Private labels have been around for decades now, but why are private labels and brands becoming a new popular trend all of a sudden?
Years ago, private labels were just an afterthought for retailers and chain stores. The word “generic” was often used on these custom labels with simple black text and white labeling.
Today, this method has been flipped on it’s head, because the private labels business is now the main focus for retailers. These private custom label brands now have professional logo’s, many colors, and interesting designs to catch you eyes and grab your attention.
Some recent studies suggest that private custom label products are no longer second tier choices, they are increasingly becoming a first choice for consumers.
Grocery stores and Retailers have learned in the recent years that private labeling brands are now a big contributor to customer loyalty, and improving profits margins. And Walmart and Costco have been the superstars of learning the private label industry first. Walmart have proved this by being the #1 retailer in the world with 85% of their customers buying their store brand private label products. This is making way for many more private labels and brands, and competition is only increasing going into 2020.
The Private Labeling Secret
But why are private label brands becoming so popular now?
The reason is because profits on selling third party food products is around 1% or 2%. The profit margins on selling private label products is around 25% to 30%.
If you are a retailer which food products would you want to sell?
This had made a new era for these generic products, which are not just a cheap alternative anymore, they are the new main focus for sales.
In mid-2019 Target started their private labels brand called “Good & Gather”. Kroger also has a private product line called “Simple Truth”. Walmart uses the ‘Equate” brand for their private labeling. Costco has a private custom label brand called “Kirkland” which sold $39 billion worth of private brand products in 2018.
But one of the more interesting points of the increasing private label sales is that Costco alone accounts for nearly 30% of all the United States private label grocery store sales, according to FMI and IRI. To contradict this, the Private Label Manufacturers Association says the private labeling business for Costco amounts to only about 17% nationwide for private label brands.
Consumers Visit Stores Just To Buy Private Label Products
A recent study by the Food Marketing Institute (FMI) says that 46% of grocery shoppers say that private label brands are “very influential” when deciding which food retailer they shop. This is up 35% from only three years ago using the same questions. Another study from Coresight Research posted earlier in 2019 says that more than half of American consumers visit a specific retailer store to purchase a private label product. And the Food Marketing Institute (FMI) has recent data showing that half of all consumers are now specifically searching for custom label products.
Costco, Target, Kroger, Aldi, Trader Joes, & Walmart Win
The private label products from Costco, Target, Aldi, Trader Joes, and Walmart have proven to drive more foot traffic into the physical brick and mortar stores. But at the moment it seems Costco is the first to understand and fully grasp the private label products industry offering quality food products at reasonable prices, according to CEO of Coresight Research, Deborah Weinswig.
Now the picture looks even more clear for Costco, who just invested $450 million in their own chicken farm in Nebraska.