The evolution of private label

Forty-six percent of customers say private label brands influence where they shop, up from 35% in 2016, according to the final piece of a three-part analysis conducted by The Food Industry Association (FMI) and IRI. Private brands are also reaching a larger audience across demographics and generations.

Private brands in the U.S. generated $153 billion in 2018, including edible and non-edible products across multiple retail outlets, according to the report. The analysis also found that store brands led national brands in dollar sales growth for the second consecutive year, up 5.4%​, though grocery retail growth in private brands hasn't kept pace with other retail channels.

More frequent shopper trips, increased sales velocity and more items in the cart have contributed to continued strength in sales of private label, according to the research.

The success comes from grocers using their private label lines to innovate and not just copy national brands like they did in the past, according to FMI’s vice president Doug Baker. "The proof is in consumer satisfaction; shoppers surveyed shared most that they trust the quality of private brands and believe they get a good value. Still, our research indicates that challenges remain for private brands’ image, such as its packaging," he said. 

As formulations have improved, packaging hasn't always kept pace. But grocers have been rebranding their private label offerings and creating a sleeker presentation. In early 2019, Raley’s gave its private-label lines a facelift with fresh packaging that is more transparent. ​SpartanNash also cleaned up product ingredients and refreshed the packaging for its Our Family and Open Acres private brands. 

Private label brands have allowed grocers to gain customer loyalty amid fierce competition. For example, market intelligence firm Numerator found that shoppers who purchase popular private label items at Costco (rotisserie chicken) and Trader Joe's (cauliflower gnocchi) shop more frequently and spend more overall than other customers. 

In addition to Costco and Trader Joe's, grocers that have invested heavily in their private label brands include Publix, Target and Kroger. In November 2019 ShopRite jumped on board and introduced two new premium private label brands that will absorb a few of its existing brands.

Target has added a premium line to its recently launched Good & Gather private label brand, according to a press release.

The new line, Good & Gather Signature, launched with 60 products, including small-batch Italian sauces, gourmet pizzas and specialty sauces that cost anywhere between $3 and $10, according to CNBC. Target is also adding hundreds of additional Good & Gather products, including hummus, meatless patties and coffee, which will bring the total assortment to almost 2,000 products by fall 2020 and make it the grocer's largest in-house brand by assortment.

With its new premium line, Target is serving unique products and inspiration to the surge in people that are cooking at home now more than ever due to the coronavirus, Stephanie Lundquist, Target’s president of food and beverage told CNBC. These shoppers are also looking for value, which attracts them to private label products versus the national brand. 

Target’s main Good & Gather line debuted about in 2019 and reached $1 billion in sales during the second quarter of 2020. The company launched the brand as an effort to improve its grocery sector and compete with retailers like Walmart and Kroger.

In the second quarter, Target saw profits rise 80%, a key factor being e-commerce. Its food and beverage sales grew by 20% year-over-year, and comparable sales of Target’s brands jumped 30%. Food and beverage sales make up 20% of the retailer’s business. 

Private label sales specifically help Target maintain a loyal customer base, bring in higher margins and offer more control over product R&D. For example, its Good & Gather recipes are free from ingredients some shoppers may want to avoid, like artificial sweeteners and flavors, high-fructose corn syrup and synthetic colors. 

Good & Gather will be the grocer’s main private label grocery brand. It is phasing out two of its other brands, Archer Farms and Simply Balanced, and will slim down its Market Pantry offerings. 

To further improve its grocery offerings, Target announced in June 2020 it will add fresh and frozen items to its same-day order pickup and drive-up services nationwide. The company also said it plans to offer grocery click-and-collect service at more than 1,500 stores by the holidays.

The Giant Company has added a new fresh-prep addition to its private label lineup: Cook-In-Bag, which features seasoned meats and seafood items inside oven-ready bags.

The company's seafood bags, which must be cooked in the oven, include selections like Mediterranean cod, lemon dill scallops, Chesapeake Bay shrimp and bourbon salmon. The pork and chicken bags, which can be cooked in either the oven or a slow cooker, feature flavors like triple mustard and honey roast, Jamaican jerk roast, Greek loin filet, chimichurri chicken thighs and red wine and herb loin filet.

The bags are available in the seafood and meat sections at Giant and Martin’s stores, according to a company press release. Serving sizes vary by package.

Giant’s new private label meal solution provides a leg up in the kitchen for the many shoppers that are cooking at home more these days. By tackling the often tricky center of the plate, the grocer is looking to build incremental purchases in fresh and become a culinary destination for customers.

Grocers have long offered rotisserie chickens in their delis and seasoned proteins at their meat and seafood counters. Cook-In-Bag adds an element of convenience that nods to the meal kit concepts many food retailers have incorporated into their stores.

In addition to stocking packaged meal kits, grocers are adding their own private label kits as well as ready-to-heat selections that target specific parts of the meal, or the entire meal itself. Kroger offers frozen food bars at hundreds of stores, and in June 2020 Giant Eagle launched a line of ready-to-heat meals to complement its lineup of store brand meal kits. 

Offering a variety of meal solutions promises to win over shoppers who have honed their cooking skills during the pandemic. Seventy-nine percent of consumers surveyed by PwC said they're enjoying cooking at home at least occasionally. 

In addition to this new Cook-In-Bag product line, Giant has set a goal of improving the taste of its private label products and making them cleaner by removing synthetic colors, MSGs, high fructose corn syrup and artificial flavors, preservatives and sweeteners by 2025, the retailer said in its press release.

The demand for "clean" products is growing as shoppers turn to healthy eating. According to Innova market research from 2018, 91% of U.S. consumers believe food and beverage options with recognizable ingredients are healthier.

Private label brands posted double-digit sales increases in the U.S. during the initial stages of the coronavirus pandemic in 2020, according to Nielsen data cited by the Private Label Manufacturers Association (PLMA). First-quarter store brand sales increased 15%, or about $4.9 billion, over the year-ago period, while unit volume grew 13%. Total dollar sales for Q1 were $38.4 billion with 13.2 billion units sold.

During the quarter, private label dollar and unit sales grew faster than national brands. Store brands grew about 14.6% in dollar volume compared to national brands' 11.5% increase, while unit sales were up 12.8% compared to a 9.2% increase for national brands.

Mass retailers, club stores and dollar stores showed the strongest gains in store brand sales during Q1. For these retailers, store brands gained 16.6% in dollar sales. Supermarkets saw a 12.7% increase in dollar volume for their store brands and drug stores saw a 13% boost.

From the panic buying that defined the early stages of the pandemic to the stock-up shopping that many shoppers now do on a weekly basis, price and product availability have trumped brand loyalty, research has shown.

But while sales of store brands have outpaced national brands so far in 2020, retailers and private label manufacturers may not have the same production capacity as brand-name competitors. Jeremiah McElwee, senior vice president of marketing with online grocer Thrive Market, said the company's private label suppliers, which produce products to Thrive's health and ingredient specifications, have labored to keep up with booming demand over the past several weeks. These suppliers have needed longer lead times to procure ingredients and ramp up supply capabilities, he said.

"Our private brand sales are through the roof, but the biggest challenge has been staying in stock," McElwhee said.

According to the PLMA report, private label manufacturers are making operational changes to cope with the rise in demand. Companies are simplifying their SKU range and retooling their production processes to accommodate higher e-commerce orders. Suppliers in high-demand categories like toilet paper and hand sanitizer are operating their factories 24 hours a day, seven days a week, the organization said.

As private label suppliers adjust to demand, retailers will likely continue to see elevated sales to budget-conscious consumers. Since COVID-19 hit, tens of millions of Americans have filed for unemployment, leaving many shoppers looking for cheaper alternatives. According to a survey by 451 Research cited by S&P Global Market Intelligence, three-quarters of shoppers said in April 2020 they planned to curb their spending over the next 90 days.

According to the PLMA report, drug stores and the mass channel, which includes dollar stores and club stores, both slightly increased their store brand market share in dollar and unit sales. Supermarkets' private label market share, meanwhile, remained unchanged during the first quarter.

Jeff Wells contributed reporting to this story.

Whole Foods has launched a marketing and education campaign that puts a modern spin on home economics and will feature the retailer's rebranded 365 private label line, according to a company press release.

The "Home Ec 365" campaign showcases products with Whole Foods’ refreshed 365 private label branding, which an industry observer first spotted in January at a store in New York City. A spokesperson for Whole Foods said in an email the new brand design is currently on about 1,000 products, with more to come. The design is being rolled out in stores across the U.S.

By launching a private label rebrand with a virtual campaign, Whole Foods hopes to call attention to the new look and feel of its 365 line while also engaging with customers who continue to spend more time at home during the pandemic. The initiative is geared toward younger shoppers who want to gain practical kitchen skills, and whose budgets align more with private label products.

The series of virtual classes is free and students can enroll any time via a platform called Teachable. Classes will be taught by influencers and will include topics like baking swaps, effective appliance cleaning and how to cook with scraps and leftovers. The retailer said it will offer class participants exclusive coupons for free products from the 365 brand, which will help them get the essentials they need for their classes. 

The 365 by Whole Foods Market brand launched in 1997 and inspired a retail offshoot that lasted for about three years before shuttering in 2019. The redesign indicates Whole Foods and owner Amazon still see the brand as a core asset for the grocer. According to the press release, the 365 design update incorporates a "whimsical personality" and a "clean, colorful aesthetic." 

With private label sales increasing amid COVID-19, there’s good reason to invest in a rebrand right now. According to data from Nielsen, store brand sales were up nearly 15% in Q1 2020 across supermarkets, drug stores and discounters. Additionally, 22% of consumers reported buying more retailer brands in May 2020 compared to pre-pandemic, according to a recent report from Brick Meets Click. 

From online cooking classes at Mariano’s to Facebook Live events at Jungle Jim’s, many retailers have launched virtual campaigns to connect with shoppers while they’re staying at home. For some, the goal is entertainment, while for others, it is education and nutrition. Similar to Whole Foods, Kroger’s virtual summertime campaign was aimed at boosting sales of private label products.

Private label offerings of pasta, sauces, granola and other foods are surging with millions of Americans out of work due to the pandemic, but the specter of a prolonged recession could make the $90 billion-plus category even more attractive to consumers.

"Consumers feel the need to be careful with their money because that is a lesson that everybody has learned from" the Great Recession a decade ago, Krishnakumar Davey, president of strategic analytics at IRI, told sister publication Food Dive. "This means private label is going to do well. It's a nice tailwind for private label under the current environment."

Even before the shutdown of restaurants, sporting events and social gatherings from the coronavirus prompted people to spend more time cooking at home, private label was forecast to have a strong 2020 with sales growth expected to outpace that of national brands for the fourth straight year, according to IRI. Once dismissed by consumers as inferior, private label has now become a standard go-to item for many people when they shop — generating billions in additional revenue for the companies that manufacture these products.

In large format stores such as grocery, Walmart, Target and club outlets, IRI estimated private label sales of food and beverages are forecast to increase between $10 billion and $12 billion in 2020 — up from a $2.5 billion increase a year ago — to $93 billion to $95 billion. 

Private label's market share of food and beverage consumption in these channels is expected to grow about half a percentage point to 19.2% after jumping 0.4% in 2019. If this trajectory continues, the segment could grow sales another $10 billion in 2021, Davey said.

All eyes on Washington, D.C.

TreeHouse Foods, the nation's largest manufacturer of private label products, said sales accelerated in April 2020 as unemployment surged to levels not seen since the Great Depression. U.S. employment has shed about 20 million jobs, or 13%, since February 2020, the month before the pandemic prompted states to shutter parts of their economies, according to The Wall Street Journal.

To meet growing demand, TreeHouse, especially during the initial stock-up run by consumers in late March, worked with retailers to identify the most popular SKUs to help streamline operations and increase their output. It expanded production at some plants from five to seven days, and added extra shifts when needed, Amit Philip, TreeHouse Foods' chief strategy officer, told Food Dive.

Philip said the pace of growth in private label during the pandemic has actually been tamped down a bit by a stimulus package signed into law March 31, 2020 that increased unemployment assistance in every state by $600 a week for up to four months.

If Congress and the White House decide not to extend that subsidy this summer — payments are scheduled to end after July 31 — shoppers would have less money in their pockets to spend. This would make private label more enticing for value-hunting consumers. While private label's market share would increase by about half a point in the back half of 2020 with the benefits in place, if it's not renewed, its share increase could double or triple over that same period, Philip said.

"If that subsidy goes away, then people are really going to be hurting, and unfortunately what that means is there is a lot more movement into finding value, and that's what private label offers," Philip said. 

​​During the pandemic, private brand sales have jumped 34%, outpacing national brands, according to a report from Daymon, a sign they are "resonating with consumers as they look for alternative solutions." Similar data from Nielsen showed during the 14-week period ending June 6, 2020 that private label sales surged 23% while brand names jumped slightly less at 21%. ​

TreeHouse said meal-prep items such as pasta, broth, red sauces and macaroni and cheese have posted the largest increases in recent months. Pasta alone was up roughly 70% during the peak of the outbreak. Cookies and crackers also have surged but their sales increases have been less robust. One occasion "that has struggled a bit" is bars, with consumers spending less time commuting or grabbing a snack at places such as work or the gym, Philip noted.

At 8th Avenue Food & Provisions, jointly owned by Post Holdings and private equity group Thomas H. Lee Partners​, Scott McNair, president and CEO, told Food Dive in an email​ the company saw demand for its pasta, nut butters, granola and other products "spike as consumers gravitated toward items that were easy to prepare." 

Investing in private label

Since the last recession more than a decade ago, retailers such as Kroger, Aldi, Costco, Wegmans, Publix, Trader Joe's and even Dollar General have invested heavily in the space through better package designs, improved quality and multi-tiered offerings.

"While many grocers offer private label products, [our private label offerings are] a real differentiator for Kroger," Rodney McMullen, Kroger's CEO, told analysts during the company's earnings report in December 2019. "Our customers tell us through blind taste tests that Our Brands' quality is better than not only the competitors' private label products but also many leading national brands as well."

TreeHouse's Philip said the company is being asked by "really powerful retail brands" for private label products with attributes such as better quality, organic or healthier. It's no longer enough for them to offer a national brand or slightly less than a national-brand equivalent.    

For supermarkets, they are a valuable way to build consumer loyalty and increase the volume of shopper trips to their stores. ​More than half of shoppers reported they picked a store specifically for its private brand offerings while 89% said they trust them as much as traditional offerings, Daymon said. At the same time, more than 80% consider private label to be a better value for their money.​

Private brands in the U.S. generated $153 billion in 2018, including edible and non-edible products across multiple retail outlets, according to a report in 2019 from The Food Marketing Institute and IRI. The firms found the products are reaching a larger audience across demographics and generations.​ Kroger, the largest supermarket chain in the U.S., gets about 20% of its $122 billion in annual sales from its own private brands, while at Albertsons, the segment now makes up more than a quarter of its total revenue. 

"There are a bunch of distractions going on for the retailers right now but ... once the retailers get organized, I’m sure they will push private labels to the economically challenged shoppers because they will be making less and spending less so they will try to get a higher share of the wallet" through their own brands, Davey said.

Retailers who have invested in their private label brands and have managed to build a strong reputation among consumers "are likely to grow" the most under the current climate, he said. 

Lessons from the Great Recession

Early on during the pandemic, shoppers were stockpiling at home, leading to a shortage of several items on shelves. If their favorite brand name was out of stock or they wanted to fill their pantry, many consumers turned to private label to load up their carts. This could create a long-term swell to the private label category if shoppers are won over by quality and price, turning them into permanent buyers. 

A survey of consumers by Magid in early April and May 2020 found 68% said they would likely continue buying private label products after the coronavirus threat subsides.

"The days of private label being a substitute quality choice are long gone," McNair said.​​

The Great Recession offers a study in how private label could benefit again this time around under another economic downturn.

“Certainly that recessionary period was a really accelerated time of growth for private label and literally did come as a shock, I think, for a lot of the branded companies," Neil Saunders, managing director with Global Data​, told Food Dive. "There had been a little bit of growth on private label before that, but it is really when a lot of consumers, especially middle Americans, did turn more heavily to private label to try to save money.”

For private label, the economic downturn from 2008 to 2010 marked a coming-out of sorts for the category as it not only managed to grow market share and sales but used it as a springboard for future expansion that has been ongoing ever since. 

In recessions in the early 1990s and 2000s following the dot.com collapse and 9/11, private label managed to grab market share only to give much of it back after the economy improved, TreeHouse's Philip said. But the Great Recession saw millennials starting to enter the workforce, and today, they and their Gen Z cohorts are more value oriented, brand agnostic and more willing to try new things. Private label is among the biggest beneficiaries.    

"Another recession would indicate similar purchase behavior," McNair said. "However, even if the economy rebounds fully, we believe there will be new work norms that will enable more people to work from home — and there will be increased household consumption of the private brands they grew to love during the stay-at-home time."

The "trade down" to private label during the Great Recession was mainly centered on value, with consumers looking for the lowest price point they could find, Saunders said. Today, with private label firmly entrenched, another recession could push shoppers to try new categories within the space.

'Continue to prosper'

At Treehouse, executives are closely monitoring consumer eating habits as states gradually reopen businesses to assess how home eating habits and grocery shopping patterns change. They're watching areas where conditions have improved to determine if they should bring back SKUs so consumers have the product choices they are used to.

Even as things improve across the country, TreeHouse, after investing the last few years to improve its data analytics capabilities, is watching where cases are spiking or falling on a county-by-county effort to prepare for future demand and know which products might be popular with consumers.  

For 8th Avenue Food & Provisions and TreeHouse, the companies are optimistic the long-term outlook for private label remains bright even when the economy improves and millions of Americans are back to work. Similar to previous economic downturns, the hope within the industry is that more customers who tried private label brands this time around will become long-term buyers.

"Through everything that has gone on there have been a number of people that have been exposed to private brands, or have been forced to switch brands because their brand wasn't available or they were looking for better value," said Philip. "We've had a lot of trial [with people] and so private brands will just continue to prosper over the next few years."

Kroger has launched a new brand of plant-based meats, Simple Truth Emerge, according to a press release. The line is an extension of the retailer’s Simple Truth brand and joins its Simple Truth Plant Based collection, which launched in September 2019. 

The new pea-based meatless burger patties and grinds have 20 grams of protein per serving and are free of GMOs, gluten, soy and dairy. The retailer says Emerge, which will be available in store meat cases, offers the same taste, texture and sizzle when cooked as traditional beef. 

To lead the launch, Kroger is hosting a promotion featuring Simple Truth products and in-store sampling events. Customers can download coupons via the website or app to receive 75 cents off Simple Truth Emerge patties and $1.50 off Simple Truth Emerge grinds.

Kroger is innovative among major retailers in developing plant-based private label meat. But it's also jumping into a quickly crowding category, with startups and mainstream suppliers all developing new products at a rapid clip. In addition to pioneers Beyond Meat and Impossible Foods, Nestlé, Kellogg, Smithfield and Tyson have all rolled out plant-based meats recently. Tofurkey announced in January 2020 a new soy-based burger that will roll out to 600 Target stores.

In December 2019, Kroger began adding plant-based meats inside the meat departments at 60 stores, including King Soopers in Denver and Kroger stores in Indiana and Illinois. The 16-week test incorporates jackfruit, seitan, roasts and other products like deli slices and sausages from the retailer’s Simple Truth Plant Based collection. The results of the test will show how Kroger's new line stacks up, and if plant-based meats can truly compete alongside beef burgers, steaks and other cuts.

According to Statista, 60% of Millennials identify as flexitarian, as do 40% of Gen Xers. As these shoppers look for more sustainable options to traditional meats, UBS expects the market for plant-based protein and meat alternatives to grow 28% a year, to a whopping $85 billion in 2030.​

Kroger's Simple Truth Plant Based line also includes plant-based cookie dough, pasta sauces, sour cream, and more. The company said it plans to roll out 50 additional items in 2020.

Simple Truth has become a key asset for Kroger as it fights for margins and customer loyalty. The retailer has even extended the line's footprint beyond Kroger stores, with products available at select Walgreens stores as well as Lucky’s Market locations (Kroger closed its strategic investment in Lucky's in late 2019).

When Walmart launched its Winemakers Selection private label wine brand in 2018, it signaled a major push by the bargain retailer into the premium end of the category. The expansive line was exclusive to Walmart, and included 10 varietals all sourced from California, Italy and France. The company's senior wine buyer said at the time that the wines, which ranged in price from $10 to $15, "drink like a $30 to $40 bottle of wine."

But Walmart has determined since then that Winemakers Selection was a bit too expansive — and expensive. 

In early August, the retailer relaunched the store line with a focus on five core selections, all sporting a new look, and all priced at $5. The goal is to start with these new California-sourced selections — chardonnay, pinot grigio, rosé, cabernet sauvignon and a red blend — and then build the line out from there.

"This relaunch is all about our customers, simplifying the branding, making it clearer, making sure the items are what our customers are looking for, and then of course over-delivering on the quality of wine for the price," Jason Fremstad, vice president of adult beverage for Walmart, said in an interview.

Based on sales data, Fremstad said Walmart knows its shoppers are more familiar with these varietals and more interested in purchasing them. 

A Walmart spokesperson said the company worked with a designated winemaker to curate the new selections, which will be available in all stores where wine is sold, which is about 2,600 locations. Customers can also purchase the wine online through pickup or delivery, where permitted by state and local laws. The previously branded line has not been pulled from store shelves, but most of the inventory has been sold through. 

In addition to paring down the line's price and selection, Walmart has also refashioned the Winemakers label into a simpler design that pumps up the brand's name. With the original line, the company determined customers had a hard time identifying which wines were part of the label, Fremstad said. The refreshed branding will help customers more easily identify the line, and it will give them some basic information about the bottle they're buying on the label, he said.

According to Bourcard Nesin, beverage analyst for Rabobank, now is a good time for a retailer like Walmart to invest in wine. The category is ripe for disruption due to a lack of branding, and wine sales have grown quickly in recent years at grocery stores. From 2011 to 2016, Rabobank found alcohol sales at grocery stores grew 25%. More recently, data from Nielsen shows online wine sales are booming due to COVID-19, with dollar sales for wine purchased online up nearly 17% in early July from the year prior.

"That gives Walmart a great opportunity to put forward a brand that’s well-priced and well-branded," Nesin said.

But wine's popularity both online and in stores has not gone unnoticed by competitors like Target, which launched its own $5 wine label in 2017 and has since expanded into more premium selections. Trader Joe's and Costco are also formidable competitors for wine-drinking shoppers, while discounter Lidl, which has planted many stores close to Walmart's supercenters, has built out an extensive selection of value-priced wines.

Nesin said Walmart will no doubt lean on its extensive consumer data to craft line extensions. If the rebranded Winemakers Selection lineup resonates with shoppers, Fremstad said Walmart may invest in other series under the store brand, such as a Reserve series. 

"At this point, our full support and everything we’ve worked on is to get the Classic series right. If the Classic series doesn't work, there’s no reason to expand the brand," he said. 

The relaunch of Winemakers Selection is part of a chainwide reset of Walmart’s wine assortment and a key piece of the retailer’s broader strategy around adult beverages. Fremstad said Walmart’s goal is to have a variety of wines at different price points for every occasion, from the $5 everyday bottle to go with Friday night pizza to the $50 bottle for an anniversary dinner. The effort aligns with Walmart's addition of premium alcohol to its shelves earlier this year, including craft beer, wine and high-end spirits from labels like Veuve Clicquot and Buffalo Trace. 

Currently, Walmart carries everything from its Oak Leaf Cabernet Sauvignon at $3 a bottle to more expensive labels like Justin Cabernet Sauvignon and Kim Crawford Sauvignon Blanc. 

"We are trying to make sure we deliver on what our customer asks of us,” Fremstad said. "We want core and discovery."

To boost Winemakers' appeal online, Walmart will create digital content that tells shoppers more of the story behind the varietals. The line will also be promoted on Walmart's app. 

Nesin thinks the relaunched Winemakers Selection could be significant for Walmart’s online grocery business, particularly due to COVID-19. 

"Someone like Walmart, they are actually able to more effectively intervene and direct consumers toward their products," Nesin said. "They can do that through placement and search, through making their labels more attractive and their descriptions more attractive than competitors." 

Because of the pandemic, Nesin said Walmart has drawn many new customers, and those who shop online tend to be wealthier, younger and more educated. That demographic also tends to drink wine, and with the right online assortment, Walmart is more likely to attract those same shoppers to the physical store, Nesin said.

And that is part of what Fremstad wants to see, too. 

"Our goal, obviously, is to bring more customers that are in Walmarts down the wine aisle, so they can see the wines we have, and we think the assortment we have now with this reset will be better than ever."