Posted: 18 Dec. 2019 05 min. read

Has private label become branded?

Learnings from FMCG

The significance and role of Private Label is rapidly evolving and it is creating more growth opportunities than ever. With its shift towards premium products at the cutting edge of societal trends, as well as sales through 3rd party channels, Private Label goods are increasingly becoming branded. These blurring lines of Private Label and branded goods will require investments in new capabilities for both FMCGs and retailers. So what can FMCGs and retailers learn from each other to capture their share of the consumer’s heart and wallet?

Growth in Private Label sales outpaces branded-products

Private Label growth continues to rise across the globe and there seems to be no limit to its potential. Even in mature markets such as the UK, where market penetration is over 50%, Private Label sales still grew by over 5% over a 3-year period[1].  We have seen global retailers dramatically invest in Private Label goods. Costco is a classic example, whereby sales of their Kirkland Signature private-label brand grew by 10% to $US39 billion in 2018.  [2]According to UBS, the Kirkland brand could be worth around $US75 billion[3].  In line with global trends, growth in Private Label sales in Australia outpaced branded-products, with 1.8 times higher sales growth[4].  

A key driver behind this growth is the changing trade structures. Multiple paths to purchase and the emergence of new on and offline providers, including direct to consumer propositions and intermediaries, has increased market fragmentation. In this environment, retailers will need to differentiate and Private Label creates exclusivity and loyalty, providing a reason for consumers to return to stores. Private Label also drives greater margin and has become an important hedge in fight for profitable growth. The benefits are mirrored for consumers, where the need for affordability continues to be important, 70% of consumers say they shop Private Label products to save money. 

The role of Private Label continues to evolve and create new paths for growth 

Whilst price is key, shoppers are also willing to pay more for products that meet evolving consumer needs of health, convenience and sustainability. Premium tier Private Labels have grown the fastest, experiencing 6.9% growth over the past three years[5].   Private labels are shifting to more premium, innovative products positioned on the cutting edge of consumer societal trends. Target’s proprietary brand Good & Gather, launched 3 months ago, is a good example. It offers organic and wholefood products and is expected to be a multi-billion dollar brand by the end of 2020.

These moves illustrate how Private Label is creating new paths to grow by expanding the category, or in some cases, even creating new ones. Retailers are also creating growth opportunities by partnering with third parties to sell Private Label in new channels and markets (both online and offline). For new channels in existing markets, we can look to French retailer Monoprix, who has partnered with Amazon to sell their private label goods. Equally, Sainsbury and Coles in Australia is an example of how new channels and new markets have opened up to expand their private label range. 

The role of Private Label is changing. Brands are becoming premium products with their own unique positioning, sold through third party channels. They are also entering markets where the retailer has no physical presence. As a result, Private Label has truly become branded and it should be managed as such.

What can retailers learn from FMCGs if they are to manage Private Label as branded goods? 

The core strengths of FMCGs are brand building, marketing and channel management. Many of these capabilities have traditionally been the weaknesses of retailers.

  • Brand building: FMCGs know how to build and brands with distinct attributes and carefully craft and manage the narrative around the brand
  • (Digital) Marketing: FMCGs had a head start on digital marketing, advertising, brand activation, social selling and know-how to maximise the return on above and below the line marketing spends.
  • Channel management: FMCGs are used to operating across multiple channels and know-how to avoid retaliation and cannibalisation through careful SKU, pricing and promo management.


In recognition of these capability gaps, retailers are mostly making moves relating to brand and digital marketing. This is not just limited to the master retailer brand, but also the underlying Private Label brands. Canadian retailer Loblaw, with its No Frills and No Name brand, started their own media agency and has been one of the few retailers to successfully market its brand end-to-end. 

If Private Label growth is outperforming brands by 1.8 times what can FMCGs learn from retailers? 

Retailers have distinct strengths in the areas of consumer insight, innovation and collaboration – ultimately leading to the rapid growth of Private Label overall. FMCG players can learn the following:

  • Consumer insights: Retailers have a wealth of consumer knowledge, and have learned to leverage their direct access to insights for early detection of high growth categories and greater accuracy of needs.
  • Innovation, speed to market and a test-and-learn mentality: Retailers tailor innovation to local customer needs, apply a test-and-learn mentality, and make quicker decisions on what remains on shelves.
  • Strategic sourcing and ecosystems: Retailers drive innovation by partnering with small, nimble parties and frequently hosting innovation forums.


We are seeing investments being made by FMCGs to address these capability gaps by exploring direct-to-consumer channels, purely to gain greater access to consumer data. Unilever-owned Hellmann’s partnered with on-demand delivery start-up Quiqup, for its first direct-to-consumer trial in 2017[6].  The ability of Hellmann’s to leverage consumer data directly meant that they were able to create meaningful connections and strengthen its relationship with its consumers.


The rise of start-up incubators and accelerator programs run by FMCGs are becoming more common in a bid to speed up innovation. Mars Food Australia’s Seeds of Change program is designed to help US and Australian early-stage food-focussed companies to develop world flavours, plant-based eating, edible bugs, and responsible food – all of which are hot societal trends.[7] 

The race between Private Label and branded goods continues, but the rules have changed…

The lines between private label and branded products are blurring – and FMCGs and retailers have much to learn from each other when it comes to creating new opportunities to become truly strategic partners.

There are many capability gaps to be bridged, but a digital strategy to connect with the consumer is the one to watch. Investments in meaningful digital interactions across the entire path-to-purchase will only continue to grow in importance and will be key for all brands to win the consumer’s mind and wallet.

Those who are open to learning, innovating and collaborating to build meaningful brands and consumer connections will be the winners in this new world.

References:

  1. Data for the United States is reported for 2016. Source: IRI, Nielsen, Insideretail. Growth over a 3 year period from 2014-2017
  2. Costco Annual Report (2018)
  3. Insider Business, Costco’s Kirkland brand has become a secret weapon worth as much as $75 billion
  4. IRI Marketedge (‘private label: the Rise and Evolution of private label in Australia; 2017)
  5. Nielsen (The rise of premium private label and its impact on discount retailers – 2019). Data May 2016-May 2019
  6. www.quiqup.com
  7. www.mars.com/seeds-of-change

 

Meet our authors

Vanessa Matthijssen

Vanessa Matthijssen

Partner, Strategy Consulting

Vanessa is a strategy partner at Monitor Deloitte and leads Deloitte Australia’s Consumer Products sector group. With more than 20 years' experience advising clients in the consumer products, Agri, FMCG and retail sector, Vanessa has a deep understanding of the industry dynamics, consumer and market trends and related growth opportunities. She combines her skills in corporate and commercial strategy, turnaround programs as well as the design and management of large transformations with her passion for food to drive positive commercial results with progressive societal outcomes.

Louise Heath

Louise Heath

Director, Financial Advisory

Louise is a Director in the Deloitte Australia Mergers and Acquisitions team. She has extensive consulting experience specialising in M&A integration, carve out, strategy development, transformation program delivery and change management. Louise specialises in formulating buy and sell side value creation strategies and executing business transformations to deliver full deal value. Louise has worked across multiple industries including consumer and industrial products, retail and financial services in the UK and Australia. 

Jo Jericho

Jo Jericho

Manager, Consulting

Jo is a Manager within Deloitte's consulting practice. She uses her deep consumer business knowledge to assist with customer and marketing strategy development, corporate and business unit strategy reset, and whole of business transformations for companies undergoing mergers, acquisitions and integrations. Jo joined Deloitte with 15 years’ FMCG industry experience (retail and supplier side). She holds a Bachelor of Economics, a Bachelor of Management (Marketing), as well as a MBA (First Class Honours with Dean’s Commendation for Business Strategy). She is highly analytical in developing customer and marketing strategies using shopper and consumer insights to unlock growth. Jo is known for her exceptional stakeholder management, which allows her to successfully partner with clients and influence change.