Aggressive retail expansion over the past 10 years and increased consumer access to online grocery options have led shoppers to have more choices than ever before — and it’s contributing to a “new retail revolution.”
According to a recent Nielson report, private label products created for stores like Aldi, Lidl and Trader Joe’s by third-party manufacturers not only cost significantly less than their brand name competitors, they have dramatically changed what consumers expect from products.
The report looked at consumer spending habits and retail trends across more than 60 countries and concluded that many people now see private-label brands as equivalent to or suitable for multinational brands. In fact, when consumers consider quality, the report found that many people view private-label products as good and getting better.
As evidence of this shift, sales of store-branded products grew at 2% in the last quarter of 2016 whereas manufacturers of all sizes saw flat or less positive performance.
“It’s going to affect the food industry across the globe over the next five years in ways we have never seen before,” the report states. “We’re talking about the development of private-label products and the new challenges that this will present for brands and manufacturers across the globe, as retailers develop and market their own products rather [than rely on] multinational name brands to meet changing consumer needs.”
Although consumer optimism is currently high, according to Nielsen’s recent global Consumer Confidence Index reports, private label sales continue to grow. So why are shoppers spending less even when the economy is doing better? The report found that, when shoppers turn to low-cost products like private label to save money during times of economic depression, they adapt to and accept these new shopping patterns and don’t revert to their old ones even when the depression ends.
“When coming out of economic downturns, consumers will maintain a more cautious approach with regard to household expenses, having developed a habit of seeking and expecting value for their money,” according to the report. “Private-label is also a new opportunity in developing countries, faster-growing economies and countries recovering from economic decline or stagnation. Therefore, looking ahead, private-label brands have several avenues for future growth around the globe.”
Currently, the largest markets for private label are primarily located in Europe. But North America is ripe for a private label takeover, as penetration here is still relatively low. Likewise, Latin America may take well to private label products in the future due to the shaky economic situation there. However, in the Asia-Pacific region, there’s less potential for private label growth because consumers tend to be more brand loyal there, according to the report.
Millennials and urban dwellers leading the change.
According to the report, people living in urban areas are more likely to favor private label goods because people in cities tend to buy only what they consume. Therefore, regardless of geography or store size, urbanization is giving a boost to private-label purchasing.
Another group embracing the private label trend is millennials, who are usually more open to trying new products versus older generations.
Millennials “demand products that do more, provide more convenience and offer a variety of lifestyle options and the loyalty to established brands … can no longer be assumed. … They are very value conscious, they do a lot more product investigation before buying, and they will buy private-label brands if they think they are as good as multinational brands.”
In particular, German discount stores Aldi and Lidl have been expanding aggressively and disrupting markets in the United Kingdom, taking business from the “big four” grocers there, Sainsbury’s, Tesco, Asda, and Morrisons. Both Aldi and Lidl now have their sights firmly set on the United States.
So stay tuned for many more private label brands in your shopping future.
Source: Business Insider