The Rise of Private-Label Products
Sales of private-label products, often referred to as store brands, have seen a notable increase of 4% over the past year. This growth has pushed total sales of these products to an impressive $271 billion, marking a new record. The surge in sales can be attributed to several factors, including changing consumer preferences and evolving marketing strategies.
According to the Private Label Manufacturers Association, the quality, value, and innovation offered by store brands are now highly competitive with that of well-known name brands. Peggy Davies, the president of the PLMA, emphasized this point in a statement, noting that store brands provide exceptional value. A survey conducted by market research company First Insight supports this claim, showing that consumers are increasingly confident in the quality of private-label products.
Consumer Trust and Perception
A study titled “The Quiet Takeover of the Private Label” released by First Insight in January revealed some fascinating insights. The survey found that 84% of shoppers trust the quality of store brand products as much, or even more than, name-brand products. Additionally, 72% of shoppers are unable to distinguish between private-label and name-brand products, while 47% have intentionally tried out a private-label product because it resembled a name-brand product.
Greg Petro, CEO of First Insight, explained that companies are becoming more sophisticated in their marketing approaches. He noted that even experts can be fooled by the packaging and branding of private-label products. This shift in perception is reshaping how consumers view store brands.
Packaging and Branding Strategies
Bruce Myers, a professor at the Rochester Institute of Technology who specializes in packaging design, shared his observations with CNBC. He pointed out that many stores are enhancing the aesthetics of their private-label products to signal to consumers that these items are of equal or better quality at a more affordable price. This is a significant departure from previous decades when stores used minimal packaging to suggest they were passing on savings to customers.
This change in strategy reflects a broader trend in the retail industry, where the visual appeal of products plays a crucial role in consumer decision-making.
Price Sensitivity and Economic Factors
While quality and branding are important, price remains a key factor in the popularity of private-label products. According to the Federal Reserve Bank of St. Louis, grocery store prices have risen by 23% over the last five years. Michael Swanson, chief agricultural economist at Wells Fargo’s Agri-Food Institute, noted that the average household’s spending power has increased, but consumers often struggle to track the relative changes in prices and purchasing power.
Petro highlighted that consumers are increasingly feeling that what they pay for a product is not worth it. This sentiment is reflected in the survey results, which show that 45% of consumers have permanently switched from name-brand products to private-label alternatives if they meet or exceed their expectations.
The Coexistence of Brands
Despite the growing popularity of private-label products, experts believe that name-brand products will continue to play a significant role in the market. Stores often use name-brand items to highlight the value of their private-label alternatives. Swanson explained that the existence of more expensive name-brand products helps consumers recognize the cost-effectiveness of private-label options.
For instance, in the refrigerator section, consumers can easily compare the price of a name-brand product with its private-label counterpart, making the latter appear more attractive.
Conclusion
The rise of private-label products is reshaping the retail landscape, driven by factors such as improved quality, effective marketing, and consumer trust. As more shoppers opt for store brands, the competition between private-label and name-brand products continues to evolve. While the future of traditional brands remains uncertain, their role in the market is likely to persist, offering consumers a range of choices that cater to different needs and preferences.
