“The gold standard is for a customer not to know a private brand is not a national brand.” – Macy’s CEO Jeff Gennette.
Private labels originally focused on retailers providing quality CPG items at lower prices. In today’s retail environment, companies focus on private labels to increase their profit margins. Historically, national brands tried to discredit private labels by creating a relationship between low price and inferior quality. However, more consumers began buying private brands during the economic recession – and have not stopped. The rise of private brands proves that companies believe customer’s new habits will stay.
Consumer’s habits are changing. It is more socially acceptable to uncover deals (and not overspend). One clear example is celebrity Tiffany Haddish’s partnership with Groupon. Consumers are more likely to buy private labels when they do not notice a distinguishable change in quality or do not experience any social ramifications for buying private labels.
Price-conscious and non-brand loyal customers often purchase private labels to save money. Buying private labels allows consumers to spend less in categories that don’t matter and put those savings towards goals or other items. A simple example is a customer buying the private label canned vegetable, but then buying the national brand cookie.
A prime example of a store capitalizing off private labels is Trader Joes. For over 50 years, Trader Joe’s has offered about 4,000 items per store, with 80% being private label CPG items. The company focuses on providing a rotating selection of low-cost items to consumers. The company’s popularity comes from multiple facets – the unique CPG brand items, the limited selection, and the low prices.
Selling private label items allows retailers to have more control. Macy’s and J.C. Penny are both currently pushing to gain more profits from their private labels. Additionally, Amazon has created over 100 private labels since 2009. The company’s first private brand focused on CPG branded items but has since expanded to fashion, grocery, and toys. Amazon’s push toward creating and promoting its private labels is slowly taking business away from national and smaller brands. Amazon’s new focus could potentially disrupt the CPG industry.
Other national retailers such as Target and Walmart make visible shelf space for their private labels. Walmart’s Great Value brand often occupies space directly next to the national CPG brands and is priced much lower than the competitors to entice customers. Target currently has over 20 private label brands in apparel, groceries, home décor, electronics, and personal care. The CPG lines directly compete against Walmart and Amazon and newcomers such as Brandless or Harry’s Shaving Club.
National and local CPG brands must be aware of the growing influence of private labels as the CPG industry will continue to experience disruption. CPG brands should take steps to differentiate themselves from private labels through value propositions, enhancing brand loyalty, or focusing on traits not present in private labels. CPG market research can assist in determining the best steps to take, including product testing or concept research. One local company decided to emphasize their connection to the community to grow its customer base as demonstrated in this mobile ethnography study.
Retailers will continue to create private label items to meet customer demand. In an industry ruled by low-switch costs, CPG brands must evolve to compete.