Although food inflation is decreasing slightly, higher prices are continuing to impact consumers’ wallets. In an inflationary environment, private brands are emerging as a strategic solution for grocery retailers.
According to the latest FMI – The Food Industry Association’s Power of Private Brands report, the popularity of private brands is on the rise, driven by factors such as value, quality and innovation.
FMI’s Steve Markenson, VP of research and insights, and Doug Baker, VP of industry relations, discussed the key findings of the report in an Oct. 10 media briefing. Markenson emphasized the importance of understanding consumer perceptions and behaviors, while Baker highlighted the industry’s growing commitment to private brands.
Markenson noted that over the past 18 months, shoppers have been able to keep their average weekly grocery spend relatively steady, at about $160.
“Consumers are feeling a level of control with their food budgets, and this is more positive than what we’re seeing with other areas such as rent, fuel and healthcare … they’re being very savvy about how they spend their food budget,” Markenson said.
Consumers also are changing their habits, with 43 percent reporting they are buying more private brands.
In the expanding world of private brands, Markenson said FMI research shows that 55 percent of shoppers say they’ve been purchasing more private brands over the past year, often at the expense of national brands.
Circana reports that as of June, private brands account for more than 20 percent of the dollar share and just over 25 percent of the unit share of purchasing at grocery stores.
“In our research, we’re seeing that almost half the customers say they plan to further increase their private brand purchases over the next year … The appeal of private brands goes beyond just affordability. Certainly, 72 percent of shoppers say the reason for buying private brands is they represent a good value, but quality and taste are right behind and growing as reasons to purchase,” Markenson said.
The majority of shoppers also report choosing the stores they shop based on the availability of the private brands that appeal to them, he added.
“With that backdrop of private brand success over the past few years, we at FMI sought to understand how the industry can maintain and expand on this consumer enthusiasm, and what some of the strategies are out there to sustain this momentum. We surveyed the industry from the end of June to early August,” Markenson said.
“We also conducted a variety of in-depth interviews with folks in the industry to further understand what was going on. Our findings highlight the industry’s increased investment plans, the areas of greatest success to date and the top priorities for driving consumer sales.”
This includes strengthening brand strategies, improving the supply chain and expanding product assortments. In addition, some key gaps were identified pertaining to food retailers’ and suppliers’ perspectives that underscore the need for more alignment to accelerate success, he said.
[RELATED: FMI’s Power of Private Brands Report IDs Increased Industry Investment]
Increasing investments
Baker said that as private brand sales increase, they are growing in importance to the organizations that sell them. More than 90 percent of the food industry leaders surveyed said they are increasing their investments in private brands.
“Consumers are increasing their spending, and retailers are increasing their investments. You can see the real growth and opportunity for private brands over the next two years,” Baker said.
That commitment to increased investment also shows the ongoing confidence in private brands as a strategy, he added.
As consumers buy more of these products, they are growing in trust and loyalty to those brands. Companies are recognizing this sales potential but also the ability to “act as a key differentiator and driving loyalty for retailers,” Baker said.
He noted that manufacturers are investing in expanding capacity, adding value through innovation and developing new products.
“Some of the most exciting areas for sales and share growth include premium offerings, best value products, health and well-being focused items, simple or clean ingredients, and expanding frozen and fresh food options,” he said.
Looking ahead, Baker said retailers have set “ambitious goals” to drive more growth over the next two years.
“They’re aiming to increase private brand dollar share by about 4 percentage points, and unit share by around 3.5 percentage points,” he said. “… The combination of the growth targets and increased investment shows just how focused the industry is on maximizing the potential of private brands and treating it as an opportunity for success.”
Innovating is key in helping drive private brand growth in the future, but the industry is “thinking beyond just new product development,” Baker said.
“It’s about addressing unmet needs across the board, from packaging and flavors to how it comes through the supply chain, the logistics, the merchandising, the marketing – innovation from the entire value chain in order to make private brands that much more important and successful. It touches nearly every aspect of the business,” he said.
New day
Markenson noted that the way consumers look at private brands has changed. He and Baker both mentioned the change in terms from “private label” to “private brand.”
“The old generics from the days in the past are no longer, and these are definitely ‘brands’ to the consumers when I talk to them,” Markenson said.
Reaching the younger generations of shoppers is important.
“The industry does see itself as slightly misaligned when it comes to capitalizing on the importance of appealing to those younger consumers,” said Markenson. “Everyone talks about Gen Z these days. So, how is the industry working to win over those younger consumers, those Gen Zs and young millennials? This is so crucial for the future growth.”
Most survey respondents point to digital marketing as their top strategy, he noted. Another opportunity is using private brands to drive young shoppers’ store choice, making it a destination for them.
“Other strategies to appeal to young shoppers include the use of leveraging shopper insights, boosting the convenience factor … and improving e-commerce,” he said. “That includes things like better search functionality, suggestive selling and more compelling product images.”
Transcending cost
While cost tends to be what most people think of when it comes to private brands, Baker said the surge in demand has spurred the industry to “transcend cost efficiency, focusing on sustainability and momentum. Retailers also stress that cultivating a merchandising culture of differentiation and sharing unique stories behind products are powerful strategies for driving growth.”
Retailers also are putting greater emphasis on premium offerings and enhancing package design for private brands.
Survey respondents indicated the industry is still playing catch-up.
“After we saw the significant SKU rationalization driven by the COVID-19 pandemic, closing the gap is going to require strengthened partnerships between retailers and manufacturers,” Baker said.
As private brands are evolving to offer more distinctive products, it is also essential to consider the strategies that will strengthen the partnerships behind these innovations, he noted.
“A critical part of sustaining growth lies in how we collaborate with suppliers and enhance our supply and assortment strategies. The private brand industry highlights the need for stronger, longer-term commitments with suppliers, closer collaboration and giving suppliers more room to innovate … It’s moved away from transactional relationships always focused on cost.”
Overall, the FMI Power of Private Brands report provides valuable insights into the state of the private brand industry and offers guidance for retailers and manufacturers looking to capitalize on this growing trend. As consumers continue to seek value and quality in their grocery purchases, private brands are poised to play an increasingly important role in the future of the food industry.