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A.T. Kearney Forecasts Unprecedented Global Store Brand Growth

December 2, 2009

Global market share of private label products is forecasted to reach 65 percent by 2025, up from the current 20 percent, according to research conducted by A.T. Kearney, a management consulting company.

Until recently, store brand growth was mostly fueled by European retailers, with many posting upwards of 40 to 50 percent private label market share. Although store brand share is considerably lower in the U.S., future growth will be driven by innovation and a true paradigm shift in the marketplace, said Constanze Freienstein, a partner of A.T. Kearney during a workshop at the recent Private Label Manufacturers Association show in Chicago.

History shows that store brand growth has been fueled by challenging events such as war, economic crisis and social change, “but there was no return to normal after each crisis –instead a ‘new’ normal was created,” Freienstein noted.

As store brands grow, however, middle-tier national brands -- what Freienstein refers to as B and C brands, or follower-brands that are not positioned as the consumer’s premier choice -- will struggle for survival.

“There will be a battle for share among leading brands and private label, with B and C brands eventually going out of the market. Most B and C brands will not make it,” she said. “And welcome to the future.”

Unlike its European and Asian counterparts, retailers in the U.S. have taken diverse approaches to private label development with some more focused on premium or organic offerings such as Whole Foods, while others like Wal-Mart dominate the lower-end of the price value spectrum. In between those polar ends of the spectrum, a large number of retailers apply a wide range of strategies and brand execution.

No matter what approach U.S. retailers choose, incremental growth in the future will be challenging, according to Freienstein. To continue to gain share in the future, U.S. retailers must be prepared to compete against:

• Consumer packaged goods companies that “retaliate” against private label with new products such as Procter & Gamble’s Tide Basic, a value priced version of the company’s premium Tide brand.

• Offshore retailers such as Aldi, which are private label masters with presence all over Europe, and have plans to grow aggressively in the U.S. Aldi opened 100 new stores in the U.S. in 2008 and by the end of 2009 will have opened 75 more stores.

• High-end domestic competitors such as Trader Joe’s (owned by Aldi), who are focused on exclusive, high quality private label assortment

• Innovative domestic retailers that are creating unique and differentiated store brand products and packaging that consumers need and want.

“To tap the growth potential a role change is required among all players – manufacturers, retailers and third party partners,” Freienstein said. And the difficult part is “this requires a whole new set of capabilities that don’t exist today.”

National brand manufacturers will have to be realistic about the performance of their brands and decide which ones are A Brands and which B and C brands are truly capable of becoming A brands. “They must focus nearly exclusively on these high-performing brands to win,” Freienstein said.

Retailers must focus on developing true store brand equity and differentiate their products and offerings for the consumer. “Retailers have the best data on the consumer, but the question is how will they use [the insights] to compete more effectively.”