The world of private label has changed drastically in the last thirty years. Among marketers and senior leaders at many manufacturers, there is a clear bias that private label serves solely as a value play for retailers. Thus, many assume the quality of private label products can be diminished and innovation in this area is unnecessary. Some may even scoff at considering offering private label alternatives for retailers to consider.
However, private label in 2024 is much different than it was in 1994 or even 2004. Not only have sales ballooned by more than 273% in the last 15 years, up to over $238 billion. Multiple generations have grown up with private label products being household staples in most American homes. They’ve seen retailers like Costco, Aldi and Trader Joes, and even Whole Foods build billion-dollar businesses on premium and highly differentiated private label offers. TikTok influencers promote hot products, Facebook pages exist as homages to the best of the best, and consumers are proud to share their favorite finds with friends. At its most basic level, private label is hot in a way it has never been before.
The Average Consumer Appreciates Private Label Products
While more than 8 of ten US consumers agree that private label provides good value, there are many other thoughts about private label products among US consumers today. Inherent in the value proposition for private label products is that they are less expensive than national brand alternatives, and consumers recognize that. However, national brands must take note that almost two-thirds of US consumers (64%) believe that the quality of private brands is at parity with national brands. Thus, if the core products are less expensive and the same quality, the budget conscious consumer will likely default to private brands. Today, we know that 98% of consumers in the US are typically buying private label products in over eight categories consistently, based on data shared in our latest blog.
What’s most important for those in the industry to understand is how important private label is to formally differentiate retailers’ offers. Among American consumers, 72% believe private label is a source of differentiation for grocery stores and more than half (53%) will actively choose one grocery store over another based on private label assortment. More importantly, 59% of consumers are excited to try new private label products and 55% expect private label to be innovative.
The Power of Younger Consumers and Private Label Potential
One important thing for retailers and manufacturers to understand is that there is a significant difference between older and younger consumers. Based on what we learned above, we know that 81% of US consumers believe private label provides good value; however, breaking that apart by age group, we see that those consumers over 55-years-old are more likely to agree that they get value from private label products.
Digging into nuances among younger consumers, we see that those under 45 are significantly more likely to be excited about trying new private label products. For retailers and manufacturers, understanding the demographics of consumers expecting innovation can help them build strategies around product categories and segments where they should prioritize their new product pipeline. More importantly, it creates an opportunity to develop an assortment that can entice younger consumers and drive loyalty. Since younger consumers are also significantly more likely to choose a grocery store based on their private label assortment, having the right mix of national and private label products, paired with unique products that can only be found at a specific store becomes a traffic driver for retailers.
In part because younger households are most likely to have kids, we also see similar trends among households with kids. With perceptions focused on private label value and quality, there was no real difference among households regardless of the presence of kids. When you start to dig into the interest in new private label products and innovation, as well as choosing retailers for their private label assortment, households with kids are significantly more likely to care.
General Perceptions of Private Label by Presence of Kids
(% of respondents that agree/strongly agree)
Does Income Influence Private Label Perceptions
Overall, the research shows that general attitudes about private label products are consistent regardless of household income. Higher and middle-income households are slightly more likely to lean into the perceived value of these products versus national brands, but there aren’t large differences. The highest income consumers are significantly more likely to want to try new products and look for innovation among product offerings. In addition, almost 70% of consumers with household incomes greater than $100,000 per year will prioritize their grocery stores based on private label assortment.
For retailers and manufacturers, understanding which innovation segments are growing within grocery categories among higher income shoppers becomes very important when trying to identify where the opportunity lies in the marketplace. Trader Joe’s ongoing growth relies on middle- and upper-income consumers. Even Walmart, with the launch of its Bettergoods private label line, is looking at younger and higher income consumers as the core target. Whole Foods' 365 line as well as Kroger's Simple Truth caters to a similar target too. This isn't a new strategy, simply an established tactic to reach a key shopper.
What does this really mean?
Consumers’ general perceptions about private label products are universally positive and relatively similar regardless of demographics. Manufacturers and retailers will continue to find growth in this space, but it is imperative that they understand who their target audience is for each tier of private label. They also must continue to look at growth areas of innovation by demographic audience to ensure that innovation focuses on the right consumers at the right time. Building loyalty among younger consumers now, rather than continuing to innovate with private label products that age with loyal shoppers, creates a path to long-term success.
For key players, your private label strategy needs to be embedded in your long-term strategic planning. There may be short term gains with the right products, but getting assortment right for your younger shoppers paves the way for a lifetime of shopper loyalty and continued success.
PDG Insights fields ongoing thematic thought leadership throughout the year. This study was fielded by PDG Insights and sponsored by the team at FoodOn. Additional findings will be shared in the coming weeks. Please reach out to Diana Leza Sheehan at diana@pdginsights.com with PDG Insights to learn more about what is available or to explore consumer or shopper insights needs that you might have.
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