Can CPG Brands Withstand the Escalating Online Private-Label Onslaught?

Competition from private label — aka in-house or store brands — has been a sticky reality for CPG brands in brick-and-mortar stores for decades now, and it’s definitely not going away.

In fact, in physical stores, private label product sales increased by $7.9 billion over the last three years, and now represent 17% of CPG sales, according to a new report from Nielsen. That growth is not expected to stop in the foreseeable future.

Meanwhile, private label’s share of U.S. CPG online dollars has grown from 1.3% to 3% in just the past two years. That’s hardly insubstantial — though it of course means that national brands still command 97% of CPG online dollars.

Ecommerce as a whole still represents only about 10% of total North American retail sales. But ecommerce dollar sales are growing at double-digit rates, while physical retail as a whole is lucky to see 2% to 3% annual growth (with the grocery sector lagging even that pace).

And for national brands in many household and personal care staples categories, in particular, private label’s online share growth is nothing short of alarming.

Hard-to-differentiate products like paper products, trash bags, baby wipes and aluminum foil have seen PL competitors grab 15% to nearly 30% of online category sales (see chart above).

Moreover, start-up niche brands now have unprecedented opportunities to catch on and grow rapidly in the online environment.

Indeed, Nielsen characterizes private label as “the new challenger brand” in ecommerce.

For instance, four of the top challenger brands (Mrs. Meyer’s Clean All Day, Seventh Generation, Babyganics and Method) have a combined share of 41% of online sales, versus just 5% in stores, reports the researcher.

The flip side of selling and marketing products on Amazon and the increasingly sophisticated, data-driven sites of Walmart, Target and Kroger, is that the same retailers are aggressive, and successful, at developing and selling private label lines.

In an example of how physical stores can yield beneficial synergies with online, Walmart, in part through its order-online/pick up in store capabilities, has established a solid lead, grabbing a 48% share of CPG ecommerce private label sales dollars (up from 27% two years ago), reports Nielsen.

But Amazon, unsurprisingly, is also coming on strong — particularly in the household care and grocery sectors, where it saw 19% and 16% private label sales growth, respectively, in the 12 months ending in February 2019.

Of course, CPG companies are also pursuing ecommerce aggressively, and increasing these sales as a percentage of their overall revenue year by year, as they gain knowledge and expand partners and channels.

And not all categories have seen private label flourish online, as least to date. For example, whereas in-house brands command a 17.9% share of health and beauty category sales in physical stores, they still have less than a 1% combined share online, according to Nielsen.

How are marketers of national brands fighting back?

Well, in a “if you can’t beat ‘em, join ‘em” strategy, CPGs are clearly realizing solid sales results from their expanding online, data-driven partnerships with key retailers. (See April 16’s CPG FYI column.) Using data and retailer-specific engagement strategies to implement individualized messaging and offers to new segments within customer bases is paying off.

As is research- and data-based product innovation in existing product lines and launches.

“Private label has not reached a plateau in physical stores, and especially not online,” sums up Nielsen. “As retailers and e-commerce providers increasingly take control of supply chains and launch their own “brands,” the friend-and-foe dynamic between retailers and brands will continue to get more complex. Brands find themselves in a tight spot between niche disruptors and private label, and only the most innovative will win the omnichannel battles ahead.”

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