Private Label Is Growing But When Will It Take Off?

Private label is growing, but how fast? In-house brands like Safeway's "O Organics" and Target's "Archer Farms," are retailer extensions competing with traditional consumer packaged goods brands. Private-label products are a big part of the European market, and have made inroads in the U.S. in recent years.

But even with private-label products from the aforementioned and a plethora of others from the likes of Publix, Wal-Mart and Trader Joe's, the market is still, like the average flight out of LaGuardia, waiting to take off, according to Information Resources, Inc. The firm says retailers will have to change strategies to boost share.

The latest IRI Times & Trends Report, "Private Label 2007-U.S. and Europe: Retail Branding Strategies Capture Market Potential," also says the phenomenon is part of brand strategy at stores like Safeway, Kroger and Wegmans.

IRI says private label is huge in some European countries. For instance, the top five retailers hold more than 50% of the consumer market in Spain, the Netherlands, France and the U.K., per IRI.



And 70% of private-label sales are in only 20 categories. Also, per the firm, while most U.S. households buy some private-label products, penetration is low on a category-by-category basis. And relatively few households make it a point to buy big quantities of home-branded products. About one-quarter of private-label buyers drive 50% of sales, per IRI. Private-label sales also decrease with higher incomes.

Although sales of private-label products have reportedly been twice that of consumer packaged goods brands for a decade, the pace has slackened of late.

Meanwhile, IRI also highlights the categories that are seeing growth: butter, gastrointestinal tablets, pasta, cups and plates among them. Not surprisingly, growth in sales of such products is largely price-driven. And bottled water, internal analgesics and dog food, suffered because of activity among traditional brands offering new SKUs and innovations, per IRI.

While the big grocery chains and supercenters have the biggest share of market for private label, market growth is being driven by club stores, like Costco's "Kirkland Signature."

The firm says the key is innovation in product, merchandising and packaging, and an investment in advertising. Also, retailers can grow market share not only by expanding into other product categories, but by expanding the private-label brands they have into multi-tiered offerings, like value and premium.

Think Trader Joe's famous "Two Buck Chuck" Charles Shaw wines for the former, and Target's "Global Bazaar" or "Target at Home" for the latter.

Also: retailers with private-label brands should invest in POP and use their best-known brands as umbrella brands for packaging. IRI suggests that the strongest avenue for penetration is via hot niches like kids' products, "green", and organic products, like Safeway's above-mentioned line of organics.

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