A turning point for private brands: How retailers can seize the opportunity

In 2021, the authors asked whether the private-brand trend would last. At the time, consumers were eagerly snapping up retailers’ owned brands, which were lower-priced and more readily available than similar products from many national brands. Fast-forward to today: the author’s research clearly shows that consumers are continuing to opt for private brands.

The trend is continuing in both Europe and the United States.   What’s more, private brands are appealing to customers not just because of price and affordability; these brands are now also becoming known for their quality.   But not all retailers will benefit. Retailers that are intentional about their private-brand portfolio—by providing both affordability and differentiation while shifting their mindset to think more like consumer-packaged-goods (CPG) players—will be better positioned to boost margins, consumer loyalty, and market share.

A recipe for excelling in private brands in the form of three core capabilities are: 

1. Merchandising and brand building.  Retailers now purposefully develop private-brand offerings that have a clear customer value proposition and a set of differentiators from national-brand alternatives.  These requires new merchandising and branding capabilities, linked to the retailer’s value proposition and supported by advanced technologies such as AI. Specifically, retailers need to be much more intentional about their private-brand portfolio and architecture. They need to ensure sufficient scale by SKU to manage complexity and value, and they need to leverage digital channels, loyalty programs, and personalization.
2. Insights-led product development.  With private brands playing both a value-for-money and differentiation role for retailers, advanced product development skills have become more important.  These include not only new product development but also optimizing existing products. Product development can be a powerful driver of both revenue and margin growth when informed by deep consumer insights. Today, generating consumer insights has become much easier and faster, thanks in large part to digital tools and AI.
3. Next-generation sourcing.  The third ingredient in the recipe for private-brand excellence is taking sourcing to the next level. Getting to the right cost is critical to making the penny profit equation work. Depending on the category and the role of the private brand, retailers can often offer value to consumers without eroding margins—but this is no easy task, given that merchants and sourcing managers deal with thousands of SKUs, each of which requires component-level cost management. One way that retailers can address this significant challenge is through a digitally enabled next-generation sourcing model. The following actions have helped retailers: create real-time visibility into input costs; Adopt an at-scale, ‘should cost’ approach to costing; and drive supplier competition at the cost component level.

How can retailers best operationalize the three ingredients?  By creating a centralized team of specialists i.e., the private-brand center of excellence and by establishing strategic partnerships.