Private label brands used a similar playbook for more than 100 years, after a pharmacist in Columbus, Ga. created what we now know as RC Cola as an alternative to name brand soda in 1905.
But recently, the blueprint has changed as retailers focus on driving consumer loyalty and put price points in the backseat. Target, Walmart and, of course, Amazon have all embraced this concept as each has made its own effort to add exclusive options for consumers looking for more than just cheap, generic substitutes.
“Private label or owned brands have indeed shifted away from the ‘compare and save’ value proposition of grocery stores,” said Juli Lassow, principal of retail consultancy JHL Solutions and a former Target executive focused on private labels. “These brands are now used as a critical way to build brand love and customer loyalty, all while maintaining retailer profitability.”
Take Target’s announcement of its new flagship food brand Good and Gather, for example, which emphasized features like ingredients, taste, production and convenience in its upcoming portfolio. Eventually, the new in-house grocery brand will incorporate reformulated versions of customer favorites from prior private labels, according to Target.
And, of course, Amazon, which has more than a decade of experience in private labels, including a lineup of over 100 distinct brands with varying value propositions like luxury home goods brand Pinzon, mid-century and industrial modern furniture brand Rivet, and women’s workout wear brand Core 10.
Even Walmart upgraded its 16-year-old Great Value grocery brand in 2009 to enhance quality, improve taste and introduce products like fat-free caramel swirl ice cream and teriyaki beef jerky.
“[These] private labels are not the private labels of your mom’s supermarket,” said Bryan Eisenberg, co-founder of the agency Buyer Legends and co-author of the book Be Like Amazon. “They are private brands made to leverage the trust of the retailers and offer exclusives. Honestly, they should treat them more like the DTCs of today.”
And the reason is retailers are looking for more of a lure to their stores and sites instead of just improving their bottom lines by cutting out middlemen and moving production in-house.
According to Oweise Khazi, director of Amazon research at analytics firm Gartner for Marketers, this change may be partially attributable to Echo and Kindle devices, which are like private labels in their own right in that they are only available from Amazon. But they also turn a one-time purchase into repeat business because shoppers need Prime memberships to use the devices and suddenly have a reason to keep coming back.
“If you have a private label that is a winning brand that consumers really look out for, you’re locking them in for a lifetime,” Khazi said.
Kirkland Signature, Costco’s in-house brand came out in 1995—by 2018, it accounted for more than $39 billion in sales. And it’s still growing. According to Costco’s 2018 annual report, Kirkland expanded in apparel, food, household basics, sporting goods, and health and beauty last year.
“What Costco has done so well regardless of what the retail climate is stems from its fantastic private label business,” Khazi said. “Kirkland has this loyal following. That is what a retailer like Amazon is doing: offer products that are cheaper, but you don’t get them anywhere else.”
And, increasingly, those winning private label brands are more highbrow.
Per research from data analytics firm Nielsen, premium tiers of private label products have grown since 2016 and now represent more than 19% of sales. Discount grocery retailers like Aldi and Lidl have seen a 4% decline in private label sales while private label purchases have increased at more upscale grocers like Whole Foods, Sprouts Farmers Market and Fresh Market, per Nielsen’s research.
Meanwhile, consumers are “much more willing to splurge for store brands than they would for name brands,” Nielsen said.
In addition, Sucharita Kodali, principal analyst at research firm Forrester, said retailers have realized shoppers are no longer interested in cheap, generic alternatives, but rather higher quality, attractive substitutes—and stores are following suit with packaging upgrades.
Lassow agreed retailers can use data to design products specifically to appeal to their consumers while also retaining control of messaging to “deliver the ultimate customization in product development and conversation with their ideal customers.”
And when it comes to organic private labels retailers can even charge more, Kodali said, pointing to Harris Teeter as an example. “Retailers,” she added, “especially in grocery, are looking for any way they can increase margins and reduce their dependency on the major CPG brands.”