The Rise of Premium Private Label and its Impact on Discount Retailers

The Rise of Premium Private Label and its Impact on Discount Retailers

Stigma and stereotypes have faded for store brands and name brands, respectively. The premium assortment of products in the retailer-branded portfolio continues to expand. And though discount retailers have historically focused on store brands (or, private labels as we often refer to them), many have a renewed interest in name brands amid demand for premiumization. It’s an exciting time for all where private labels descend on mainstream retail and name brands resurge as mainstays to discount retail strategy. 

From a sales perspective, the rise of private label is clear. Across U.S. outlets, they have amassed over $143 billion in sales over the latest year, a figure that’s up nearly $14 billion since 2015. While name brand products have made great inroads this year, up 2% in sales, growth has been constrained by flat consumer spending intentions, which have leveled off relative to store brands.

Today, consumers are much more willing to splurge for store brands than they would for name brands. Forty-percent of surveyed Americans say they would pay the same or more for the right store branded product, while only 26% of those surveyed feel that name brands are worth the extra price. Store brand sentiment in this case has seen substantial improvement from 2014, but consumers remain relatively unchanged in their willingness to splurge for name brands. 

The rise of higher-end store brand products has come hand-in-hand with consumers’ inclination to spend more on store brands. The premiumization of private label really comes to life when we look at products by price tier. Analyzing individual UPC price points, we created a five-tier distribution that isolates the most premium- and discount-oriented groups of products. Discount products still represent the majority of store brand sales in America, but they have ceded three share points in the last three years. Premium tiers of private-label products have grown in this time, now representing over 19% of sales. And as we saw earlier, consumers are more willing than ever to foot the bill for the right store branded products. 

With a premium face-lift on many private-label products, we’ve seen an interesting impact on discount grocery stores. U.S. value grocery outlets, including the likes of ALDI and Lidl, have collectively seen a 4% decline in private-label share of wallet. Meanwhile, stores with premium products, such as premier fresh grocery stores like Whole Foods, Sprouts and Fresh Market, have continued to see lifts in private-label sales.   

European discount retailers are seeing the same shift away from their store brands. Drawing global comparisons to markets where store brand presence has matured, name brands have driven over twice the CPG growth for discount retailers in Europe compared with store brands. Mature discount retailers in Germany have seen 10% sales growth from name brands in the last two years, far outpacing the 1% in growth experienced by store brands there. In these instances, name brands are a source for differentiation and driving new demand for discount retailers. This could create a new and profitable home for many name brands that have yet to tap the world of discount retail. 

Compete for shelf space in your most opportune sector of retail. For retailers and manufacturers that will mean a different destination than it likely has before. 

Read more in our latest Total Consumer Report.