The consumer packaged goods (CPG) industry is undergoing a transformation driven by the rise of private label products. These store-branded items now challenge national brands in quality and value, featuring improved products and on-brand packaging. As major retailers lead this shift and economic pressures reshape consumer behavior, understanding this trend is crucial for emerging brands.
The private label market is experiencing remarkable growth, driven by economic factors and changing consumer preferences. Private-label brand sales in the U.S. surged by 6% year-over-year, reaching $217 billion in sales and 25.5% market share in 2023.
Key factors fueling this surge in popularity include:
The growth extends across retail categories, with the beauty industry seeing a 10% increase in private branding in 2023. Beauty private labels grew their unit share by 0.3 points, general merchandise by 0.6 points, and home goods by one point.
Consumer sentiment towards private label products has shifted positively. An FMI survey found that 54% of consumers anticipate buying more from private-label brands, compared to 26% for name-brand items. Millennials and Gen Xers without children comprise 36% of private-label food and beverage sales, while households with kids account for another 35%.
As economic pressures persist and retailers continue to innovate their private label offerings, the trend towards store brands shows no signs of slowing. This shift presents both challenges and opportunities for national brands and emerging players in the CPG industry, necessitating strategic adaptation to this evolving retail landscape.
Walmart's recently launched bettergoods line marks a significant evolution in their private label strategy, described as their "largest private brand food launch in 20 years and the fastest food private brand Walmart has brought to market." The line offers products across various categories, with prices ranging from under $5 to $15.
Bettergoods is positioned on three distinct category pillars: culinary experiences, plant-based and made-without (like without gluten free, or without artificial flavors, colorings or added sugars). This strategy aims to capture a different shopper demographic compared to Walmart's existing Great Value brand.
Early insights reveal that bettergoods ice cream shoppers are 67% more likely to be Gen Z compared to Great Value shoppers, with 78% of consumers planning to repurchase. Bettergoods appears to be incremental to Walmart's portfolio- its ice cream shoppers are 13% less likely to purchase Great Value ice cream in the past year compared to other brands.
Walmart's private label products captured nearly 6% of total grocery spending in the year ending Q1 2024, amounting to over $47 billion. With 63% of shoppers indicating a willingness to purchase additional food items from the brand, bettergoods demonstrates strong potential and could significantly impact both established name brands and rival retailers.
Target's Private Brand Success
Target leads in the private label space with over 45 owned brands across various categories. This robust portfolio of private brands contributes more than $30 billion in sales annually, underscoring the significant role of private labeling in Target's overall strategy.
Target's success stems from creating affordable products with premium designs, appealing to savvy shoppers. Their private brands feature visually appealing packaging that rivals boutique products, using sleek typography and carefully chosen colors.
The retailer continues to innovate and expand its private label offerings. In February 2024, Target launched Dealworthy, a value-oriented brand with most items priced under $10, spanning categories from apparel to home goods. Additionally, Target announced the expansion of its popular Up&Up brand, further strengthening its presence in everyday essentials.
This multi-faceted approach to private labeling, from budget-friendly options to more premium lines, has built strong brand loyalty among consumers, particularly style-conscious Millennials and Gen Z shoppers. Target's commitment to design-forward strategies and diverse price points across its private brand portfolio positions it strongly in the competitive retail landscape.
The rise of private labels has reshaped the CPG competitive landscape, presenting both challenges and opportunities for brands of all sizes. As private branding gains momentum, emerging brands must adapt and innovate to thrive. While private labeling poses a threat to emerging brands, it also creates opportunities. Some retailers are more open to partnering with innovative, nimble brands to develop exclusive products or enhance their private label offerings.
In this dynamic environment, emerging brands should consider the following strategies:
As emerging brands implement strategies to compete in the private label landscape, securing the right financing becomes crucial. Strategic financial management can provide the resources needed to outmaneuver private label competition:
By leveraging these financing strategies, brands can position themselves to capitalize on future market trends. As private-label sales continue to grow (reaching $216.8 billion in 2023), the market is evolving with factors like e-commerce expansion, increasing demand for sustainable products, and changing brand-retailer relationships shaping its future. In this dynamic environment, brands with strong financial backing will be better equipped to adapt and thrive.
The rise of private labels represents a significant shift in the CPG landscape. For emerging consumer brands, success in this new environment requires a combination of strategic product differentiation, smart pricing, and careful financial management.
By leveraging innovative financing solutions, such as those offered by Lunr Capital, brands can access the resources they need to compete effectively against private labels without sacrificing ownership or control. As the market continues to evolve, brands that can adapt quickly, tell compelling stories, and manage their finances strategically will be best positioned to thrive in the competitive world of CPG retail.