Private label grocery brands thrived during inflation. Prices are down, but private label products are still getting more expensive – NBC 5 Dallas-Fort Worth

• Walmart, Kroger, Albertsons, Target and other major grocery chains have seen private-label sales rise during a period of record inflation as more consumers become mindful of their spending. There are now more retailers offering private-label products in more categories in the U.S. than ever before.
• They have taken coveted shelf space from national giants like Procter & Gamble, Kraft Heinz and Coca-Cola, as well as smaller food and beverage companies vying for retail space.
• Walmart, which already dominates the private-label grocery market with its Great Value brand of more than 1,000 food and beverage products, says growth is continuing to accelerate.

Private labels—also known as store brands and private label brands—of food and beverages have shared shelf space with national brands for years. For example, Walmart, the world’s largest grocery retailer, sells its Great Value Raisin Bran alongside similar cereals from Kellogg’s and Post, usually at a much lower price. The same is true for Kroger, Albertsons, Target and other major grocery stores, not just for cereals but for dozens of other product categories.

Private label has historically been the go-to choice for budget-conscious shoppers, especially during tough economic times. So over the past few years, as high inflation and producer price hikes have pushed grocery prices to their highest levels in decades, it’s come as no surprise that private labels have seen sales surge. They’ve gradually taken coveted shelf space and consumers’ attention from established national brands sold by Procter & Gamble, Kraft Heinz, Coca-Cola and other industry heavyweights, as well as smaller food and beverage companies vying for retail real estate.

But now, as inflation calms down—the latest consumer price index is at its lowest level since February 2021—private labels are at a crossroads. Will sales fall to the typical market share of national brands, around 18% to 20% on average? Or will grocery retailers innovate, launch, produce and source their own brands to capture greater market share among a wider group of shoppers, improve their already slim margins and differentiate themselves from the competition? Recent retail data, consumer research, retailer commentary and expert analysis point to the latter.

“Retailers and our member manufacturers continue to follow trends, but they invest in products that are not a passing fad, so over time they grow their business to the point where they become the brand of choice for shoppers, rather than an alternative to what they usually buy,” said Peggy Davies, president of the Private Label Manufacturers Association, which represents almost 5,000 international private label manufacturers for a wide range of retailers.

In 2023, U.S. private-label food and beverage sales rose to $152 billion from $142.4 billion a year earlier, up 6.7%, according to research firm Circana. The share of units on grocery store shelves versus national brands rose to 26% from 25%. One percentage point may not sound like much, but retailers generally make more money selling private labels, a benefit of avoiding the manufacturing, pricing and logistics infrastructure built around national brands.

Consider Target’s assessment of its increased second-quarter revenue, which rose 2.7% year over year to $25.5 billion, helped in part by its private label brands, such as Good & Gather and Favorite Day. “Our industry-leading design and sourcing capabilities better position us to remove unnecessary steps in the process, which allows us to reduce costs and speed time to market,” Rick Gomez, executive vice president and chief commercial officer, told Wall Street analysts.

Sally Lyons Wyatt, global executive vice president and general counsel at Circana, said private label growth has peaked, with accessibility being a driving factor. “There are more retailers in the U.S. with more private labels in more categories than ever before,” she said.

Walmart and Kroger increase focus on private labels

Walmart already dominates the private-label grocery segment—primarily with its Great Value brand, which includes more than 1,000 food and beverage products—and is setting the bar even higher. “We see private-label penetration continuing to grow,” Chief Financial Officer John David Rainey said in August when the company reported second-quarter results, “and we’re very pleased with the customer interest in our new Bettergoods grocery brand.”

The big-box retailer launched Bettergoods in April, with a range of products across categories including frozen foods, dairy and snacks, most priced under $5. The brand aims to carve out a distinct niche for itself, Scott Morris, senior vice president of private label, food and consumer products at Walmart US, told Store Brands.

“Unlike some of our own private labels and national brands, Bettergoods is not primarily a direct comparison to products available in the marketplace,” he said. “In fact, many of the products may not have a market comparison, inside or outside of our stores.”

Kroger is following suit. The grocery giant — which operates about 2,700 stores under its own brand and affiliated chains, including Ralphs, King Scoopers and Metro Market, and is still pursuing a $25 billion merger with fellow giant Albertsons, which is currently being challenged in court on antitrust grounds by the government — has expanded its so-called Our Brands portfolio, adding Simple Truth, Private Selection, Smart Way and Field & Vine, a line of fresh produce grown by farmers in California, Florida and several other states, to its namesake brand.

Kroger noted in its latest earnings report on Sept. 12 that store-brand sales growth outpaced national brand sales growth in the latest quarter, with more than 90% of customer households purchasing Our Brands products. Kroger said it has introduced 600 new private-label products this year.

Customers’ shopping habits are changing for good

In the past, the value proposition of private labels was mainly driven by lower prices. However, consumer attitudes are evolving, according to a recent study by the Food Industry Association, which represents both food retailers and manufacturers. Value and price remain the main reasons consumers are buying more private labels, the report found, but quality and taste are becoming increasingly key drivers, along with features such as meeting nutritional and health needs and more attractive packaging.

“In the past, you felt like you got what you paid for,” Lyons Wyatt said. “You could get it at a lower price point, but it wasn’t necessarily exactly the same taste or the same quality as the branded product. They’ve raised the bar on quality (for private label), getting the flavor and texture profiles to a level where consumers feel like these aren’t bad alternatives.”

While competition between private and national brands benefits consumers, according to Doug Baker, vice president of industry relations for the Food Industry Association, it also allows retailers to create a point of differentiation from other retailers. “You can only get this brand from me,” he said.

These competitive factors, in turn, build customer loyalty to one store over another, Baker said. A recent study found that in 2016, private brands influenced about a third of shoppers’ store choice, but by 2023 and 2024, that had grown to more than half of shoppers. Specifically, the study found that 55% of shoppers had increased their purchases of private brands in the past year, compared with just 28% who bought more national brands. And 46% said they expected to buy private brands somewhat or a lot more, compared with 27% who said they did for national brands.

Increasingly, those customers are millennials and Gen Z, who are building their own relationships with brands and retailers, unlike Gen X and baby boomers, said Steve Zurek, vice president of thought leadership for advanced analytics at consumer research firm NIQ, also known as NielsenIQ.

“Gen Z and young millennials are talking about the experiences they have with store brands, and it’s not necessarily the same brand loyalty that their parents passed on to them,” Zurek said. “They’re trying to go down an independent path and find their own thing. So social media influencers are important, their friends are important.”

It’s a trend Walmart has also highlighted, with Morris noting that across its private brands, Walmart is seeing younger, brand-agnostic customers making the switch, which he says is a testament to their value and quality. “While we’re seeing growth across all demographics, the growth is particularly pronounced among Gen Z and higher-income groups,” he told Store Brands.

Grocery experts predict that private labels will continue to grow alongside national brands, but no one expects them to reach the levels seen in Western Europe, where they have a market share of 36%, according to NIQ. European consumers have long been accustomed to buying private labels from discount retailers such as Aldi and Lidl, which specialize in such products. In fact, as these brands have grown in the U.S. in recent years, along with the growing success of national store brand Trader Joe’s, they have become a key reason for the increased interest in private labels from supermarket chains.

But the overall market won’t tilt toward most private labels, according to the Food Industry Association. “In the United States, private label as an industry that’s going to outshine national brands is not something we’re going to see,” Baker said. “That’s largely because of the competition in retail stores and brands in general. The consumer will benefit from having competitive products to buy, so both (private and national) brands will continue to see good profits in their businesses.”