Resurgence of Store Brands in Retail

Amidst the pandemic and subsequent recovery, store brands, ranging from groceries to paper towels, faced setbacks. However, they are now making a strong comeback.

Initially, the Covid-19 outbreak led to a preference for “trusted” brands among households in lockdown. However, the real challenge lied in the availability of brands due to disruptions in supply chains that persisted for years. Private-label manufacturers, serving multiple retailers with unique requirements in product and packaging, faced complex and less flexible supply chains compared to major brands operating at a national level. Additionally, government stimulus packages and a tight labor market resulted in households having more disposable income, particularly among lower-income segments that typically favor store brands. This prompted consumers to allocate more of their budget toward name-brand options.

Now, the tide is turning. With the impact of inflation, consumers are starting to opt for store brands once again, and manufacturers of these products are finally reaching pre-pandemic efficiency levels.

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For instance, TreeHouse Foods, known for producing private-label snacks and beverages for major retailers like Walmart, Whole Foods, Trader Joe’s, and Target, announced that its service levels have reached 98%—fulfilling 98% of customer demand. This represents an improvement from 95% in the first quarter of this year and 92% a year ago. As a result, TreeHouse Foods stock has seen a significant increase of over 30% in the past 12 months.

During an investor event, TreeHouse Foods’ Chief Executive Steven Oakland emphasized the long-standing success of private label brands and how the trend reverted once the effects of the pandemic and government stimulus diminished.

In the 52 weeks leading up to May 27, private label brands accounted for 18.7% of unit sales in the “center aisle” grocery segment, according to NielsenIQ data. This marks a reversal of the two-year decline from 17.9% in the same period the previous year. Similarly, in household care categories such as paper towels and cleansers, private label’s market share increased from 31.9% to 32.6% during the same period.

This resurgence of store brands poses challenges for branded goods manufacturers. Aside from losing market share, they face limitations in implementing price increases. Executives from consumer goods companies have acknowledged the shift and expressed caution.

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Kraft Heinz’s Chief Financial Officer Andre Maciel mentioned seeing private-label competitors refraining from following their price hikes, resulting in larger “price gaps” and higher “elasticities” (the decrease in demand due to price increases). Procter & Gamble’s CFO Andre Schulten also noted a limited trade-down to private label in their “paper” categories, albeit with a strong overall category performance.

While acknowledging these trade-down trends, industry leaders remain optimistic and adapt to the changing landscape. Campbell, for example, acknowledged losing market share in condensed soups to private-label competitors but highlighted their ongoing success with popular products in the same line.

In summary, store brands are gaining momentum in the market, presenting both challenges and opportunities for branded goods manufacturers. The shift in consumer preferences towards store brands necessitates strategic responses from industry players to maintain their market standing and appeal to evolving consumer demands.