Private labels have become formidable competitors to big brand owners. Ananda Roy, International Senior Vice President, Strategic Growth Insights at IRI shares three trends for innovation in private label.
Private labels may not be instantly recognisable brands, but they don’t need to be. Today they offer consumers value, quality and premium product innovation compared to many national brands. Now worth €194 billion and making up 35% of total FMCG value sales in Europe, private labels are closing the gap on national brands.
According to IRI’s report, ‘Private Labels: Hiding in Plain Sight’, private label ‘loyalists’ – shoppers that buy them over 75% of the time – now equal those of national brands in the key European markets. Around half switch between the two.
Modern private labels are a far cry from those products first seen on supermarket shelves over 40 years ago. The early ‘generics’ of the 1980s were designed to be low-cost, no-brand alternatives, but by the 2000s had evolved to become ‘shadow’ brands, lookalike products to big brands that borrow their brand equity.
The financial crisis of 2008/9 led to discount private labels, overtly positioned on price, followed a few years later by ‘essentials’ ranges from the likes of Tesco, Waitrose and Boots; a new era of everyday low prices aimed at driving loyalty rather than just penetration.
Private labels have continued to evolve, with the stratification of product portfolios, such as Tesco Finest and Sainsbury’s Taste the Difference, and introduction of standalone ranges like Boots No.7, alongside the relaunch of loyalty cards to further help build shopper loyalty.
In the last five years, the landscape has changed completely. What we now see are private labels that are customer-focused, strategy-obsessed, differentiated and data-informed. They have evolved over four decades to become formidable competitors to big brand owners.
What’s more, they have further narrowed the gap with national brands in terms of key attributes like innovativeness, quality, sustainability and trust. As a result, they are now significantly better in terms of image and acceptance.
This consumer acceptance is perhaps one of the biggest changes we have seen. In our study, we asked consumers specifically about innovativeness – 58% feel that private labels are as innovative as national brands, while 26% say they are more innovative. An example of this is how private labels are driving plant-based, high protein, natural and organic ranges.
Looking at the other key attributes, 59% of consumers say the quality of private labels are as good as national brands, while 29% say they are better. This is largely down the white label effect with manufacturers creating products for supermarkets with the same quality and taste. When it comes to ‘trusted’, 65% of consumers say they are as trusted as national brands (27% say they are more trusted) and this is down to the brand equity built up by the supermarkets in their own brands particularly over the last two decades.
How will new innovations make private labels even more competitive?
Private labels are now often leading in innovation within high-margin categories like Bakery, Beverages, Beauty, Vitamins & Supplements, and over the counter healthcare remedies.
IRI’s research shows that consumers find shopping in-store for private labels easier thanks to clear labelling and clear ingredients. It makes the shopper experience more enjoyable and less confusing than the vast array of packs, offers and formats among many national brands. Packaging is important, more so than ever before. Consumers expect private labels to be as sustainable as brands especially in the use of recycled materials and less plastic.
New innovations will ensure private labels become even more competitive. There are three key areas that we believe will become the battleground between private labels and brands.
The first is in meal kits and shoppable recipes, like Gousto, Hello Fresh and Wetaca in Spain, for example, which are experiencing double-digit growth as they can deliver fresh quality ingredients, variety, reduced waste and convenience. But as demand slows (post-pandemic) they have started to innovate more with vegan, free-from, dairy-free and so on, and expand into ready-to-heat ingredients and meal add-ons. This is a growth opportunity for both private labels and national brands, as it offers a new route to market, especially among higher income consumers.
Another area of growth is the transformation of retailer media. We are seeing a proliferation of apps, highly downloaded, and websites. In our survey of FMCG brands and their motivation to work with retailer media, we found that getting access to retailers’ first party data, building better relationships with them, and having a better understanding of shopper segments, had moved on significantly between 2020 and 2021.
Finally, the growth in quick commerce, which represents around 3% of online grocery sales in Europe. There’s a lot of innovation in this space, despite the low margins. Where we are seeing opportunity is in quick commerce players becoming creators of their own private labels, like launch of Jiffy’s bakery range in the UK. Some quick commerce companies are saying they can get a 3% uplift on margin by bypassing brands in both food and non-food. While much of this innovation is happening in APAC and South America right now, Europe is quickly catching up and offers huge potential to the grocery market.
Private Labels have narrowed the gap with national brands in the eyes of consumers when it comes to innovativeness, quality and trust. They compete for growth and margin on near equal terms and are worthy competitors that are not always acknowledged by the big brand owners. But times are changing and changing fast.