Private labels in the food and beverage industry have reached an all-time high. To consumers, the benefits are clear – alternative prices for conventional purchases. However, consumer benefits are accompanied by overwhelming challenges to food and beverage manufacturer brands. By 2018, the private label food industry snatched 19.3 percent (dollars) and 23 percent (units) of the U.S. market, growing by 9 percent in a mere two years and with no signs of slowing down.
In Europe, the private-label market share is setting the bar by capturing over 30 percent of the food and beverage industry market in 17 countries. Attaining 45 percent to 50 percent of the market share, food and beverage private labels in the UK, Spain, Switzerland and Germany are insurmountable. In the U.S., substantial growth is thus inevitable.
More than a cheaper alternative
Studies show that consumers perceive private-label products as not merely a cheaper alternative but a quality option of equivalent value. In a 2019 survey, the Private Label Manufacturers Association published that two-thirds of consumers believe that private-label products are just as good, if not better than national brands. Retailers are taking advantage of this key finding.
Private labels such as 365 (Whole Foods), Great-Value (Walmart), Simple Truth (Kroger), Kirkland (Costco) and O Organics (Safeway) are well known and trusted by consumers. Free to dictate scarce shelf space, and charge hefty slotting fees to national brands, retailers are squeezing manufacturer brands’ margins. Consumers are hungry for private labels and are also eating away at manufacturers’ margins.
Avoiding the Sphere of Despair
Manufacturer brands are crucial to the food and beverage industry. They bear much the research and development burden to provide consumers with innovative products to satisfy very strict diets.
How can traditional manufacturer brands avoid the “Sphere of Despair”? For many brands “if you cannot beat them, join them” seems to be the motto to live by. To those striving to grow their brands, research and development and advertising define the most critical of strategies. While introducing new products and healthier alternatives, manufacturer brands must invest significantly in research and development and innovate faster than private labels.
These efforts must be matched by effective advertising campaigns, which are already disadvantaged by private-label in-store retailer advertising. The challenges are real, but manufacturers who accept this reality, and respond accordingly, can still achieve remarkable brand recognition and growth.
Contact the GHJ Food and Beverage Team to learn more about this trend and how it could affect your business.