Private-label brands gaining momentum in food and beverage
There was a time when private label products were viewed as cost-saving, lower-quality alternatives for budget-conscious consumers. But their image has evolved considerably over the years.
Private label brands have shed their discount image and evolved into quality, premium product offerings that span a broader population segment. Metro’s Irresistible and Selection, Loblaw’s No Name and President’s Choice, and Sobey’s Compliments and Panache are among the private label brands that are grabbing significant market share from national brands.
The premium private label sector is showing significant growth in the food and beverage industry especially, offering a number of benefits to both retailers and consumers – including a dedicated and loyal customer base. The shift took hold in the early 1980s when Loblaws launched the President’s Choice Decadent Chocolate Chip cookie. This early foray led to one of the most recognized and successful premium private label lines in North America.
Private label explained
Private label products are produced by a third-party manufacturer based on a retailer’s own specifications and sold exclusively through a single retailer such as Costco or Loblaws. While they can be similar to already existing branded items, the exact formula for the product must be original and unique.
Private label products should not be confused with white-label products, where a third-party manufacturer makes a product on behalf of a retailer that is not custom-designed for the seller.
Private label gives manufacturers an opportunity to work with local retailers to deliver more cost effective and locally produced quality products. These products typically generate higher profit margins, but their price points are usually less than the competing brand name product, making it an affordable option for consumers while building the retail brand and customer loyalty. Done right, private label can be a winning strategy for retailers, manufacturers, and food processors.
A strong market presence
Earlier this year, Fuller Landau co-hosted a webinar with Export Development Canada on “Planning your international expansion” where we discussed the growing trend of private label and the competitive advantage it can provide.
Statista reports that private labels accounted for 18.5 per cent of food retail in 2022 in Canada, with bakery, meat, and seafood products ranking as the most appealing categories for Canadian consumers. Loblaws dominated the food retail market, accounting for 44 per cent of total private label units sold in Canada in 2022, exceeding all other competing grocers.
It also notes that consumers generally have a favorable opinion of private label products, with almost 53 per cent believing they are as good as brand name products, and that more than half of Canadians purchased more private labels than national brands when grocery shopping.
According to partnership with Neilsen’s NIQ, Why You Shouldn’t Discount the Growth of Private Label, the most growth potential is in the areas of meat, prepared foods, salty snacks, vegetables, fruit, cheese, desserts, cookies and crackers, seafood, bread, and pasta/rice. Among the food categories for 2023, bakery held the largest private label share, followed by dairy and deli.
What’s in it for operators
A well-managed private label strategy can deliver a number of benefits for retailers. Not only can they provide a means to differentiate themselves in an increasingly competitive market, but they also provide a cost-efficient means to increase margins, reduce marketing costs, and enhance customer satisfaction and loyalty.
An added benefit is that private label products produce enormous amounts of scanning data for retailers and their manufacturing partners that allow them to determine buying habits, conduct in-depth analysis, and respond quickly to emerging trends.
This wealth of data, combined with in-house control over product development and marketing, means retailers have the agility to outpace national brands with products that remain relevant.
What consumers want
Today’s shoppers are increasingly attracted to private-label items for their quality and innovation. They are no longer buying private label brands simply because they cost less. Rather, they see them as competitive and reliable options in a category of their own.
KerryDigest reports that 70 per cent of consumers have experimented with private label products, and 50 per cent plan to continue in 2024.
A 2023 Kearney study of 4,000 consumers in 10 countries – From price to prestige: the shelf shake-up by private labels – shows that more than half now purchase private-label alternatives regularly or most of the time and expects that the numbers will continue to increase in the future.
One key motivator for younger generation consumers especially is the demand for products that align with their values. They are willing and able to pay for attributes that resonate with their health and wellness preferences, such as organic, non-GMO, sustainability sourced, and plant-based options.
Promising market growth
The Kearney Private Label Report believes that companies need to pay attention to growing private label offerings that are quickly being adopted by Gen Z and higher income consumers before it’s too late.
Kearney also estimates that by 2030 the private label market will grow to $406 billion according to its “legacy shelf presence,” to $498 billion in a “sustained aisle conquest”, and to as much as $585 billion in an “omnichannel blitz” across in-store and digital channels.
Kerry’s 2024 report The Rise of private Brands and Shifting Consumer Trends: New Opportunities for Innovation, attributes the growth to several factors: a strong value proposition for consumers, the ability to create unique products that align with a retailer’s brand identity, and the flexibility to adapt to changing consumer preferences for high-quality, flavourful, and healthy options.
In an article for Canadian Grocer, Amar Singh a senior director at Kantar Retail, states that private label brands are at a crossroads in Canada. “With economic pressures, innovation and social responsibility shaping their evolution. As these brands continue to adapt and respond to shopper demands, they not only reflect changing market dynamics but also signal a future in which affordability, quality, and sustainability are not mutually exclusive.
Next steps
Supplying private label products can make good economic and strategic sense for both manufacturers and retailers. “More recently, food and beverage manufacturers have seen a surge in demand from retailers to produce private label products”, says Rosanna Lamanna, Partner, Audit and Accounting and Chair of the Food and Beverage group at Fuller Landau LLP. “They have been focused on increasing plant capacity and searching for innovative ways to automate aspects of their operations to capitalize on the opportunity.”
However, a private label strategy requires extensive evaluation, including costs of switching production, distribution channels, branding, logistics, and marketing. It is also important to consider a differentiation strategy that will set a retailer apart from its competitors, as well as develop policies and priorities.
Strategies and timelines will vary significantly depending on a number of factors. A Harvard Business Review Article advised that private label makes sense if at least one of four conditions is met. These are:
- That the private label is a premium line
- Entry barriers are low
- Your brand is not a market leader
- There are substantial cost economies
An essential part of that assessment process is leveraging consumer insights to tailor products that speak to emerging trends (e.g. plant-based diets, functional beverages) and optimizing distribution channels for expanding market reach.
We have wide knowledge and deep-rooted expertise in the food and beverage industry, including retail, wholesale, distribution, and food processing. If you have any questions or need further information, please reach out to the Food and Beverage group at Fuller Landau.