Ever since the Great Recession a decade ago, private labels in retail have been steadily on the rise. In the past, private label products were associated with low quality and low prices, but this is no longer the case. Consumers have largely rejected the stigma of private label products, and instead have recognized that private-label quality levels are much higher and more consistent than ever before. This has significantly shifted buying behavior, even insofar as replacing the national brands that consumers have favored for years.
Embracing Private Labels in Retail
The pandemic further accelerated consumers’ willingness to embrace private labels. When many consumer packaged goods (CPG) brands disappeared from store shelves due to panic buying and pantry hoarding, shoppers were forced to turn to private label goods. Almost one-fifth of consumers rely more on private-label products than before the pandemic, and 52% said they expect to continue purchasing private-label brands once the pandemic subsides.
This change in consumer behavior is a direct reaction to the economic effects of the Covid-19 pandemic. Private label success generally varies with economic conditions. Specifically, private-label market share generally goes up when the economy is suffering and down in stronger economic periods. As inflation increases and the costs of essential items continue to rise, consumers are making room for cheaper private label brands to take market share. This is a trend that looks like it won’t be going away anytime soon.
The Consumer Price Index, a key barometer of inflation, increased 0.8% in February according to the Bureau of Labor Statistics (higher than the 0.6% increase in January). The price for goods and services has increased 7.9% from February 2021 to February 2022, accounting for the highest inflation rate since January 1982. Common household purchases—everything from food and clothing to gas—continue to be significantly more expensive than they were a year ago.
With everyday living expenses taking a larger cut of consumers’ paychecks, private label products may take spending away from staple national brands. Simultaneously, private label products are becoming easier to find than ever before. In recent years, retail giants have been bulking up their private and exclusive brand offerings in an attempt to drive sales growth and gain market share in trending categories.
Shift Toward Private Labels
The consumer shift toward private labels benefits retailers as well, since private labels are typically more profitable. Furthermore, high-quality private labels can gain a devoted following and become a powerful driver of customer loyalty to the retailer. Retailers that seize this moment to develop their private-label strategies can translate short-term switching behavior into long-term customer loyalty.
National brands have seen staggering success across private label brands, as more and more new store brands are hitting the shelves. Costco’s Kirkland Signature private label products accounted for 32% of the company’s total sales, driven primarily by grocery, health and beauty products, and home cleaning goods. Albertsons, with a brand portfolio worth $14 billion consisting of 12,000 items across 500 categories, introduced 650 items in its Own Brands line last year and reported its private-label penetration reached more than 25%.
Pharmacy retailer CVS claims that private label brands are not only more profitable for the chain, but they are also 20% to 30% less expensive for consumers than national brands. CVS has seen the waning power of name brands on their shelves amid heightened competition and shopper declines. Private labels have therefore been key to reviving its retail business and cultivating customer loyalty.
As consumers embrace the affordability and high quality of private labels, brands must consider this behavioral switch in their marketing strategy. Having a suitable mix of national and private label products is ultimately a highly effective way for retailers to maximize sales and best cater to consumers’ preferences.
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Contributions By Julia Hoffman