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Behind the Cart: The Wallet-Friendly Wonders of Private Brands

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In 2023, the North American grocery industry is navigating a complex situation filled with inflation, supply chain disruptions, and mounting pressure on profits. Key trends shaping the industry include a renewed focus on private-brand offerings and promotions, enhancing the omnichannel shopping experience, business diversification, integrating generative AI, and a growing emphasis on sustainability as a driving force.

The Inflation and Economic Pressure:

Though inflation has eased somewhat from its peak in 2022, it still casts a significant shadow over food prices. Consumers need help with the economic impact and are actively seeking more affordable alternatives. 

Behind the Cart: The Wallet-Friendly Wonders of Private Brands, grocery industry, integrating generative AI, omnichannel shopping, E-commerce, Grocery Market

Courtesy of Southeastern Grocers

E-commerce Plateau:

The rapid growth of e-commerce during the pandemic has stabilized but remains at levels above the pre-pandemic era. While consumers continue to value its convenience, they need help with delivery fees, which can deter their transition to online shopping.

Profitability Pressures:

The grocery industry increased its capital expenditures during the pandemic to stabilize supply chains. This increased capital expenditure, however, directly impacted the margins of retailers and consumer packaged goods companies, thus putting pressure on their profitability.

Labor Challenges:

The phenomenon known as the Great Resignation still reverberates through the grocery retail sector. Attracting and retaining talent remains a significant challenge for the industry.

Sustainability Focus:

Consumers are increasingly concerned about sustainability, and regulations and investor demands are urging grocers to adopt more sustainable practices.

Behind the Cart: The Wallet-Friendly Wonders of Private Brands, grocery industry, integrating generative AI, omnichannel shopping, E-commerce, Grocery Market

Trends Shaping the Grocery Market:

Here are the trends discussed below in detail.

1. Delivering Value to Consumers-

Shoppers prioritize cost savings, leading to an increased focus on private-brand offerings and discounts.

2. Personalized Omnichannel Experience-

Consumers now expect a seamless, personalized omnichannel experience, making personalization essential for customer retention.

3. Business Diversification-

 Grocery retailers are expanding into new categories and developing ecosystems to meet consumer needs.

4. Generative AI Adoption-

Artificial intelligence, particularly generative AI, is being explored for its potential to enhance the customer experience and operational efficiency.

5. Sustainability as a Driver-

Sustainability commitments influence purchasing decisions, and consumers expect companies to prioritize sustainability efforts.

Top Priorities for 2024

Grocery executives must address critical questions, including enhancing the perception of value, creating a seamless omnichannel experience, and broadening their ecosystem. A Deloitte survey shows that with the resurgence of Generative AI, over 40% of top-level executives anticipate using generative AI for business applications by 2023. They believe it will significantly contribute to revenue and cost savings. Grocers are excited about using AI to build customer loyalty, despite concerns about misuse. This disruptive technology is shaping grocers’ future vision. prioritizing generative AI use cases and accelerating sustainability efforts. These efforts are vital for navigating the unpredictable landscape and reigniting growth.

The Resurgence of Private-Label Brands:

US consumers increasingly favor private-label brands due to rising grocery prices despite their traditional reversion to national and regional brands. A study indicates that many US consumers plan to purchase private-label products, even as inflation increases. Manufacturers and retailers closely monitor this trend, with a significant proportion of existing customers expecting to continue purchasing.

The Evolution of Private-Label Strategies:

The private-label landscape is transforming, with retailers adopting new strategies that challenge manufacturer CPG brands. 

Here are three notable changes:

1. Expansion Across Categories-

Retailers are diversifying their private-label brands by infiltrating all product categories. They’ve moved beyond merely copying manufacturer brands and are introducing innovation. Grocery chains like Trader Joe’s, Aldi, Walmart, and others are extending their private-label offerings, covering a wide price range from budget to premium, organic, and natural products.

2. Consumer-Centric Research-

Retailers are now conducting consumer research akin to major CPG companies. They’re incorporating consumer interests into private-label product development, addressing concerns such as environmental sustainability and dietary needs in their private-label offerings.

3. Marketing Emphasis-

Retailers are adopting a similar approach to CPG companies in private-label brand marketing, developing strategies and executing them through various channels. As private-label brands gain market share in the US, CPG companies face increased competition. Success for CPG brands depends on innovation and marketing expertise. Traditional CPG brands can maintain a competitive edge by leveraging their focus on consumer brands.

The Changing Shopper Preferences:

A report by FMI reveals that 54% of surveyed shoppers plan to buy more store brands in the future, while only 26% intend to buy name brands. Only 4% anticipate purchasing fewer private labels. Price is the primary motivation for buying more private brands, but 61% cite better value, price, taste, and quality. 90% of shoppers plan to continue purchasing private brands even if inflation becomes less of a factor. The top categories for purchasing more private brands include paper products (43%), salty snacks (36%), packaged breads (36%), and milk and non-dairy substitutes (35%). The research highlights the growing influence of private brands on consumer preferences and store choices.

Embracing Private Brands: A Smart Shopper's Choice:

Consumer preferences in the grocery sector are undergoing a remarkable transformation. The days when private-label brands were primarily associated with budget-conscious shoppers are long gone. Today, these brands offer an extensive range of options, from everyday essentials to premium, organic, and eco-friendly products. For consumers, choosing private brands is not just about cost savings but value, quality, and a shopping experience that resonates with their evolving needs.

The Expanding Private-Label Universe:

The world of private-label brands has expanded exponentially. In the past, retailers focused on duplicating manufacturer brands in easily replicated categories like milk and soda. However, this has changed dramatically. Leading grocery chains like Trader Joe’s, Aldi, Walmart, Kroger, and more have transformed their private-label offerings into comprehensive consumer packaged goods operations. They’ve infiltrated every category, introducing innovation and choice at various price points. This diversification caters to an increasingly discerning and value-conscious customer base.

The Voice of the Consumer in Private Brands:

Retailers increasingly focus on consumer research to develop private-label products that cater to specific consumer interests and demands. This customer-centric approach aims to capture market pulses and address concerns such as environmental sustainability, dietary preferences, and organic and natural products. This approach offers consumers a fresh perspective on private-label options that align with their values and needs.

The New Age of Marketing for Private Brands:

Marketing for private-label brands is undergoing a significant transformation. Retailers are adopting strategies reminiscent of consumer packaged goods companies. They create consumer marketing campaigns and retail promotion plans, bringing private-label brands into the spotlight. The traditional focus on retail promotions is expanding to incorporate various marketing platforms, from retail media networks to elaborate social media campaigns. This shift has helped propel private-label brands into the limelight, making them a more prominent choice for today’s shoppers.

The Future of Private-Label Brands:

With private-label brands gaining an increasing share of the US grocery market, traditional consumer packaged goods companies, particularly the major players, face unprecedented competition. The secret to their continued success lies in innovation and a relentless focus on consumer brands and marketing strategies. While retailers are leading the charge in the era of private-label brands, CPG brands have the advantage of being more nimble and having a laser focus on their core competency—consumer brands. CPG brands can retain their competitive edge in a rapidly evolving marketplace by capitalizing on this and staying at the forefront of innovation.

Changing Demographics of Private Brand Shoppers:

The demographics of frequent private brand shoppers have undergone a notable transformation. Traditionally, these shoppers are skewed towards being female, millennials, residing in households with children, and having an income of less than $50,000. However, recent research findings show a marked shift. These frequent private brand shoppers now reflect the broader population, underlining the fact that private brands have evolved into an increasingly ubiquitous choice.

Private Brands Influence Store Choice:

Private brands are influencing where people choose to shop. In 2023, 53% of survey participants considered store brands to be very or extremely important in their choice of store. This confidence in brands represents an increase from 46% in 2019, marking a clear trend of private brands gaining significance in the consumer’s shopping decision.

The WayForward:

In a nutshell, private-label brands are transforming the grocery industry by offering a variety of products, from budget-friendly essentials to premium, organic, and sustainable options. Moreover, retailers are expanding their offerings, conducting consumer-centric research, and adopting innovative marketing strategies. As consumers seek value, quality, and a shopping experience aligned with their values, traditional consumer packaged goods companies can thrive by embracing innovation and capitalizing on their expertise in consumer brands and marketing.

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