The days of private brands being seen as low-cost, lesser-quality alternatives are long gone. Retailers now have a unique opportunity to reshape their business model and redefine their perception in the marketplace.
Historically, retailers were merely the final distribution point for delivering consumer packaged goods (CPG) products to shoppers. However, with the advent of private brands, retailers have adopted additional roles as brand owners and marketers. This change has transformed the retailer’s purpose, evolving their stores from simply being CPG distribution hubs to destinations showcasing a distinctive and well-curated portfolio of private brands exclusive to their banners. Consequently, this shift has created unparalleled opportunities for retailers to differentiate from their competitors and establish meaningful connections with consumers.
The Rise of Private Brands
The days of private brands simply being “affordable” alternatives are over. Once considered a second-tier, more affordable alternative to national brands, private brands are now a favored choice for many consumers.
This transformation is being driven by an increasing reputation for quality, innovation, and differentiation. According to a 2023 report by the Food Marketing Institute, 81% of American shoppers believe private brand grocery items are equal to or better than national brands in quality. Importantly, this figure signals a shift in consumer trust that has driven consistent year-over-year growth in private brand sales that is outpacing national brands. According to Circana and the Private Label Manufacturers Association, private brand sales increased by 2.3% compared to a 1.1% increase for national brands in the first half of 2024.
And this growth is here to stay. Private brands account for 22.9% of total retail volume and 20.4% of total retail sales.
The Changing Role of Private Brands
Retailers who strategically invest in private brands tap into higher profit margins, strengthened customer loyalty, and expanded market share.
Savvy retailers now design private brands that rival or outclass national brands in quality, innovation, and branding. Consider Target’s premium private brand Good & Gather, for example, which boasts elevated offerings like organic meal kits and specialty snacks and combines a competitive edge with premium positioning. Such efforts highlight that private brands are no longer confined to price wars—they’re excelling in the realm of innovation and consumer experience.
Core Competencies to Master Private Brands
To stand out in today’s competitive retail environment, retailers must master three pillars of private brand management:
1. Data-Driven Product Development
Retailers with thriving private brands lean on consumer data to guide innovation. Using AI-driven tools to analyze purchase patterns, reviews, and emerging trends allows for faster and more informed product iterations.
A noteworthy example is Walmart incorporating plant-based meat into its Great Value line, catering to the growing demand for eco-conscious eating. New private brand products that tap into the growing demand for brain boosters, gut health, and hydration further reflect the increasing responsiveness to market trends being exhibited by analytically-driven retailers.
2. Advancing Sourcing and Production Strategies
Strong supply chain management is the backbone of private brand profitability. Retailers like Aldi consistently outperform thanks to their disciplined sourcing strategies that integrate transparency and efficiency. Predictive analytics and cost-monitoring systems help retailers better negotiate with suppliers. Furthermore, investing in vertically integrated operations, as seen with Kroger’s manufacturing facilities, can safeguard production quality and maintain pricing flexibility.
3. Merchandising and Brand Building
Private brands must fulfill multiple objectives, from offering competitive value to being a reason consumers choose a particular retailer. Successful retailers are focusing on:
• Creating multi-tiered lines to target diverse market segments. For example, Lidl offers basic-value products alongside more premium lifestyle brands.
• Merchandising with precision to amplify in-store and online exposure, building consumer trust and recognition.
• Launching fully-integrated 360-degree brand campaigns that connect private brands with consumer needs, effectively turning private brands into destination brands.
Operationalizing Success in Private Brands
Even with well-rounded capabilities in merchandising, product innovation, and sourcing, private brand success ultimately hinges on execution. Two pillars of this execution are:
1. Developing a Center of Excellence (COE)
Creating a dedicated team of specialists within the organization ensures streamlined processes and elevated performance across the private brand portfolio. A COE acts as the strategic hub, driving everything from marketing and innovation to partnership development. Larger retailers that replicate organizational structures of CPG companies, like Walmart and Costco, have seen dramatic private brand growth.
2. Strategic Manufacturing Partnerships
Building long-term relationships with manufacturers ensures consistent quality, capacity, and innovation. Some standout retailers like Lidl and Trader Joe’s take this a step further by owning their manufacturing facilities or maintaining vertically integrated supply chains to further lock in flexibility and efficient operations. Such strategies help create exclusive offerings and agile responses to market trends.
The Future of Private Brands
Private brands have gone mainstream and are poised to grow even further. Retailers who take action to innovate and invest in their owned brands today will reap benefits tomorrow. A recent McKinsey study found that retailers with advanced private brand strategies captured 20–30% greater market share growth than their competitors over a two-year period.
We fundamentally believe that private brands represent the single most tangible way retailers can differentiate themselves. The time to act is now. Shoppers are rewarding brands that deliver exceptional private brand products and they are increasingly favoring retailers that prioritize value, innovation, and quality in these offerings. Retailers that align their strategy with the evolving needs of consumers will carve out a lasting competitive edge.
