Winning with private brands, the customer-first way

Private brands aren’t exactly new. In fact, private label products have been a core part of the grocery industry for well over a century now¹. Originally used to simply offer customers lower prices, but later spurred on by the emergence of the discount channel, retailers have evolved private label into much more than a price fighter but fully developed brands that compete with national brands every level.

The past five years have been something of a whirlwind for shoppers. Destabilising factors seem to have become an ever-present, from a global pandemic and international conflicts to inflation and tariffs. Economic uncertainty continues to shape the grocery landscape. Understandably, this tumult has had a profound impact on how customers choose to spend their money, too.

2022, for instance, saw consumer confidence drop to its lowest ever recorded point—no small feat considering the OECD first began measuring it back in 1974². And even though we’re now seeing optimism creep back up, change is not instant. Economic indicators may be improving, but shoppers won’t feel that impact for some time yet.

That lag is important because it means that value for money is still a key factor for shoppers—and a strong private brand is critical to a retailer’s overall value perception with customers.

Recently, we had the pleasure of participating in a webinar with the Private Label Manufacturer's Association. Winning with Private Brands, the Customer-First Way explored some of the ways that retailers can develop and optimise their private brand offering. During that session, we noted that retailers with best-in-class private brand portfolios are seeing superior overall retail sales growth—between 4-10x that of retailers with lagging portfolios³.

So, what exactly are these leaders doing differently?

Three distinguishing features of a standout private brand

The correlation between a strong private brand and superior sales growth isn’t accidental. Best-in-class retailers are leading the way because they’re doing three things better than their peers.

1. They’re creating products that resonate
   The most successful retailers understand that effective private brands offer far more than just value for money. Own label may have started out as a cheaper alternative, but it’s grown into so much more than that. Today, those who are leading the way in private brand are developing products that truly resonate with their customers.
    
   Tactics here include distinctive packaging, flavours, and unique varieties, all of which help to distinguish private brand goods from national brands. More importantly, data science is being used to shape private brand decisions. Since they’re unique to each retailer, private brand goods can be tailored specifically to that banner’s customers—something that a combination of data science and machine learning is helping to achieve.
    
   Per an example we shared in the webinar, one retailer has combined customer data with primary research to understand their loyal private brand customers better, to understand not just what happens within the store—but outside it too. This led to the insight that their most loyal private brand customers were empty nesters or established families, both motivated by quality and a love of cooking. This knowledge enabled the retailer to build a private brand portfolio that truly resonated.
2. They’re taking a brand-centric approach
   In the words of noted author and speaker David J Katz, “private label merchandise is generic goods, sold as a commodity. Private brands are truly brands.” Leading retailers have learned to treat their private labels as true brands.
    
   In practice, this means that they’re driving innovation rather than just following the lead of national brands. A focused brand strategy—with a distinct value proposition for each private label—means that lines can be tailored to specific consumer needs. This results in clear, consumer-driven specifications and quality standards that match (and sometimes exceed) those of the national brands.
    
   This, of course, is a fundamentally different approach to the ‘me-too…but cheaper’ model that started the private brand revolution. Things have moved on, and successful retailers are the ones that have continued to evolve. Tapping into the power of branding and storytelling, best-in-class retailers have created private brands with distinct identities, packaging, and marketing strategies.
3. They’re optimising their private brand operations
   Retailers that are winning with private brands have recognised that it can be a way to cultivate a dedicated customer base and drive loyalty.
    
   Loyal private brand customers—“brand loyals”—are an important shopper segment, not least because they hold the key to optimising a retailer’s private brand operations. Our research shows that just 15% of customers deliver 60% of all private brand sales. That makes it critical to understand which categories those customers shop today, and where opportunities exist to broaden the assortment.
    
   Again, AI can play a key role here. Used effectively, they can help retailers to understand:
   • Which customers can be categorised as brand loyals
   • Which categories matter most to those customers
   • Which categories should have more private brand products
   • Which products will benefit most from promotions.
   • And which products should be kept at consistently low prices.

With economic pressures continuing to influence customer choice, private brand presents a unique opportunity for retailers to deliver value, quality, and innovation to shoppers. By leveraging customer data and AI, retailers can create private brands that not only compete with national brands—but outperform them too.

In the next post in this two-part series, we’ll provide answers to some of the questions raised by our webinar viewers. In the meantime, you can find a full on-demand recording of “Winning with Private Brands, the Customer-First Way” here.

1 The Evolution of Private Labels: (Europe, America and India) - Advertising Express
2 Consumer confidence index (CCI) - OECD
3 dunnhumby Retailer Preference Index