The trend lines for private label sales have rarely looked better. The Private Label Manufacturers Association reported that sales of private label consumer packaged goods soared 11% last year to nearly $230 billion. Sales of store brand products often rise during periods of economic hardship, and it’s clear that double-digit inflation has spurred consumers to turn to cheaper alternatives to save money.
In the past, many of these consumers have returned to national brands once the economy has recovered. This time, however, that may not be the case. A new study from 2023 analyzing U.S. food and beverage trends found that 74% of consumers would be likely to continue buying private-label brands even if price weren’t an issue.
Amid rising perceptions of higher quality, it seems that private label lines are no longer seen as just “bargain brands.” They’re seen as better options, with private label lines like Tesco in the UK now routinely beating national brands in overall brand preference. That leaves private label room for continued market growth as it expands beyond the lowest price points to mid-range tiers.
These trends pose a tremendous opportunity for brands and retailers that have been aggressively expanding their private label lines in recent years — provided, of course, that these businesses can continue to meet consumers’ expectations of value. That means not only controlling prices while keeping quality high, but also improving the social and environmental footprint of their products, since mounting research shows sustainability drives purchasing decisions at every price point.
Improving sustainability allows retailers to deliver additional value to their private label products, which can either help justify higher prices or allow the retailer to grow volume while maintaining prices to grab increased market share.
A revelatory study from McKinsey and NielsenIQ this winter found that products that make environmental, social and governance (ESG) claims achieved faster growth than products without them. Fascinatingly, this growth was most pronounced for private label products. In 88% of product categories, private label items making ESG claims experienced disproportionate sales increases. Consumers’ preference for products making ESG claims was consistent across nearly all demographic groups, not just higher-income households.
Those findings led McKinsey’s researchers to theorize that shoppers are turning to private label products not only because they believe they’re more affordable, but also because they believe they’re more sustainable. “CPG manufacturers and retailers might consider interpreting these data as incentives to offer their value-seeking shoppers more ESG-friendly choices at these lower price points,” the researchers advised.
A multi-enterprise platform like TradeBeyond is invaluable for helping brands and retailers seize that opportunity, allowing them to quickly and responsibly grow their private label lines. A comprehensive supply chain platform creates visibility into prices, supply bases, and costs, enabling predictive sourcing and allowing buyers to negotiate more transparent agreements. When brands and retailers have transparency into sources and suppliers they weren’t already using, they’re better able to mix and match materials during the specification and procurement process. This visibility is key to sourcing competitively, especially for businesses that may be expanding their private-label offerings or branching out into new categories.
This technology also helps address consumers’ sustainability concerns by empowering brands and retailers to map their supplier networks to the nth tier and measure and monitor their suppliers’ energy and water consumption. Having this information stored in one central location creates a repository of information that brands and retailers can use to back up the sustainability claims they make on their products.
A smart platform can monitor vendor certification statuses, sending alerts about expired certifications and other red flags so that compliance teams do not need to monitor each supplier individually. And by automating key processes, a multi-enterprise platform can help businesses quickly audit and select vendors and greatly speed up onboarding for new suppliers, shaving days and weeks off the process.
These are the kinds of efficiencies on which the continued growth of private label depends. Sourcing responsibly while maintaining an optimal balance between price and quality may seem daunting, but as with most challenges related to supply chain management, digitalization makes it possible.
Eric Linxwiler is SVP of TradeBeyond. He has over 30 years of experience in enterprise software and cloud-based platform companies with a specialty in supply chain optimization and workflow management. Contact him at [email protected].