3 Ways Brands Can Compete Amidst Private Label Momentum

As the first half of 2023 comes to an end, it is becoming quite apparent that inflation and supply chain pressures are persisting, leaving consumers feeling exceedingly burdened by higher costs of living. Globally, 74% of consumers feel financially worse off than they did in 2022 due to increasing prices, according to recent data by NielsenIQ. National grocery brands aren’t helping, with manufacturers such as Procter & Gamble
PG
increasing prices by 10% across its brands for two consecutive quarters, enjoying increased margins and profits despite volume declines.

Given this context, private label is enjoying continuous growth, with share of sales becoming harder to ignore: European markets such as Spain, the U.K and Germany see private label accounting for more than 40% of store sales at the end of 2022. Although the size of discounters in these regions cannot be ignored (and the prevalence of private label in this channel), traditional grocery channels such as supermarkets and convenience stores are seeing a rise in private label products on shelf, putting increased pressure on national brands.

While current price-sensitive spending behavior appears to be benefiting private label, retailers have invested for years in raising the quality and perception of their products to grow in appeal not just to price-sensitive shoppers. Mainstream grocery retailers now offer premium products and have expanded into more categories and specialty products to drive attractiveness of their own brands. For example, Carrefour has managed to appeal to a broader segment of shoppers in France through criteria such as local and organic produce, with the launch of Carrefour Bio, a range of 1,200 organic products, 75% of which are made in France as shared by Carrefour’s Global Director of private label, Martine Loyer in an interview. This has helped the retailer build brand appeal and differentiate from competitors, while at the same time capture more profits from its own products vs. national brands.

In this context of accrued competition with private label, what can leading and emerging brands do to secure fair share in their categories, remain valuable to their retail accounts and grow penetration?

Innovate to stay ahead of competition and drive category growth

Retailers often look to national brands to drive innovation within a category and meet emerging consumer needs and occasions. As a result, brands that can identify new growth opportunities and launch products with innovative formulations, packaging or features are best set to outperform competitors and gain share of shelf. Through usage and attitude data, your business can better identify shifts in consumer behavior and build a strong innovation pipeline to meet future demand. This can allow your brand to respond to unmet needs and offer products that cater well to consumption occasions and deliver valuable benefits to shoppers.

Graze is a good example of a brand driving innovation within its category – in this case snacking – by launching new flavours and products that meet shoppers’ quest for snacks that are both indulgent and healthier. A few weeks ago, the brand released a new brand identity to stand out on shelf and a series of new products: within its booming crunch range, which grew +18% in the last five years, the brand launched Peri Peri crunch, a category-first flavor set to drive trial and conversion. It also released its indulgent yet healthy-ish Sticky Toffee Oat Boosts to appeal to consumers looking for a decadent sweet treat that feels permissible. Graze has put innovation at the core of its strategy since its beginnings, driving category growth and responding to a variety of snacking occasions.

Strengthen your brand’s value perception to boost consideration and conversion

While shoppers are becoming more value sensitive, this does not necessarily mean that price is their only decision driver: they also value certain features and benefits, whether these involve health attributes, organic and local claims, or convenience. As a result, being able to balance value and values is a winning formula: brands can compete against private label by placing additional focus on the overall value they provide to shoppers. This can be done by ensuring your overall proposition and product benefits are communicated effectively, not just on product packaging but across promotional materials throughout the shopper journey (in-store, online and on social platforms), which is key to convey differentiation and augment consideration from shoppers.

Assessing your brand equity is also highly beneficial and can be done through specific shopper studies, which will help understand your brand’s awareness, consideration and conversion, and why you might lose customers at some point in the conversion funnel. Often, brands will realize that their perceived value proposition and value for money might not be optimal because functional and emotional benefits are not conveyed clearly enough.

Engage with customers across channels to drive loyalty

Smaller brands might be at an advantage here – especially against private label -because they often excel at this practice: engaging with their community of shoppers from an early stage, sometimes even before product launch, to create a strong relationship that goes beyond transactional. Plant-based brand Deliciously Ella has managed to gain considerable share of shelf in the U.K. across a variety of categories mainly thanks to a strong following on social media and constant engagement with followers, who become instant loyal shoppers as soon as a new product drops. While this example represents the holy grail of marketing and loyalty for any grocery brand out there and might be hard to replicate for established brands that do not operate like small businesses, there are still ways for brands of all sizes to drive loyalty though engagement. This can be done by ensuring your brand is available and active across shopper touchpoints, which requires a true omnichannel mindset.

Being present across a variety of channels to drive awareness, trial and conversion means stretching your brand’s presence to potentially new channels: consider launching activations to drive awareness by partnering with retail stores your customers shop at, engage with your target audience by sponsoring an event they will likely attend, or create engagement through social media by investing in enriching content creation. The overall objective is to create a holistic brand ecosystem that spans outside the grocery aisle to become the brand of choice for your shoppers as you set to provide not just great products but also experiences and content that is relevant and valuable to them, thus being present across the shopper journey.

The fact that private label has gained momentum actually presents an opportunity for brands to reinforce their value proposition. By innovating to meet new customer demands, enhancing brand equity and engaging with your target audience across a variety of channels, brands can manage to elevate their value proposition and be better equipped to combat private label growth.