Analysts point to many factors contributing to the growing popularity of private label products:
- Lower prices in uncertain economic times
- Consumers seeking more choices
- Millennials distrust of brand messaging
Whereas private label products were once a nice alternative for the customer, they are now a major focus for large retailers. Major retailers are building their corporate brand on the shoulders of non-branded items.
Jessica Hendrix, CEO Saatchi & Saatchi X, addressed the brand disruption on a recent episode of Focus on Suppliers. She observes retailers getting it right in private label and what brands will need to do to fight for relevance.
Moving From Choice to Focus
Hendrix begins with famous advice from Walmart founder Sam Walton, “Set high goals, encourage competition, and then keep score.” She then observes the escalating grocery battle and how foreign companies have sought success in the United States.
“With the surge of deep discount grocers and retailers, that’s exactly what’s happening,” Hendrix continues. “By 2020, Aldi plans to open 2,500 stores. Fellow German grocer Lidl has begun opening U.S. stores on the east coast.”
Both Aldi and Lidl expanded successfully outside of Germany. While Aldi has had a U.S. presence for years, Lidl grabbed the attention of analysts upon announcing its U.S. debut. Why? Lidl and Aldi conquered the U.K. market, and speculation was U.S. grocers were in for a major awakening. Hendrix goes on to explain the success of these grocers.
“What’s allowing these stores (Aldi and Lidl) to grow is their focus on affordable private label brands,” she observes, “which blur the line between value-based products and name-brands. Their low operating costs let them offer these high-quality and often organic options at values shoppers can’t afford to say no to.”
How Do Brands Combat Private Label?
As consumers gravitate to private label, retailers are following the demand for their own bottom line. However, all is not lost for established name-brands. Hendrix concludes with sound advice for suppliers planning to take on the private labels.
“To gain share back from private label, brands need to focus on quality and distinctiveness,” she advises. “The score is being kept, and it’s a close one. But in the long run, it will be those that deliver on experience and efficiency in every part of their business model that come out on top.”
To hear more insight from Jessica Hendrix, check out past episodes of Focus on Suppliers.