Winning with private brands, the Customer First way

Siro Descrovi & Laura McKee

Introduction

The private brand revolution is upon us. What was once seen as a generic alternative by many shoppers has become a point of genuine differentiation – one that forward-thinking retailers are using to drive sales, engagement, and loyalty.

In this report, we'll share with you why private brands are more and more central in modern retail; what it means, thinking in terms of brands, rather than just labels; what are the main drivers of innovation we’re seeing globally; and, finally, a case study on how retailers are leveraging customer data to shape their next wave of innovation in their private brand portfolio.

The private brand revolution

The numbers here speak for themselves. From 2018 to 2022, sales of private brand products in Europe experienced a compound annual growth rate (CAGR) of 3.21%. As a result, private brand grew to a point at which it accounted for 35.7% of the grocery market’s total value – and 43% of its volume – by the end of that period. Today, and holding true to the prediction we made at the beginning of last year, the cost-of-living crisis has taken private brand to the next level and a value sales share of some 38%.

Private brand’s share of value sales has risen from just over 30.5% pre-pandemic to around 38% today. Source: dunnhumby analysis on PLMA report made by The Nielsen Company and Circana data.

As impressive as it may be, though, that growth has not been universal. When we look in detail at private brand’s performance across the continent, it quickly becomes clear that while sales in some markets have soared over the past few years, others are behind the curve.

In the first of those two camps – “PB Stars” in the accompanying graph – are countries including Portugal, Spain, Belgium, and Germany. Not only does private brand volume share exceed 40% in those countries, but sales share growth has also been well above the European average over the past couple of years. In Portugal, for instance, private brand sales have grown by more than 2.5 percentage points, against an all-country average of just 1.07.

At the opposite end of the spectrum – “PB Stable Low” – are the likes of France, Poland, Sweden and Norway. In these countries, private brand volume share sits below the average of 42.6%, and – at less than 1% – growth has been comparatively stagnant too. Rounding out the equation are high-volume/low-growth territories like Switzerland and the UK (“PB Mature”), and a group of low-volume/high-growth countries that includes Denmark, Italy and Finland (“PB Potential”).

Spain and Portugal are two of the current private brand star performers, with high volume share, and pronounced sales growth. Source: dunnhumby analysis on PLMA report made by The Nielsen Company.

From private label to private brand

So, what’s the difference between a private label and a private brand? As CMO and retail commentator David J Katz says:

Private label merchandise is generic goods, sold as a commodity.

Private brands, when properly executed, are truly brands, exclusive to a retailer or channel of distribution, with distinct brand attributes, supported by significant marketing.

Irrespective of how strong or weak private brand sales within an individual country may be, though, retailers have every reason to ensure their own offering resonates with shoppers.

For proof of this, we need look no further than dunnhumby’s own international research programme, the Retailer Preference Index (RPI). The RPI, which began in 2018, explores the science of shopper choice – and whether those retailers that are best at meeting their customers’ needs enjoy greater success as a result. As you might expect, they almost always do.

In many of the RPI studies conducted over the last 18 months, we've seen clear evidence of the importance of a strong private brand offering.

More specifically, we've seen that many of the world’s most successful retailers are now using their private brand lines to distinguish themselves from the competition, creating unique and truly compelling propositions to shoppers.

Take US retailer H-E-B, for example. In our 2022 RPI, H-E-B lost its position at the top of our RPI rankings to Amazon. This year, H-E-B reclaimed its crown, due in no small part to a private brand proposition that customers adore.

H-E-B isn’t alone here, either. In Spain, France, Germany, the UK and Italy, the banners that finished in the top half of our rankings were also rated well above average for the price, quality and variety of their private brand goods.

Even outside of our RPI rankings, we can see just how much impact a strong private brand offering can have.

Again looking at North America, it’s a simple fact that those retailers that have built a private brand shoppers love are growing faster than their peers – Costco, Trader Joe’s, and H-E-B among them.

Many of the world’s most successful retailers are now using their private brand lines to distinguish themselves from the competition, creating unique and truly compelling propositions to shoppers.

Is a private brand that shoppers love really tied to rapid growth? In the US, at least, it seems that’s the case. Source: dunnhumby 6th Retailer Preference Index for US Grocery 2023.

This is no coincidence, either. Driving the success of many of these retailers is an evolutionary approach, one that involves a transition from basic private label to true private brand. That’s because, while customers may use the attributes of a strong private brand offering to inform their perceptions of functional factors like price, quality, and variety, a strong private brand offering can become an independent driver of choice in and of itself.

A strong private brand offering can become an independent driver of choice in and of itself.

Put simply, a well-designed private brand can now be reason enough for shoppers to choose one retailer over another.

The six drivers of private brand innovation

The results of our RPI studies, in unison with our work for retailers around the world, has led us to what we believe are the six key drivers of innovation in private brand today. Four of these are what we describe as “customer drivers” – which tackle issues that resonate specifically with shoppers – with the remaining two being “retailer drivers”, where banners are thinking differently and managing to break away from traditional private brand norms.

Let’s take a look at each of those drivers, including how often they’re being used, by which formats, and some practical examples of how leading retailers are leveraging them to great effect.

Customer Drivers:

1.Value

Frequency: High

Primary formats: Mainstream and Upmarket

Value has become one of the most important issues to shoppers worldwide, and managing it effectively has required retailers to be strategic about everything from pricing through to assortment. Private brand presents another opportunity to reinforce value, of course, and retailers have employed everything from fixed prices through to communications to do so.

Retailer success stories

  • Retailers comparing prices of their private brand products with other retailers’ private label to convey value and fight back against the discounters
  • Kroger’s Smart Way economy private brand brings 16 legacy brands together into a single, easy-to-find range. More than 150 products are now included in the line-up.

2. Health

Frequency: High

Primary formats: Discount

While cost-of-living challenges have moved it down the agenda in recent months, shopper interest in health and wellbeing has been at a peak since the pandemic. To meet that need, some retailers have been working to bring affordable, healthy private brand options to their customers, particularly across their vegetarian, vegan, natural, and organic lines.

This strategy is becoming increasingly common among the discount operators, seemingly being employed to elevate their market positioning and attract more affluent customers.

Retailer success stories

  • The introduction of Lidl’s vegan and organic private brand lines throughout Europe has helped to create a strong point of differentiation against discount and mainstream competitors alike.
  • Marks & Spencer’s Plant Kitchen range provides a perfect example of the power of a plant-based private brand – one that appeals to customers on health and sustainability grounds alike.
  • At Penny in Germany, the in-house Naturgut line offers an assortment of more than 200 organic products, supporting the retailer’s aim to make organic produce affordable for all customers.

3. Sustainability

Frequency: Moderate

Primary formats: Mainstream

Like wellbeing, sustainability is another issue that has seen growing interest from shoppers in recent times; environmental & social impact is often cited as one of the key factors that our RPI respondents consider when deciding where to shop. From a private brand perspective, packaging is one of the main points of focus, with retailers looking towards recycled materials and testing smart refills.

Retailer success stories

  • Monte Cimone is Coop Italia’s private brand bottled water line. In June 2021, the company introduced new bottles made from 100% recycled plastics – a fact that is communicated clearly on the packaging itself.
  • Returning to Mercadona, the Spanish retailer has led a major review of packaging and assortment across its private brand lines, ensuring they support the company’s overall sustainability goals.
  • Like Coop Italia, Target is using packaging to show its commitment to the environment. The American’s retailer’s Target Zero logo serves as a signpost for shoppers looking for refillable, reusable, or compostable products.

4.Quality

Frequency: Low

Primary formats: Discount and Mainstream

Private brand products have long had cut-price connotations. Just because something is cheap, though, doesn’t mean that it can’t be high-quality too – something grocery retailers around the world seem increasingly keen to prove. Whether to raise the image of their private brand, or to capture a share of shoppers’ restaurant and takeout spend, quality is an important – if infrequently tackled – issue.

Retailer success stories

  • The Good & Gather range is Target’s line of premium foods. By capitalising on emerging food trends, and reacting to changing tastes, the private brand has helped to change perceptions about the retailer’s food offer.
  • In the UK, Tesco’s Finest line features restaurant-quality meal boxes that contain detailed ingredients and recipe cards – positioning them in a way that provides customers with high-end convenience.
  • At Aldi in Ireland, a quality-focused private brand line speaks to the fact that discount shoppers still want to trade up and treat themselves sometimes. Private brand can offer an affordable way to do so.

5. Category Extension

Frequency: Moderate

Primary formats: Mainstream

It might be the first thing that springs to mind, but food isn’t the only way in which a private brand can manifest. Cognisant of the fact that shoppers are looking for reliable quality and trusted value throughout their daily lives – not just at mealtimes – many retailers have made investments into non-food private brands. Outdoor lines, homewares and fashion are some of the most frequently seen.

Retailer success stories

  • Portugal’s Continente provides its customers with coverage across a range of different categories. Its private brand extends to organic, pet food, health & beauty, frozen, dairy and fish, among others.
  • Having established hypermarkets as a core part of its channel mix, and with a growing online offering, SPAR Austria now covers several non-food areas – its Rubin line of homewares being one such example.
  • Coop Italia warrants a second mention here, with private brands that cover several key categories. Baby food, pet food, alcoholic beverages, and non-food items can all be found within its own-brand lines.

6. Brand Activation

Frequency: Moderate

Primary formats: All

Retail media has become one of the hottest topics of the decade so far, with advertisers from across the FMCG industry keen to tap into its unique potential. Consumer packaged goods companies aren’t the only ones making use of retail media, though, with many banners starting to use their own channels to push their private brands too. Seasonal activations are particularly key.

Retailer success stories – brand activation below the line

  • In Canada, Loblaw showcase their private brand products twice a year. Using the PC Insider’s Report to build the brands’ quality and credibility, Loblaw support the private brand assortment with a large in-store activation, bringing to life NPD, recipe ideas and meal suggestions. The event has now become part of the holiday season in Canada, and this impactful activation is a key point of difference for Loblaw in the competitive holiday trading season.
  • Across Europe, Lidl is introducing more in-store signage, fixtures, and self-standing units to its stores, helping to improve brand awareness and the shopping experience in tandem.

Retailer success stories – brand activation above the line

  • Tesco’s Food Love Stories is an award-winning campaign that focuses on quality private brand ingredients and homemade meals, with recipe cards placed conveniently next to featured products.
  • Waitrose used different media, including a large outdoor campaign, to promote the re-launch of its value line to keep customers looking for more value

One of the most interesting things about these six drivers – to our minds, at least – is the fact that many retailers are using them to round out the gaps in their offering. When looking at value, for instance, we found it was primarily a focus for mainstream and upmarket banners. In areas like health and quality, on the other hand, the charge is frequently being led by discounters.

What does this tell us? That, for truly progressive retailers, private brand is a way to lean in – and address the key customer needs that might otherwise be met by competing stores. Zeroing in on what their customers want, and looking across lifestyles and life stages to identify any gaps in their offering, these banners are taking a need-state defined approach to assortment – creating a consistent and comprehensive cross-category proposition in the process.

For truly progressive retailers, private brand is a way to lean in – and address the key customer needs that might otherwise be met by competing stores.

So, what do all these successful retailers have in common?

We believe there are four key requirements for retailers to develop a successful private brands strategy

  1. A private brand architecture aligned to the overall retailer positioning
  2. A holistic framework for executing Private Brand strategy
  3. A clear understanding of their private brand customers, their perception of the brands and the most important categories in which they seek private brands
  4. A dedicated private brand organization that has the right mix of brand marketer, retailer, and analytical skills

A success story of our own: reinventing one European retailer’s private brand

As noted above, creating a private brand that connects with your customers can deliver a variety of rewards – from stronger commercial performance through to reputational improvements. Doing so isn’t easy though, with retailers needing to develop a deep understanding of their customers, and the specific qualities they are looking for within a private brand.

This was the case for of our retail clients in the Nordics. With a premium private brand that was trailing its main competitor in terms of market share, the need to innovate and find the right opportunities was clear. To help it do that, we used a combination of behavioural and attitudinal analysis to build up a picture of its loyal and “opportunity” customers.

Increasing customer repertoire through assortment expansion

What followed on from that was a deep dive analysis, something that helped us both to understand which categories were most important to those customers, and where the key gaps in sales performance were. By doing so, we were also able to map out the private brand offering by category, and demonstrate their differing appeal to customers across life stages and lifestyles.

The end result was identifying the “white space” that the retailer needed to innovate around new brands and products as well as understanding the categories that resonated the most with the project also delivered a threefold increase in the premium tier brand innovation pipeline – taking the total amount of private brand products in development from just 3% to 14%.

Recommendations for retailers wishing to develop their private brand offering

Our work for this retailer – and for others around the world – led us to three specific recommendations for anyone looking to increase the appeal of their own private brand.

  1. Establish the role for each of your private brands. Today, many retailers operate more than one private brand within their overall portfolio. Ensuring there are clear goals and objectives for each is crucial, as is the ability to understand their strategic positioning. Think about private brands support your overall positioning, both independently and in combination.
  2. Build a dedicated brand marketing team. Building a strong private brand is not enough; to make it truly impactful, you must promote it effectively too. Build a centralised team, one which sets the objectives and owns the strategy for your brand, and ensure a strong understanding of the core principles of brand management runs through the organisation.
  3. Execute the brand strategy across the “7Ps” - People, Product, Price, Promotion, Place, Packaging, and Positioning. As explained in our detailed report, these seven “Ps” are a holistic framework on which a private brand can be hung. Executing the brand strategy across each – and understanding how to communicate across multiple touchpoints on the shopper journey – is vital.