The Jolly Green Giant, Tony the Tiger and the Keebler Elves have co-existed harmoniously in groceries, superstores and warehouse clubs for generations. But they may not survive the Amazon.
If Amazon opens a chain of grocery stores, as The Wall Street Journalreported, the most vulnerable competitors won’t be Kroger, Target and other supermarket chains. Rather, Kraft, Nabisco, Coca-Cola and similar makers of the brands that fill grocery shelves stand to lose the most. Or they stand to gain the least.
Amazon grocery stores likely would carry a large number of private-label goods, a strategy it’s exploring now and is basically a must-have across all of retail. Aldi and Trader Joe’s specialize in private label, while Kroger, Target and Walmart are expanding their offerings aggressively. (Kroger Manufacturing in fact makes goods for other sellers, while its private label brands generate 26% of its own revenue).
It’s simply good business for retailers, which can better control the costs and distribution of house-made products. The profit margins on private-label items are estimated to be 25% to 30% higher than from national brands, CBInsights reports. The only real risk of introducing them is in displacing national brands shoppers come expressly to their stores to buy.
To put it simply: Crackers are fair game, but keep your hands off my Tide.
Private Label Brands In Nearly Every Home
Little wonder, then, that growth in sales of private-label products outpaces the sales of branded products threefold, according to CBInsights. Private-label sales rose 4.1% across U.S. retail outlets in 2017, to $138 billion, according to the FMI-IRI report “Power of Private Brands.” That is compared with a 1.3% increase, to $929 billion, for all brands.
Indeed, FMI’s research reveals 97% of U.S. households buy store brands. Largely because, one could presume, they are available. To wit:
- Nearly 85% of Walmart shoppers purchase private labels from its stores.
- Target has launched 20 private labels since 2016.
- Trader Joe’s, which virtually sells only private label, has posted at least 10% gains in revenue annually since 2008, according to Supermarket News.
- And Aldi, another private-label-centered retailer, is among the largest U.S. grocery chains, despite being based in Germany, with 1,600 locations and 800 more planned.
Add in the online merchants that specialize in making their own lower-priced alternatives to national brands, such as Brandless and Thrive, and private label is not only accepted, but sought-after. Spending at Brandless, founded in 2017, rose 413% in its first year.
Re-Branding The Shopping Trip
None of these developments catches the makers of big brands by surprise. Manufacturers know on-shelf performance determines their fate with grocery landlords, so they have been promoting one-of-a-kind capabilities, trust and innovation for years, right next to their private-label competitors. But they also are looking outside the store. Here are a few opportunities shoppers could expect.
Lucky charms. From Oreo to L’Oréal, national brands are offering more incentives for shoppers to seek out their products. The 2018 #MyOreoCreation contest sent prizes, from cookies to movie packages, to those who voted on flavors submitted by cookie fans (the winner was Cherry Coke). L’Oréal’s Worth Rewards program gives customers five points for every dollar they spend either by uploading receipts, linking memberships to a retailer’s loyalty card and/or by participating in online brand activities. And candy company Hershey offers Hershey Retailer Rewards to store owners, to encourage them to carry its line in return for rebates, category insights and exclusive new-product information.
Kraft services. Big brands own a lot of special technology, and many are using their expertise to parlay it into services as well as products. Procter & Gamble has been testing this model for years with its Mr. Clean Car Wash. Now, P&G is expanding its Tide pickup and delivery laundry service to 2,000 locations nationally, including at its already-operating Tide Dry Cleaners spots. Kraft’s cooking school, on YouTube, promotes its own products while sharing short recipe videos smartly targeted to its multi-tasking, middle-income customer base (as evidenced by its Easy Unicorn Cake).
Double stuff. In some aisles, shoppers will simply get more choices, but not necessarily for long. Private label brands are creeping into even loyalty-heavy categories such as detergent and cereal, giving shoppers more options to compare (and retailers more options to increase profits). However, added choice makes it hard for shoppers to find their preferred labels and could force them to either substitute brands or spend more time shopping around. In the end, retailers will pare down selections by using their data analytics to swap out lower-performing products for better ones.
Freebie Febreze. In addition to retailers, product makers sell to institutions and organizations such as colleges and hotel chains. Red Bull found riches in university fandom by turning its alert young customers into brand ambassadors, giving away Red Bull drinks and apparel so its logo is visible all semester long, wherever the wearers go. These partnerships will likely get creative: It’s not outlandish to imagine Febreze in airport frequent flyer lounges to freshen suitcases, or Nature Valley granola bars in McDonald’s Happy Meals.
Garniering more use. Expect brands to sell their necessity by promoting multi-purpose properties and new uses, based on their explicit formulations and technologies. Cetaphil sells daily moisturizer with sunscreen and cosmetic tint with the trusted backing of the brand name; Garnier Fructis Triple Nutrition Marvelous Oil can be used in the hair five ways — before, during and after shampooing. And probiotics are popping up in everything. By loading up on functionality, brands offer more problem-solving and ease per dollar while cashing in on credibility.
The giant takeaway for shoppers is their favorite big brands won’t go away. What may change is which brands they choose to make their favorites. But these choices will be guided by innovation, performance, and price — good things for all involved. A high Tide, or Aldi-branded tomato sauce, will raise all shipments.
Bryan Pearson a Featured Contributor to The Wise Marketer and is the President of LoyaltyOne, where he has been leveraging the knowledge of 120 million customer relationships over 20 years to create relevant communications and enhanced shopper experiences.
This article originally appeared in Forbes. Be sure to follow Bryan on Facebook and Twitter for more on retail, loyalty and the customer experience.