What: Private labels have evolved from generic alternatives to strategic retail assets, reshaping the price/value paradigm and challenging major CPG brands' market dominance.

Why it is important: As private labels gain market share and quality perception, they're becoming a crucial differentiator for retailers, driving customer loyalty and profitability while challenging the long-standing dominance of CPG giants.

Private labels, once viewed as inferior alternatives, have transformed into powerful retail assets with roots dating back to the 19th century. The turning point came in 1984 with Loblaws' launch of President's Choice, setting a new standard for quality store brands. Today, major retailers like Walmart, Target, and Costco experience over 25% of their sales from private labels, with Costco's Kirkland brand alone generating $56 billion annually. This success is driven by changing consumer attitudes, particularly among younger generations who view private labels without stigma. The COVID-19 pandemic and subsequent economic pressures have accelerated this trend, with consumers increasingly prioritizing value. Major CPG brands, focusing on short-term profits through price increases and "shrinkflation," have inadvertently accelerated the preference for private labels. This shift is not just about price; it reflects changing attitudes around brand values and trust. Retailers are capitalizing on this trend by expanding their private label offerings across various price points and quality levels, from premium options to budget-friendly alternatives. As private labels continue to gain market share, they're reshaping the retail landscape and forcing traditional brands to reassess their strategies.

IADS Notes:

Recent trends in retail highlight the growing significance of private labels across various market segments. Major retailers like Walmart, Costco, and Target have leveraged private brands to exceed expectations, with Costco's Kirkland Signature brand alone generating $56 billion in revenue. This success is reflected in broader market data, with private brands achieving record highs in the first half of 2024, capturing approximately 23% of unit market share and 20% of dollar market share. Retailers are not only expanding their private label offerings but also diversifying their strategies. Walmart's launch of Bettergoods, a premium private label brand, demonstrates a move towards "premiumization" in the sector. Conversely, Target's introduction of Dealworthy, a low-price private label, shows a continued focus on value-conscious consumers. These developments underscore the evolving role of private labels in retail strategy, catering to a wide range of consumer preferences and price points.

Private labels: How Major CPG Brands Have Brought on Their Own Demise