Figures from the Private Label Manufacturers Association indicate that store brands comprise 17% of all grocery sales, and have the potential of climbing to 27% in the next decade. Retail services company Daymon, meanwhile, found that 81% of shoppers buy private brands on every, or almost every, shopping trip, and 85% say they trust private brands as much as national brands.
In a world where they have to compete with massive global juggernauts like Amazon on price and selection, private label is where grocers will stand out from other players and give shoppers a compelling reason to visit their stores. Winning requires deep investments that go beyond traditional-brand equivalents to deliver products consumers haven't encountered before.
Kroger's private label grocery strategy has been effective, growing sales 37% from $15 billion in 2011 to $20.5 billion in 2017. During a recent earnings call, chief executive officer Rodney McMullen indicated that own brands made up 29.5% of unit sales and 26% of sales dollars. Research firm Field Agent indicates that 83% of Kroger's shoppers say they purchase private label products from stores.
Natural and organic store brands have proven particularly successful. Kroger's Simple Truth line (which includes the Simple Truth Organic line extension) commands an eye-popping $2 billion-plus in annual sales and spans more than 1,400 SKUs. Kroger kicked off the year with a major sale dangling $100 worth of digital coupons for the brand and is now expanding the line to offer even more natural and organic items as well as Fair Trade Certified products. Much of the innovation will be in increasingly trendy categories such as beverage, snack and non-animal proteins as identified by insights from its customer science arm 84.51°.
Continuing to aggressively grow its "Big 3" store brands — Simple Truth as well Private Selection and store-brand Kroger — is a major component of the company's Restock Kroger initiative launched in October to "redefine the food and grocery customer experience in America."
Southeastern Grocers also is counting on private label, betting that own-brand products will help it turn itself around during bankruptcy. Last year, the retailer took its store brand program to another level, completing a private label consolidation and enhancing approximately 3,000 items across all categories. The grocer supported the repositioning with a marketing campaign asking shoppers: "If you can't taste the difference, why pay the difference?" A plethora of P-O-P materials, a contest, and print and digital activity supported.
This February and March, Southeastern Grocers again encouraged trail by offering a money-back guarantee on its SE Grocer private label. And in April the retailer made another leap by launching its first natural and organic private label, Naturally Better, once again extending the guarantee.
Albertsons Cos. this year is introducing more than 450 new products under its billion-dollar O Organics private label to double its assortment. It also is expanding its Open Nature brand into non-food categories with more than 240 new items, following the addition of both baby and pet food categories to the line. In total, the retailer is on track to launch 1,400 products across its entire portfolio in 2018, a more-than-twofold increase over private label launches last year.
Since launching Wholesome Pantry, ShopRite has introduced more than 210 products to the line and devoted more marketing attention (via circulars and social media) to its healthy and better-for-you product labels compared to previous years. The private label consists of both certified organic items and products that are "free-from" common additives, and is one of the fastest-growing private brands rolled out during the banner's 70-year history, ShopRite said.