Unveiling a New Era of Private Brands

May 3, 2018

Private brands are having a moment. From online own brands like Warby Parker and Casper, to mass market retailers like Target and Walmart, even discount grocers like Aldi and Lidl—everyone is scrambling to get a piece of the private brand pie.

Market researchers including the NPD Group, Nielsen and Euromonitor International attribute this private brand renaissance to consumers seeking out more than just value. The private brands of today have proven to offer quality and innovation, too. How can retailers ensure they continue to grow their private brand offerings and meet the needs of today’s savvy consumers? We take a look at the new face of private brand and the ways retailers and brands can drive the momentum.

 

THE ORIGIN STORY

To understand how retailers can keep the private brand momentum going, it helps to understand how we got here in the first place. According to Nielsen and Euromonitor, the 2008 recession was part of the catalyst for the most recent surge in private brands. Both note that during harder economic times, consumers tend to turn to private brands for savings.

But as history has shown, consumers don’t simply return to their old shopping habits when the economy improves. “Over the last 30 years, every recession has been springboard to drive private brands. People are exposed to more and more different private brand categories every time they try to save a little money. They come to understand it’s a good alternative, which then emboldens the industry to invest,” explains Dave Harvey, Vice President of Thought Leadership for Daymon. “Between every recession, that’s where the innovation hits. People continue to see that private brands offer not only quality and value, but they provide a solution.”

This idea of providing solutions plays into the next factor researchers say has driven the rise of private brands: changing demographics. As Nielsen reports, “Millennials now comprise 24 percent of the global population, and over the next five to 10 years, we expect them to replace Baby Boomers as the generation with the highest discretionary spending power. Compared with older generations, Millennials are more open-minded to new trying products and this includes private label; they also demand products that do more, provide more convenience and offer a variety of lifestyle options.” Daymon research also finds that this demographic is leading a change in consumer attitudes toward spending, shifting beyond price to a to a quest for alignment with personal values.

Last but far from least, the growth of all-things-digital has also helped to fuel private brands’ momentum. The NPD Group notes, “Consumers have come to embrace the benefits of e-commerce, enjoying instant price comparisons and access to extensive product research and reviews. This has contributed to changing shopping behaviors like diminished brand loyalty and value-driven purchase motivators.” It has also contributed to the rise of online private brands, not just in grocery, but also apparel, home goods, makeup and beyond.

 

A REINVENTION

With consumers having come to trust private brands, retailers have taken the initiative to make them more than just national brand me-too equivalents. Private brands have moved into premiumization, natural and organic, and more. At the same time, discounters have upped the ante on everyday low price private brands, stretching “the value for money continuum,” as Nielsen puts it. As Daymon research shows, shoppers have noticed the private brand reinvention. Forty-five percent of shoppers say private brands have improved over the last two years, especially as it relates to variety, quality and options to fit their lifestyles.

Aaron Magness, Chief Marketing Officer for Brandless, an online retailer offering solely own brand products it promotes as being “BrandTax-Free™” stated, “There was a time when you had two options: expensive brand names or cheap generics. That’s not the situation anymore. Today’s new brands have a great ability to have a direct relationship with their customer, use data to improve the customer experience, and be more transparent about aligning their core values with those of their customer.”

 

THE NEXT CHAPTER

“Shoppers expect private brands to be a part of the store experience,” says Nicole Peranick, Senior Director of Thought Leadership for Daymon. “So the question becomes, how do you move them from being mere table stakes to something that’s a differentiator in-store and that actively delights customers and keeps them coming back for more?”

The answer to that is ultimately the path forward for private brands. But don’t be lured into believing it’s just about differentiation in products. “It’s about taking private brand beyond products on the shelf and making them something bigger,” says Peranick.

In a follow-up to its recent intelligence report on the State of the Private Brand Industry, Daymon has identified several white space areas retailers can capitalize on to continue the private brand momentum and further elevate consumers’ perceptions. The first is what Harvey calls department reinvention.

“In order to continue to keep assortment fresh and stay engaged with the shopper, you have to keep bringing new ideas into the store,” he explains. “Private brand plays a central and focal role in doing that. Focusing on products and services that are entirely ownable by the retailer brings a spirit of continual reinvention in each department.”

Harvey goes on to explain that a private brand-centric approach to category management can serve as a catalyst for this continual reinvention—and is already being used by best-in-class retailers in the industry. These retailers use their private brands as a fundamental pillar in every category, focusing on consumer-centric needs versus relying on the outdated method of trying to be all things to all people. They also break down the barriers between categories.

“For example, expanding the role of fresh beyond the perimeter to create more engagement is a common theme with most successful grocery retailers today,” says Harvey. He goes on to note that positioning fresh as a platform, rather than a department, and extending into packaged foods can address the challenges retailers are increasingly facing in center store categories.

Curation is another white space area where private brands should be focusing their attention, says Peranick. “With too many choices and too little time, consumers seek shortcuts to cut through the clutter and simplify the shop. In our research, we found that stores witness a 45 percent attrition rate on average due to navigation frustrations. With attention shifting to department reinvention, curation is key to commercialization.”

Brandless CMO Aaron Magness agrees. “We’re all inundated with practically unlimited choice, content and messaging, and that can feel overwhelming. Do we really need 52,644 choices when we search for shampoo? I’d say the answer is no. We want to be able to find great products at a fair price, and trust the companies that the companies we are buying from understand what matters to us.”

In fact, this is the exact approach Brandless uses—along many other online own brands. For example, instead of being faced with dozens of brands, flavors and roast varieties, consumers shopping Brandless for coffee pods only have to make one choice: dark or medium roast. Whichever they choose, they’ll get 6 pods of organic, fair trade coffee for a flat $3. Consumers in search of a new mattress will find their selection narrowed to three simple choices when buying from Casper.com: The Essential (most basic), The Casper (standard) and The Wave (most advanced).

“One of the reasons online companies like these are getting a lot momentum is the simplicity of the assortment,” says Harvey. “Providing private brand choices with clear tiers and education about those tiers—that’s a perfect example of using own brand to offer a simple guided selection.”

On the brick-and-mortar side, one of the ways to translate this guided selection is through solutions-focused merchandising. “To realize the full potential of today’s many shopping occasions, retailers need to move beyond the obligatory seasonal endcap and start leading with everyday solutions through its private brands,” says Peranick. Clothing retailers like Madewell, Old Navy and Levi’s provide good examples of this in their approach to merchandising denim—sorting by fit and body type (high-rise, ankle length, curvy, etc.) and providing in-store signage that educates shoppers on the different options.

Ultimately, says Peranick, “private brand is not just about products, but also services and a voice. It’s an authority.” Retailers who are able to see and treat their brands in this light—and make an effort to form deeper relationships with consumers—stand to win in the new era of private brands.

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