From Jan. 1 to Dec. 31, 2023, sales of store brands were $236.3 billion, an increase of 4.7%, according to the Private Label Manufacturers Association’s “2024 Private Label Report.” Store brands accounted for nearly 21% of grocery industry unit sales last year which is up roughly 33% since 2019 when the pandemic disrupted supply chains. Just last week, Walmart announced a new Private Label, “bettergoods,” a premium brand of ~300 mostly food items. For Walmart, this is a strategy of broadening their potential consumer base with a premium tier of Private brands to complement their current Great Value brand. They have talked about how bettergoods could source shoppers from Trader Joe’s and Whole Foods.
For CPG brands, this becomes another threatening development in the “Brands vs. Private Label” competition that has been waged for years. This competition has been particularly challenging for Brands in the last few years in response to inflation realities as Retailers like Costco, Trader Joe’s, Aldi, Walmart, Kroger, and Amazon have sought to offer shoppers better value by innovating and promoting their Private Label offerings and consumers have responded by switching to less expensive channels and brand option. Few categories are unscathed. Retailers have doubled down from food, beverage and OTC to electronics, tires, and housewares.
As Simpactful co-founder and Partner, Todd Ruberg, phrases it, “The good news for Brands is that this Private Label competition is not new, there are best practices Brands can use to compete and win with consumers. Simpactful has experienced industry veterans from the Brand side who have competed effectively vs Private Label, as well as from the Retail side who have led Private Label efforts. With our combined experience and 5-Tier framework that starts with strategy and ends with execution (because as they say, “execution eats strategy for lunch”).”
Tier 1: Start with a Solid Strategy: Private Label and shifting consumer habits are here to stay and brands need to make very intentional choices about Where to Play and How to Win based on a thorough landscape assessment. Most Brands will require a product-price-pack architecture that either serves value-oriented shoppers, as well as the channels and capability to win with them.
Tier 2: Innovation and Value Tier Pricing: Most Brands lack the resources to innovate on all of categories, brands or price tiers so you will need to be choiceful. According to Nielsen, up to 85% of CPG innovations fail. Simpactful’s team of experienced innovation experts are deeply skilled in Innovation Strategy, Portfolio Management, Innovation Stage Gate systems and governance. We also offer practitioners with deep expertise in holistic concept creation, research, insights and analytics, and technical and commercial innovation development. Our team has successes (and some important failures) under our belt and can significantly raise the odds of success by partnering with you on innovation system improvements, strategies, project support and capability development.
Tier 3: Supply Chain and COGS Optimization: To win against Private Label brands, you need to have a competitive cost structure and the agility to respond quickly to changing market dynamics and it helps to be established as the preferred branded supplier for retailers. For instance, Simpactful Partner, Heather Burgess, remembers a time when she was auditing costs to determine why the brand’s main competitor was stealing share of shelf. The conclusion? A series of business decisions has reduced economies of scale and driven and estimated 18% COGS disadvantage. Meanwhile, the competitor was offering the retailer additional margin to gain space and investing in demand creation. When operating in a category with Private Label, mistakes like this can be fatal. It helps to have outside eyes and a systematized process for auditing the business to look for opportunities.
Tier 4: Win In-Store with Innovation and Retail Execution: While Private Label brands help merchants improve their scorecards, buyers are still looking for Brand partners who can help to take a step back and look for opportunities to grow the category through in-store innovation and shelving reinvention. “Co-investing in this work and delivering breakthrough at the shelf can create significant competitive advantages for brands,” says Simpactful Senior Consultant and Retail Innovation Expert, Jessy Stamates. What’s more, our team of Retail operations experts have helped dozens of Brands identify opportunities to cut labor costs and optimize store-level execution using a Simpactful playbook. The last thing you can afford is to have your products lost in a back-room vortex, and to have competitors selling off the shelf ahead of line reviews when buyers are evaluating you vs Private Label options!
Tier 5: High Impact Improved Branding and Claims: Byron Sharp and his team at the Ehrenberg-Bass institute have proven that shoppers of all types prefer Brands that are familiar. “Simpactful’s marketing team has led several major Brand restages with our team of partner Brand Identity design firms who specialize in Mass and Prestige channels. What’s more, we have a team of Insights and Analytics experts who have worked at companies like Samsung, Unilever, and P&G, and who can help you apply the latest science to evaluate options and ensure your new design delivers the strategic intent,” says Simpactful Marketing Practice Lead, Heather Burgess. Claims go hand in hand with Better Branding. When faced with heightened competitive activity in the Canadian Orange Juice category while working for Coca-Cola, Senior Simpactful Consultant, Maria Soler, used claims to fight back. “We created a campaign called the ‘Orange-Back Guarantee.’ We would send a package of the competition (a bag of oranges) to anyone who didn’t agree that our product tasted like fresh-squeezed orange juice! The claim put the Brand on the radar of Canadian consumers and was then used for several years in the US.”
Facing Private Label can be daunting as Retailers have a vested interest in prominently shelving and merchandising these products to shore up their score cards, but it doesn’t need to be! Need to asses and optimize ways to win vs Private Label? Simpactful can help! We have proven frameworks and experienced resources who can help with all 5 tiers. To learn more, contact our team today at contact@simpactful.com or 925-234-6384.
SOURCE: Walmart Corporate press release April 30, 2024 – Walmart Launches, “bettergoods,” a New Private Brand Making Elevated Culinary Experiences Accessible for All
