Private Brand Retailers Dominate Grocery Market, Outperform Competitors

A recent report from Alvarez & Marsal's Consumer and Retail Group (A&M CRG) has unveiled the significant impact of private brand retailers on the grocery market. The study, titled 'Accelerate your Private Brand journey to win with customers and shareholders', demonstrates that private label spending currently accounts for 20% of the total market and is projected to rise to 24% by 2030.

The report highlights the remarkable performance of top private brand retailers, with the leading four companies experiencing a 144% stock price growth over the past five years. This growth is further evidenced by the expansion of these retailers, with over 250 new stores opened in the last year alone.

Marco Valentini, Managing Director at A&M CRG, emphasized the strong correlation between successful private brand grocers and their market share and financial performance. He noted that the most successful players differentiate themselves through executive commitment to growing their own brands, equal prioritization of private and national brands by chief merchants, and targeted marketing efforts to elevate and differentiate their products.

The study outlines several key factors contributing to the success of private brand strategies. Value perception plays a crucial role, with private brand products typically priced 30 to 50% lower than national brands while maintaining comparable or superior quality. Product innovation and differentiation are also vital, allowing retailers to tailor offerings to specific customer demographics and preferences.

Margin management is another significant advantage of private brands. These products generally yield higher margins than national brands and can provide the same or better unit economics. This allows retailers to offer value to customers without relying solely on price reductions or promotions that may dilute margins.

Brand development is critical in the private label sector, with more than 80% of shoppers making decisions based on brand trust. Successful private brands can positively impact retailers' overall brand perception, fostering customer loyalty and advocacy.

Sustainable sourcing has emerged as an important factor, particularly for younger generations of shoppers. Private brands offer retailers direct control over product development, packaging, and supply chain, enabling them to align with specific sustainability goals.

John Clear, Senior Director at A&M CRG, warned that retailers lacking a comprehensive private brand strategy risk falling behind in the competitive grocery landscape. He stressed the importance of having a clear plan, including a differentiated brand architecture, consistent positioning across categories, and scalable processes to ensure repeatable success.

The report's findings underscore the growing importance of private labels in the retail sector and their potential to drive customer loyalty and shareholder value. As the market share of private brands continues to expand, retailers who successfully implement and manage their own brand strategies are likely to see significant benefits in terms of market position and financial performance.

For more detailed insights, the full report 'Accelerate your Private Brand journey to win with customers and shareholders' is available for download on the Alvarez & Marsal website.