A private label product is manufactured by a contractor or a third-party manufacturer and traded under a retailer’s brand name. The retailer specifies the contents, features and utility of the product. Advantages of private labelling includes increased affordability, control over production and profitability.
Importance of private labelling is gaining widespread importance. In the US, consumers have spent approximately $725 bn on packaged goods annually, of which approximately $120 bn was generated annually from sales of private label products. Private label products have tremendously increased their U.S. market share over the past 25 years, and now comprise roughly 18% of the U.S. CPG industry. Despite impressive growth over the years, consumers’ confidence in non-branded products still lags far behind Europe in terms of market share. To put things into perspective, in Switzerland and the United Kingdom, the private label industry makes up approximately 45% and 41%, respectively, of the CPG industry. With customer awareness and acceptability increasing in the US, private labelling industry is expected to grow in an upward trajectory in the foreseeable future.
Private labelling has received overwhelming response in Europe. This can be attributed to cultural and regional aspects. UK’s share of private labelling exceeds that of that original packaged goods. Private labelled Frozen foods and chilled/fresh foods account for 43% and 39% of the sale in the respective segment.
Growth Factors for private labels:
- High ROI opportunity: Retailers provide private-label brands at affordable prices to the customers as it costs less to manufacture and distribute these products. Thus, they earn huge profit margins.
- Rise in product innovations: The food and beverage market is growing steadily as customers’ demands and choices are changing very rapidly. The major brands in the grocery retail market are not very different in terms of quality from premium private labels.
- Enhanced brand visibility: Retailers change the design, pricing, merchandise, and distribution of private-label brands by studying customers habits and fashion trends. These brands now acquire a larger shelf space than the other brands in supermarkets or hypermarkets.