Private label accounts for €194 billion, accounting for 35% of total FMCG value sales in Europe, as the gap between national brands narrows, the researcher says.
Around 50% of shoppers switch between the two, with most now appearing in the middle-income bracket but also in high-income cohorts in France and Germany, according to the latest report from IRI – Private Labels: Hiding in Plain Sight. Private label buyers look beyond the price. Where they intend to spend more or less in 2022 and beyond aligns with overall category trends.
Modern private label has evolved from its origins 40 years ago into strategy-driven, differentiated, data-driven and consumer-centric brands, the report says. Private label is gaining ground in terms of retail value, market penetration, consumer value and retail experience while closing the gap with instantly recognizable national brands.
Private label now accounts for a global category footprint of 16.5% of FMCG value sales, according to IRI. Driven by multiple growth factors, private label aims to offer the same or better quality, affordability, healthier options, consumer acceptance and portfolio stratification in premium.
With the highest penetration in Spain (44%) and Germany (38%), private label accounts for 35% of total FMCG sales in Europe, equivalent to €194 billion. Germany has the highest absolute figure (around EUR 60 billion), followed by Great Britain (EUR 43 billion).
Retailers have turned private label into an established global phenomenon. First launched in the 1980s as “no-brand generics”, private labels then evolved into openly price-oriented “discount” brands, followed by “everyday value” and “essentials” products, which became Every-Day – Low-price products (EDLP) became more widespread.
In several growth categories, private label has become a substitute for many national brands that have undergone significant transformations focused on quality, trust, eco-friendliness, innovation and entitlement.
From its humble, discounter-focused beginnings, private label has evolved over the past five years to “formidable competitors”to brands, despite the pandemic’s decline, said Ananda Roy, SVP, Strategic Growth Insights, IRI International and author of the report.
“What we’re seeing now are private label brands that are very customer-centric, strategy-obsessed, differentiated, and data-informed.” remarked Roy.
Cost-of-living crisis fuels counterattack by store brands
The private label counterattack is also partly due to rising inflationary pressures. Consumer buying behavior amid the pandemic chaos temporarily boosted national brands, driving down the value of private label sales. In 2018-2019, private label saw strong sales growth (+8% and +11.3% respectively), but this weakened in the early stages of the COVID-19 health crisis as consumers chose trusted national brands amid uncertainty – Value sales -1% in 2020 (value share 35.2%) and -1.4% in 2021 (value share 34.6%).
However, the outlook for the future is decidedly positive as this trend is likely to be moderated and possibly reversed as national brands hike prices to counter inflationary headwinds and private label return to the growth path.
“Now that national brands are being forced to raise their prices, private label is very likely to grow as consumers facing a cost of living crisis are heavily impacted by deals,” explained Roy. “Private label hides in plain sight.”
He added: “Trademarks may not be immediately recognizable brand names, but the fact is they don’t have to be. Retailers have rethought what consumers can expect from them in every supermarket aisle. They offer significant value to buyers who are not solely price conscious by delivering quality, product performance and premium innovation on par with the larger, more established national brands.
“They compete on almost equal terms for growth and margins, and often present worthy competitors that may not be fully recognized by the major brand owners. Private label basically hides in plain sight.”
Price wars threaten
So much so that there is a risk of price wars, he warned. Small and medium-sized manufacturers are likely to lose consumers, volume and value to large manufacturers and private labels, which are expected to moderate inflation and maintain availability despite ingredient shortages and supply-side disruptions. This creates the real possibility of price wars in the remaining half of 2022, with private label having the potential to benefit from inflationary trends.
“If your price cutting strategy fails to address the very real prospect of price wars in the second half of the year, we would argue that it is not complete,” warned Roy.
Promotions for manufacturers and dealers
- As private label enters 2022 with a competitive tailwind, IRI has outlined several strategic opportunities and actions:
- Attract shoppers by testing and converting the 50% who regularly switch between private label and national brands.
- Further mining of loyalty data to improve buyer segmentation and tracking.
- Invest more in retailer media to personalize promotions and experiences and track effectiveness.
- Promote private labels as more “valuable” based on quality, trust, innovation and sustainability.
- Make private label shopping quick, easy and fun by providing transparent pricing and clean labeling that helps clarify range, endorsements, innovative packaging and merchandising.
- Disrupt the product experience and route to market that are less easy to replace.
- Partner with leaders in fast trade to achieve higher margins, bypass brands and retailers, and create opportunities to offer a wider range of food and non-food products.
Innovation is the new battlefield
Private label is often leading innovation in high-margin categories such as baked goods, beverages, beauty, vitamins and nutritional supplements, and over-the-counter health care remedies. IRI research showed that consumers found it easier to shop for private label in-store due to cleaner labeling and clearer ingredients. This made the experience more enjoyable and less confusing than having to shop under national brands in the bewildering variety and proliferation of packs, offerings and formats. Shoppers say the gap between private label and national brands is even narrower when shopping online because the platforms and mechanisms are identical.
New innovations will make private label even more competitive as they take advantage of fast trade, shoppable recipes, meal packages and the use of retail media, all of which offer new routes to market, attracting higher-income shoppers and lower costs. sales.
Alongside retailers, quick commerce players are now creating their own private labels, as seen recently in the UK with the launch of Jiffy’s bakery range. The ultra-fast online supermarket has opened its own bakeries in three of its dark stores in east London. Products include breakfast pastries such as pain au chocolat and croissants, as well as a selection of fresh bread. Items are “baked to order” and then distributed to customers.