The future of private-label grocery brands after the end of the war on inflation: A new era of competition and innovation.

• Inflation led to an increase in sales of private-label brands among major grocers such as Walmart, Kroger, Albertsons, and Target, as more consumers turned to budget-friendly options. This trend has resulted in more retailers offering private brands across a wider range of categories in their stores.
• The gains in the private brand grocery business for Walmart, through its Great Value marque, are continuing to increase, with over 1,000 food and beverage products.

National brands and private-label brands of foods and beverages have been sharing shelf space in grocery stores for a long time. For instance, Walmart, the world's largest grocery retailer, sells its Great Value Raisin Bran alongside similar cereals from Kellogg's and Post, and usually at a considerably lower price. Similarly, other major grocers such as Target, Costco, and Safeway also offer private brands across a wide range of product categories.

With inflation decreasing, private brands are facing a dilemma. Will they regain their typical market share of around 18-20% compared to national brands, or will grocery retailers innovate, market, manufacture, and stock their own brands to capture more market share, improve their margins, and differentiate themselves from competitors? Recent retail data, consumer surveys, retailers' comments, and expert analyses suggest the latter scenario.

In 2023, the sales of private brand food and beverages in the U.S. increased by 6.7% to $152 billion from $142.4 billion in the previous year, reaching a total of $152 billion, according to data from Circana. Additionally, the unit share of private brands on grocers' shelves rose from 25% to 26%, indicating a slight increase in the popularity of private brands. While a one percentage point increase may not seem significant, retailers benefit from selling private brands as it allows them to avoid the production, pricing, and logistics infrastructure associated with national brands.

Target's improved second-quarter revenue, up 2.7% year-over-year to $25.5 billion, was partly due to its private brands such as Good & Gather and Favorite Day. According to Rick Gomez, executive vice president and chief commercial officer, Target's industry-leading design and sourcing capabilities enable the company to streamline processes, reduce costs, and increase speed to market.

The number of private brands in U.S. stores has increased significantly, with accessibility being a key factor driving this growth, according to Sally Lyons Wyatt, global executive vice president and chief advisor at Circana.

Walmart, Kroger increase focus on store-brands

Walmart is expanding its dominance in the private brand grocery business with its Great Value marque, which offers over 1,000 food and beverage products, and is also seeing an increase in private brand penetration, as evidenced by the successful launch of its new food brand, Bettergoods.

In April, Walmart U.S.'s private brands, food and consumables senior vice president, Scott Morris, announced the launch of Bettergoods, a new brand featuring a range of products under $5 in categories such as frozen foods, dairy, and snacks. The brand aims to differentiate itself in the market.

"Unlike some of our own private brands and national brand offerings, Bettergoods is not primarily a direct comparison to items existing in the market," he stated. "In fact, many items may not have a market comparison, either inside or outside our stores."

Kroger, a grocery giant with over 2,700 stores, has expanded its Our Brands portfolio by adding a new fresh produce line called Field & Vine, which is grown by farmers in California, Florida, and several other states. The company is also pursuing a $25-billion merger with Albertsons, which is currently being challenged in court on antitrust grounds by the government.

In its latest earnings report on September 12, Kroger reported that sales of store brands grew faster than national brands in the most recent quarter, with over 90% of customer households purchasing Our Brands products. Kroger announced that it has introduced 600 new items under private-label brands this year.

Customer shopping habits are changing for good

Recently, a survey by the Food Industry Association found that while lower prices were once the main value proposition of private brands, consumer attitudes are changing. The report revealed that quality and taste are now becoming increasingly important drivers for consumers, along with attributes such as meeting meal solution and health needs, and more appealing packaging.

"Lyons Wyatt stated that in the past, you felt that you were getting what you paid for when it came to private brands. While they were cheaper, they may not have had the same taste or quality as branded items. However, private brands have now raised the quality bar, providing taste and texture profiles that are comparable to branded items."

According to Doug Baker, vice president of industry relations at Food Industry Association, competition between private and national brands benefits consumers, but it also enables retailers to distinguish themselves from other retailers by offering exclusive brands. "That brand is only available here," he stated.

NIQ's vice president of advanced analytics thought leadership, Steve Zurek, stated that millennials and Gen Zers are forming unique relationships with brands and retailers, separate from Gen Xers and baby boomers.

"Zurek stated that Gen Z and young millennials are not inheriting the same brand loyalty from their parents. Instead, they are seeking independence and forging their own paths. Social influencers and friends play a crucial role in their decision-making process."

Walmart has observed a trend of younger, brand-agnostic customers switching to their private brands, which Morris attributes to their value and quality. He notes that this trend is particularly evident among Gen Z and higher-income groups.

Private brands are expected to thrive alongside national brands in the food industry, but they may not reach the same levels of success as in Western Europe, where private brands have a 36% market share, according to NIQ. European consumers are used to purchasing private brands from discount retailers like Aldi and Lidl, which specialize in such products. The growth of domestic store-brand success story Trader Joe's, as well as the expansion of discount retailers in the U.S., have contributed to the increased focus on private label from supermarket chains.

The Food Industry Association predicts that the market for private brands in the U.S. will not surpass national brands. According to Baker, this is due to intense competition among retail stores and brands. However, consumers will benefit from having access to competitive products, which will ensure that both private and national brands will continue to thrive in their businesses.