Private brands may have had modest beginnings decades ago, but they are now considered a major competitor against national brands. With a market worth over $150 billion and a projected CAGR of 2.95% during the period 2016-2020, you bet that private label constitutes a market to be contended with. Private brands are not only finding their way into consumers’ carts more often; they are also refining their manufacturing processes to become more sustainable and investing R&D dollars into product innovations.
Still, a quick glance at European markets reveals that private brands play a much less significant role in the US than they do in many Western European countries (private label’s market share in the US is 19%, far behind that of the United Kingdom’s 41%, for instance). So what’s keeping private brands in the US from jumping to Europe’s level?
For starters, although private brands are more popular than they used to be, many consumers still view national brands as superior in packaging, innovativeness, and trustworthiness. Trace One, a management firm for private label, found that 62% of consumers believe national brands’ packaging is more attractive and 69% believe national brands are more innovative.
The importance of private brands’ clearly communicating the quality of their products through effective packaging and ad claims is now more relevant than ever.
A 2016 report from Nielsen reveals that multicultural households may be especially hesitant to purchase private brands due to negative perceptions caused by such reasons as poor packaging, questions related to quality, and the belief that store brands are only for people on restrictive budgets. The report from Nielsen suggests, “With the diverse population in the U.S. quickly growing, retailers and manufacturers may need to take a closer look at how they are marketing store brands. . . . Without the critical component of effective in-store, out-of-store and online marketing, multicultural shoppers may bypass private label altogether. . .”
As the Nielsen report points out, marketing is a powerful tool that can be used to change negative perceptions consumers carry about private brands. Common consumer marketing tactics include social media campaigns, print ads, packaging improvements, and product awards.
The overall quality and taste of a product represent a key point of differentiation for store brands. Private brands can leverage third-party endorsements, such as the ChefsBest Excellence Award, to sway consumers of their products’ quality. By offering legally substantiated ad claims like “award winning taste” on-pack and in digital marketing, store brands can address consumers’ perceptions of their products. Aldi and Lidl, for instance, have both leveraged their various wine awards to create a more positive impression of their private brands as they rapidly expand in the US.
Although less spending on marketing is a major reason private brands can afford their traditionally lower prices, a certain level of marketing will be necessary for store brands to increase trial of and eventual loyalty to their products.