Despite some predictions by food industry market watchers that private label is set to take over, private label share of the packaged-food market has been relatively flat since 2008, and it stopped gaining in other categories in 2011. This leveling off suggests that food brands are able to withstand private label competition. Yet, we’ve found the story is more complex. The first clue is obvious to retailers: there is enormous variation in private label share at the category level. In some categories, such as milk, private label has 60% or more market share. In others, such as RTD coffee, canned ham and toaster pastries, private label has only 1% or 2% share.
The numbers belie reports about how beautifully private label is performing overall and reveal, instead, how the culture of brand shapes consumer receptivity by category. In Hartman Strategy’s report The Future of Private Label Food, our analysis of private label reveals four competitive performance segments in the private label food marketplace that illustrate the role of culture within categories:
- Private label growth engines tend to come from the fresh-food perimeter, where brands for the most part have not entered (chilled pizza, chilled ready-to-eat meals, prepared salads), and from dinner ingredients like cheese and olive oil. Private label options in the perimeter are increasingly viable for dinner ingredients, because the cultural stakes tied to buying any single ingredient are lower.
- Private label’s roots: This segment is a world of processed commodities that have traditionally been at the core of the private label market – frozen potatoes, canned tomatoes and fruit, frozen vegetables, butter, chilled soup – and occupy a space where many consumers see little differentiation between private label and legacy brands.
- The private label battleground is around frozen pizza, chilled lunch kits, fresh pasta, chips, canned soup and table sauces. Brands in this arena are willing to slash prices to compete, and there are deep cultural ties to certain branded products. A trusted brand stands in for the legitimacy of the ‘home cook’ in value-added, dinner-oriented categories, creating a much higher hurdle for private label.
- The branded fortress: These are categories such as frozen ready-to-eat meals, yogurt, dips, breakfast cereal, margarine and dinner mixes — places with strong brand heritage and relatively low price points. Some are in decline, but that hasn’t meant a boon for private label.
We learn from the branded fortress segment that just because a category is declining and slipping into a lesser role in food culture, that doesn’t imply that private label is somehow destined for glorious market-share gains. Brand can retain its dominance in a category, even as that category dies a slow cultural death. Each private label performance segment has different constraints and growth levers from our perspective, reflective of the complex cultural history of brand in American food culture. All in all, we see that the ability for specific retailers to: a) move their portfolios upmarket, b) enhance emulation quality and pricing and c) leverage a strong retailer banner halo will ultimately determine how prevalent private label becomes in the U.S. market.
But the battle is far from over. This snapshot of private label does not necessarily portend future successes or challenges. It’s impossible to predict how much retailers will expand the private label model in coming years or the growth of premium innovation in private label products – or “control labels,” which simulate name brands but actually belong to retailers. Retailers and CPG companies should analyze their portfolios for exposure in the “battleground” segment, where market and cultural forces threaten CPG bottom lines and offer more opportunities for retailers. Retailers are most threatened in the “growth engine” categories, including the fresh perimeter, where CPG could take hold.
Download a free copy of: The Future of Private Label Food
As CEO, Laurie Demeritt provides strategic and operational leadership for The Hartman Group’s research and consulting teams. The Hartman Group is recognized for its ability to blend qualitative, quantitative and trends research to help clients develop successful marketing strategies. Its analysts understand the subtle complexities of how consumers live, shop and eat, and how to apply that understanding in ways that lead to purchase. For more information about The Hartman Group, visit www.hartman-group.com or contact Blaine Becker, senior director of marketing at: [email protected].
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