Private label market: overview
- Private label success depends heavily on retailer investment and ambition
- Europe leads private label penetration through strong retailer development
- Spain and the Netherlands rank among leading private label markets
- US private label growth is less developed but getting stronger
- Innovation, quality and value increasingly drive private label performance
Private label was once perceived as the less attractive food option. For many consumers, buying private label products was a downgrade from branded ones, and broadly only done to save money.
For many, this is no longer the case. The popularity of private label has experienced a surge, with many consumers flocking to the often more affordable options it offers.
Even its reputation as lower quality is being challenged. Private label is premiumising.
“Private label success is no longer simply a story of inflation or downtrading,” says Sally Lyons Wyatt, global EVP and chief advisor for consumer goods and foodservice insights at analytics company Circana.
Yet private label success is not uniform around the world.
Why private label sees more success in some markets than others
The success of private label often depends on how it is utilised, says Circana’s Wyatt. Retailers see success when they expand the scope of what their private label ranges can offer.
Retailers that have used their scale, data and consumer relationships, and have built up private-label options not just based on value but for mainstream, premium, lifestyle and even functional products, tend to thrive.
“Private label is a strategic growth and category-transformation platform, with innovation, quality, sustainability, differentiation and premiumisation increasingly central to the proposition”, says Wyatt.
Private label is different between geographies because not everything evolves at the same time, explains Bosco Fonts, CEO of Cerealto, a B2B manufacturer producing cereal-based foods such as biscuits and bars for both private label and brands. Food is a very local thing, and it varies widely by geography. This logic carries over into private label.
Any successful private label should combine quality with good value, says Fonts. Private label is no longer as much associated with cheapness – quality as well as value is paramount.
Furthermore, innovation is central to success for private label brands. “To have a successful private label, you have to do new things.”
Where is private label penetration stronger?
Europe is the “penetration leader” for private label, explains Circana’s Wyatt.
This is because European retailers have spent decades building up private label ranges as trusted brands. This has been supported by a more concentrated retail environment, and the influence of discounters such as Lidl and Aldi.
Within Europe, Spain is the biggest private label success story, says Wyatt. It combines very high penetration with continued share growth. According to Circana’s data, Spain’s private label value share is currently 43%, up 0.88% year-on-year.
The Netherlands has the highest private label penetration, with around 54% value share.
Germany and the UK also have very well-established private label markets, with a value share of about 40% each.
Where is private label penetration weaker?
The US is lagging behind Europe in private label penetration. Private label has around 22% value share in the country. The US, says Wyatt, has historically been more brand-centric than Europe, with stronger investment in and loyalty towards national brands.
The US is not only more brand-centric, but more brand-prolific, with a vast number of brands for consumers to choose from, adds Cerealto’s Fonts. It is less developed on the private label front.
However, its private label segment is catching up. “The good news is that the gap is closing as US retailers invest more aggressively in innovation, premiumisation, wellness, and quality-focused private label programs,” says Wyatt.
Private label penetration tends to be lower in emerging markets as well. Because it is a retailer-led phenomenon, it relies on the scale of retailers. In emerging markets, grocery is often more fragmented, Wyatt explains.
In many emerging markets, “no single retailer has the same scale, sourcing leverage, data or brand equity to build a broad own-label portfolio”.
Which segments do better in private label?
Private label tends to do best when consumers can judge product equivalence, says Wyatt. In categories such as fresh food, meat and seafood, produce, dairy, bakery and frozen food, private label can thrive.
However, in categories where technical performance, brand trust, and even identity and emotional attachment carry more weight, private label penetration is more difficult. This is seen in categories such as beverages.
Yet the market is evolving and retailers aim to improve penetration even here. “Those lower-penetration categories are increasingly becoming the next development frontier as retailers improve quality, packaging, claims and innovation”, says Wyatt.
The success of private label often depends on those that are open to change. It is no longer about simply providing cheapness; private label ranges that encompass a wide range of categories, that aim to provide value without compromise on quality, and above all that embrace innovation, are the ones that will be successful.
