Private Labels Make Noise, Creating Market Share Opportunity for Store Brands

Key Insight:Price becomes a bigger factor in the decision-making process during an economic recession. CPG favorites from Campbell's soup to Charmin toilet paper have seen a sales surge during the pandemic as Americans spend more time in their kitchens and bathrooms. Despite all the talk of shoppers seeking comfort and stability in major household brands, which have benefited from decades of advertising, lesser known private label lines have kept pace. From early March to early September, U.S. sales of big-name CPG products and their private label counterparts each increased 16% year over year, according to Nielsen. (In terms of total dollar amount, however, name brands remain more than four times larger than private labels.) While it's established that people sticking close to home has been a boon for the nation’s largest CPG manufacturers, signs suggest private label competitors are poised to profit even more in the coming months. “Private label was already growing as a much bigger share of wallet than CPG brands,” Jason Goldberg, chief commerce strategy officer at Publicis Groupe, said of the time prior to Covid-19. Due to the outbreak, he explained, private labels’ gains are accelerating. “Five years of that trend happened in five minutes," he said. Retailers have noticed and are trying to grab the moment by promoting their in-house brands, which typically don't receive much in terms of marketing investment. Supermarket chain ShopRite, for instance, is currently running spots that debuted in November to support its relatively new Paperbird line of household products, which includes sponges, napkins and paper plates. Its campaign “Clean in Peace,” created by Kansas City, Mo.-based ad agency Barkley, involves an influencer program and visible takeovers of key commuter stations in states where ShopRites are located. Laura Kind, vp of brand strategy at ShopRite parent Wakefern Food Corp., called it a "new approach" for the retailer. “We didn’t just treat this as a private label launch, but gave it the respect of the CPG brands we knew we were up against in consumers’ minds," she said. Kind noted that the initial idea behind the campaign was relevant last fall, but after months of quarantine, the message "rings even more true." While the early period of panic buying left shelves bare, shoppers had to experiment with substitutes they might have avoided in the past. Now, according to consulting firm Magid, more than four in five people who tried a private label product as an alternative during the early weeks of the pandemic say they’ve continued to buy it at least sometimes, even after the item they initially preferred became available again. An asset private labels possess is that they tend to be cheaper. Nielsen numbers show that since the outbreak of Covid-19, the average unit price of private label items has been $3.09 compared to $3.55 for name brands. In a time when people are squeezed financially, it's an obvious advantage. And it's also beneficial for two of Kroger's private labels, Simple Truth and Private Selection, with Kroger CEO Rodney McMullen noting during an earnings call that both product lines experienced double-digit growth in Q2. Target also announced plans to add 600 more items, including dozens of premium offerings, to its food and beverage line Good & Gather, making it the retailer’s largest owned brand with nearly 2,000 products. Unveiled one year ago, the private label has already brought in more than $1 billion in sales. Target did not respond to a request for comment. Aiming to bring socially distanced people together through food and fun, Kroger premiered a series of at-home events called "Social Social" in May, which made recipes, a curated playlist and a number of family-friendly activities available to download. Kroger had also introduced new marketing programs for its portfolio of private labels in response to the pandemic, according to a company spokesperson. Goldberg described the current relationship between retailers and CPG manufacturers as two former partners turned “frenemies,” noting the current situation is only making this status more overt. “Brands are secretly trying to figure out how to sell products direct and build their own relationship with the customer, while retailers are trying to figure out how to build better products, market them better and build their own brand,” said Goldberg.