Industry experts call it the biggest threat facing branded consumer packaged goods today. Private label store brands are really big, and they are getting bigger every day.
The current economic recession and retailers’ quest for high margin sales has created an almost perfect storm of private label growth.
In the past few years in particular, the balance of power in the branded manufacturer/retailer relationship has been steadily shifting towards the retailer. “Private Label is here to stay, and it’s going to grow,” an EVP from grocer Ahold told manufacturers attending a recent industry conference. “So either stay with us, or private label will probably take your place.” Wow. No beating around the bush there.
Not a day goes by that I don’t see a new private label study, article or retailer launch. Here are just a few examples:
- Retailers are launching their own branded products and removing brands from the shelf at an impressive pace. Just in the past several months, we’ve seen announcements from giants such as WalMart (here) and Walgreens (here) that have dramatically expanded their own product lines. Walgreens even has an entire site devoted to their store brands .
- A recent study found that 97% of U.S. households routinely use some private label products.
- Private label now accounts for $81 billion in annual sales according to Nielsen.
Why is Private Label working so well? Because the retailer owns the customer. And with customer ownership comes power: Not only power to remove manufacturers from the shelf, but also power to leverage customer insights to build a more competitive product.
Best Buy said as much today in their private label announcement covered by the Wall Street Journal. According to the article:
Best Buy believes it can prosper in private-label electronics — an area that has historically flummoxed U.S. retailers – by using the mountains of customer feedback it collects from its stores to make simple innovations to established electronic gadgetry.
Scary stuff if you are a branded manufacturer.
So what can manufacturers do in response to this growing threat? It seems to me that one obvious thing to explore is this: figure out a way to get a more direct relationship with your end customer. And soon.