3 Trends in Private Label Pricing Strategy

Gen Z Helps Drive $111B+ in Private Label US Food & Beverage Sales

From men’s suits to dish soap, private label products have been part of the pricing strategy for retailers for more than 200 years in the US.  To consumers, private label is synonymous with  “discount,” “cheaper,” or “good value for the money.”  Most people expect to pay a lower price on a private label or store brand product than they would pay for a national brand product. 

Today, we see a wide range of private label products offered by grocery retailers.  What is interesting is how private label products can play different roles in a retailers’ overall pricing strategy, depending on the category.

For instance, a quick stop into my local Stop-n-Shop shows a wide range of private label discounts from 21% to 59%.

The discounts reflect the role of the private label product in their categories and among their competitive set. 

A Short History of Private Label Pricing Strategy

According to think tank Information Technology & Innovation Foundation, private labels from grocery retailers have been around since the 1800s.  Private label pricing strategy is not a new idea:

• One of the first was a line of four private label teas at A&P: Cargo, High Cargo, Fine and Finest
• By the 1930s, Safeway operated nearly 40 manufacturing facilities to product more than 100 private label brands
• In the 1960s, A&P sales were 25% private label
• In 1965, about 20% of grocery store sales were from private label
• The Journal of Consumer Affairs published an article in 1967 showing private label prices were, on average, 21% lower than national brands

More recently, private label sales of food and beverage products are over $100B annually and have averaged seven percent growth each year for the last six years.  The first year of the pandemic (2020) resulted in a growth spurt of 13%, while 2021 saw flat private label sales.   Private label experienced nearly double the dollar growth of national brands from November 2022 to November 2023.

All this growth is supported by the wide range of products offered as private label.  Albertson’s offers over 8,000 private label products under their Signature Select brand.  Products include staples like canned fruits and vegetables to frozen pizza, fresh meat and paper goods.

Despite the rapid growth in dollar sales, the share of private label in food and beverage has been flat for the last 4 years.

Gen Z Buys into Private Label Pricing Strategy

This growth is expected to continue as a Progressive Grocer survey of Gen Z shoppers (born between 1997 and 2012) showed that these young shoppers are buying private label products.

• 67% are “extremely/very” aware of store brands
• 64% buy store brands “always/frequently”
• 56% are “extremely likely/likely” to try different store brands to find ones they like and are a good value
• 41% bought more store brands last year to cope with inflation

Gen Z’s affinity for private label dovetails with a positioning strategy template Insight to Action recently released. In it, drugstore shampoo brands are making a comeback through TikTok influencers touting luxury experiences and affordable pricing strategy. In a nutshell:

“Regardless of what economists say, Americans report feeling the pinch of increased prices after the massive inflation of the last few years. Emily Stewart, writing for Vox, puts it pithily: ‘the economy is good, and people hate it.’ Everything costs more now, so it is not terribly surprising that fewer people can justify spending a lot on shampoo and conditioner.”

While retailers initially introduced private label products to meet a growing consumer need for lower-priced, high-quality products, retailers quickly realized more benefits to private label, including:

1. Controlling product quality and ensuring supply
2. Increasing retailer margin
3. Innovative and exclusive products

Private Label Pricing Strategy Trend:
Controlling Product Quality & Ensuring Supply

Kroger is the poster child for using private label to control product quality and ensure supply.  It currently has 35 manufacturing facilities across the US to produce its thousands of private label products. 

While it doesn’t own any manufacturing plants, Trader Joe’s has created a near-cult following while offering only private label products.

Premium private label gives the perception of higher quality, as well. There are many private label products that don’t have the retailer brand clearly marked on the front of the package. Good & Gather from Target is an example of this.   Today, Target claims 45 private label brands, like Good & Gather, with 17 of these launched since 2019. In many cases, these private label products appear (and are) high quality. 

For instance, President’s Choice The Decadent is a very premium-looking and tasting cookie, despite being private label.  President’s Choice is a private label line from Loblaws and, at one point, this Canadian cookie was a top seller in the US.  

At Costco, the Kirkland Signature brand is an assurance of high quality at a good price across many categories.  Despite many high-quality coffee brands on the market, Kirkland Signature Organic Breakfast Blend is the fastest mover in my friend’s household.

Our team has helped to develop premium private products that have their own brand.  For example, Walmart’s Parent’s Choice Gentle Premium is available today. When we worked on this project, it was originally called Gentle Moments and did not have Walmart on the label, nor Parent’s Choice (a Walmart brand).

Private Label Pricing Strategy Trend:
Increasing Retailer Margin

According to a study by Mercator in 2019, the average private label margin was 35%, while national brand margins were 26%.  In an era of thin net margins between 1-2%, food retailers need all the help they can to bolster the bottom line.  Expanding private label into more categories, especially larger ones, make sense. 

Premium private label entries also allow retailers to achieve more margin, and according to one source is a growing portion of the private label market.

Private Label Pricing Strategy Trend:
Innovative & Exclusive Products

A private label pricing strategy can also help differentiate retailers from competitors by expanding beyond commodities. Jim Griffin, president of Stamford, CT-based Daymon North America details in the Progressive Grocer “2024 Retail Innovation Outlook:”

 “With up to 98% of national-brand assortments the same across retailers, private brands are the strongest strategic lever to drive differentiation and loyalty, and better meet shopper needs — leading to widespread retailer focus and investment in 2024.” 

For example, Target has recently introduced more than 1,000 new wellness-related products, with many in their food store brand, Good & Gather.   Wakefern Food Corp has an open call for new sweet and salty snacks to add to their Bowl & Basket and Wholesome Pantry store brands.  Southeastern Grocers has launched a new line of clean-label products under their Know & Love private label.

Innovation has become such a hallmark in private label pricing strategy that the Private Label Manufacturers Association (PLMA) annually give awards for innovative products.  Some of the 2023 winners include:

• Nature’s Basket Sweet Potato Pancake and Waffle Mix (Giant Eagle)
• SE Grocers Naturally Better Organic Mexican-Style Street Corn- Flavored Corn Chips (Southeastern Grocers)
• Good & Gather Blueberry Muffins with Zucchini and Oats (Target)
• Nice! Gluten-Free Vanilla Crème Cookies (Walgreens)

Private label pricing strategy is expected to continue to grow in the US as retailers expand their private label products into more categories and even expand the product offering. With younger generations welcoming private label options, we can expect to see these trends continue.

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