• by Annica Blake , June 18, 2013

While private labels have existed for some time, the recession proved to be the inflection point for them to become a true force in the marketplace. And now that the economy is improving, private labels continue to increase in popularity due to both their improved quality and relatively lower price compared to national brands.

Private labels, also known as store brands, private brands, house brands, own brands, own label or retailer brands, all have one thing in common -- they are manufactured and brought to market in much the same way as the national brands next to them on store shelves. No longer considered low-quality, these brands are impacting sales of established name brand products.

The ownership of private labels by retailers and their higher profit margins allow retailers to have the freedom to promote private-label products more aggressively within their stores, giving them an even stronger advantage. Traditionally, the proposition from private labels has been "value for money," but in the last few years during the economic recovery, private labels have shown a more aggressive face, investing more heavily in product innovation, marketing and packaging. They have expanded market penetration through collaboration and partnerships and have increased consumer awareness through celebrity endorsements.

Private-label growth at home and abroad

In recent years, private labels have gained significant market share, and have already established high penetration in traditional channels such as supermarkets as well as grocery and drug stores. In developed markets with a consolidated retail sector, such as the UK, Spain and Germany, private labels account for one-third of sales. In developed markets with a more fragmented retail sector, such as Italy and in some emerging countries like India and Brazil, private labels’ penetration is lower but is increasing rapidly.

The private labels of today are better positioned than ever to become true and legitimate competitors to national brand labels and well placed to move from being copycat products bought by cost-conscious consumers to brands that carry significant value in consumers’ minds.

Beyond the budget shopper, repositioning private labels

Retailers have an opportunity to further reposition private labels through premium marketing and development tactics. Private brands can be transformed from “store brands” to “power brands” through various tactics, including:

• Increase consumer engagement:  While national brands typically have the advantage of large marketing budgets for advertising and promotional activities, many private-label brands are developing innovative targeted marketing campaigns to capture customer attention and loyalty. For example, Giant-Eagle promoted their brand successfully by giving out gift cards to participants who tweeted about their product, and ShopRite created an online “pot luck” blog for food enthusiasts to promote brands among online shoppers.
• Thinking green during product development: Following the growing consumer trends toward adopting a more healthy and sustainable lifestyle, in the United States and Europe, private labels have begun to offer products with attributes related to health and wellness in additional to affordability and quality. This has enabled them to expand into new categories (such as organic products) and to increase their price points. For example, Walmart has launched its Simply Right private-label vitamins and supplements for health-conscious customers.
• Premium packaging:  Traditionally, packaging has not been a core strength of private-label brands, which often presented their products with plain packaging or copycat packages intended to confuse consumers. However, in recent years, the market has seen private labels launching products with sleek attractive packaging, which has helped these products gain their own, distinct and premium positioning in the market. For example, Sunflower Farmers Market teamed up with Vertis Communications, a high-end design studio, to create concept-driven packaging. The new package won the 2012 American Package Design Awards.
• Alternative distribution channels: The growth and profitability of private labels has led international retail chains to explore alternative distribution channels for their high-end private-label brands -- which are now not only available within the stores of the retailer but in other independent retailers as well, as if they were another national brand.
• Premium partnerships:  To increase visibility, elevate status, and gain credibility among consumers, retailers have established strategic collaborations with well-known companies and have been able to gain the endorsement of celebrities. Carrefour partnered with Walt Disney Company and launched a private label of children’s food named “Carrefour Kids.”

National brands take note

By the year 2025, mainstream private labels are expected to become the largest market segment, accounting for about a third of the total market globally. Premium private labels are expected to grow the most rapidly, and will start putting pressure on national top brands as well. To protect market share, it will become imperative for national brands to further leverage their core strengths to compete against private labels effectively and keep consumers' loyalty.