- According to recent data from Nielsen, retailers such as Walmart, Costco, and Target are growing private label brand sales almost 4x faster than famous American brands, with own-brand sales up 4,3% in US stores in Q4 2018 vs. 1.2% for the top 20 biggest brands.
- Kroger recorded a 15% increase in sales of its ‘Simple Truth’ own-brand line in 2018, and Target stated private label products have “…certainly been a big part of our market share gains” as it reported a 5% rise in lfl sales for 2018.
- While currently more popular in Europe than in the US, the rapid growth of cheaper private label alternatives undermines the traditional consumer companies pricing power, and, according to Warren Buffet, is “going to keep getting bigger”.
Analysis & Comments
- I see two underlying drivers of the strong growth of private label products:
- Millennials now make up a quarter of the world’s population, and the older members of this cohort came of age during the great recession, which, as the FT puts it, “created millions of newly frugal bargain hunters”.
The international success of discounter brands such as, for example, German retailers Aldi and Lidl, support this argument.
- Millennials do not seem to exhibit the same strong preferences for particular brands as previous generations. Instead, corporate mistrust has reached record levels, with many younger consumers openly distrusting brands and their advertising. Again, we believe this makes price (alongside peer-driven media and reviews) a much more important factor in making a purchasing decision.
- Similar to the rise in own-brand products, we are starting to see a growing number “brandless” product concepts – which evolve around offering quality products without any retail, marketing, shelf stocking or other such mark-ups. Of course, one could argue that that is in a way just another form of brand….