Price Wars: Attack of the Private Labels | Reimagining Retail

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Sara Lebow (00:00):

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(00:26):

Hello, listeners, today is Wednesday, May 7th. Welcome to Behind the Numbers: Reimagining Retail, an EMARKETER podcast made possible by Rokt. This is the show where we talk about how retail collides with every part of our lives. I'm your host, Sara Lebow. Today's episode topic is Attack of the Private Labels, shout-out to Marcus for coming up with that idea, that name. Let's meet today's guests. Joining me first for today's episode is Ariel Fager. Hey, Ariel.

Arielle Feger(00:53):

Hello, happy to be here.

Sara Lebow (00:55):

Also with us is Sky Canaves. Hey, Sky.

Sky Canaves (00:59):

Hey, it's good to be back.

Arielle Feger(01:01):

Good to have you. Okay. Let's start with exactly what we're talking about when we talk about private label. So in the past we've used private label as a synonym for a generic brand or a store brand. Private label has meant low cost products that can replace national brands, but as retailers work to build brand loyalty, differentiate themselves and boost sales, we've seen a lot more private labels with their own really strong branding. So, let's start with this. Is private label still a synonym for affordable?

Sky Canaves (01:35):

So I think it certainly is, in the sense that private label brand products are typically priced lower than their national brand competition. And there's data from Circana that shows on average that price gap is around 20% in the CPG categories, and that's held over time. So even as prices go up with inflation, the national brands are raising their prices, and so can the private label retailers.

Sara Lebow (02:01):

Yeah, I think this is especially true for pharmacy brands. That's an area where I know if I go to Band-Aids and I look to the left of them, I'll find a cheaper, not name brand product. Other places, not so much, particularly like clothes or other CPG products, private label can have higher end products.

Arielle Feger(02:22):

Yeah. According to data from Numerator, 65% of consumers associate private label with the phrase, budget friendly. So I think the perception is there, even if maybe we're seeing prices maybe a little more similar to national brands, people still perceive them as being more affordable.

Sara Lebow (02:42):

At the same time, we are seeing some private brands that maybe aren't even getting perceived all the way as private label brands. Because Target has so many private label brands, some of them might not look like they are Target brands. They're not all called Target.

Arielle Feger(02:57):

Yeah, and I think a lot of that has to do with packaging and how they're presenting it. I think previously, private label felt really much like a generic copy of the national brand, whereas-

Sara Lebow (03:09):

They weren't spending money on marketing.

Arielle Feger(03:11):

Exactly. Now they have their own look, their own feel, and I think that's contributing a lot.

Sara Lebow (03:15):

Why is private label so important to retailers like Walmart, Target, Amazon?

Sky Canaves (03:22):

So, a couple of reasons. One is, they can generally enjoy higher margins on the private label goods than on selling products that they get from other brands at wholesale. And then they really allow the retailers to expand their product assortment, fill in gaps that are not being met by national brands. They can encourage loyalty if you develop a strong brand that really appeals to customers, there's that exclusivity of the brand that you can only get it at that particular store, so it draws consumers. I think those are the key advantages of private label for retailers.

Sara Lebow (03:59):

Yeah, I think the loyalty is a big one. If a consumer likes even one private label product, they're probably going to come to your store to get that because other stores will have the national brands that you also want to buy.

Arielle Feger(04:11):

Yeah, and they're also probably going to be more likely to switch brands in different categories. Right? Say you like something from Target in one of their private label lines and you want to try something else, I think they're a little more likely to switch.

Sky Canaves (04:27):

Right, they will build trust in the private label brands that carries over to other brands.

Sara Lebow (04:32):

Okay, so everyone who listens to this podcast is probably so sick of hearing about tariffs, but I want to talk about them in relation to private label. In the past, private label has benefited from things like high inflation, economic uncertainty, global unrest. In those cases, we've hedged that consumers will buy more private label products in order to save money, but private label brands are being impacted heavily by tariffs. So is this pattern going to happen again with heavy tariffs?

Sky Canaves (05:02):

I think it depends on the retailer and where they're sourcing from. So for the retailers, a lot of private labels are in CPG and supermarkets, and those are being produced domestically. They can still face tariff impacts from having to import raw materials or packaging materials. You also have a shift in sourcing among private label retailers like Target. So they spoke at their last investor presentation pretty in-depth about how they've moved a lot of their private label manufacturing out of China and into other markets, into Latin America, for example. And while those countries may still be subject to tariffs, remains to be seen, it's not quite at the level of the tariffs on Chinese imports.

Arielle Feger(05:49):

Yeah, I think private labels maybe have a tiny bit more flexibility with their supply chain and maybe a slight bit more agility to be able to kind of adjust accordingly. So they might have a little bit of an advantage that way, but I do think that they're still going to be dealing with the same things that national brands are dealing with.

Sara Lebow (06:10):

Yeah, there is the argument also that a rising tide boosts all ships, that's usually a positive thing. But if everything is becoming more expensive, then even though private label brands will likely become more expensive, they'll still benefit because they'll still be less expensive.

Arielle Feger(06:28):

Yeah, it's all kind of that relative price that's going to matter.

Sky Canaves (06:31):

Yeah, and that's what we saw when we had high inflation in 2021 and 2022, is that private label brands really surged. Now, they had a little bit of drop off in growth at the height of the pandemic just because supply chains were so snarled, but then they came back so strong, and that's been sustained. So in 2024, according to the Private Label Manufacturers Association, private label grocery brand growth was 3.9% versus national brand growth at 1%. So that's not even keeping up with inflation for the national brands, while private label brands were booming in this time.

Sara Lebow (07:12):

Yeah, I definitely think of that era, 2020 to 2022, as a huge time for private label brands. I think that's when we saw a lot of launches and a lot of branding on private label brands. We saw the packaging look more similar to national brand packaging.

Sky Canaves (07:29):

And now some of that packaging is starting to assert its own identity, where it's not even looking like a copy or a dupe, but it's becoming its own brand that consumers can look out for, or that can catch consumer attention when it's a new brand.

Arielle Feger(07:44):

Yeah, absolutely. And I think something, thinking about tariffs, I mean, again, with the kind of context that yes, private label brands are going to face the same challenges. I do wonder, I remember during 2020 and when shelves were really empty, there was a lot of people trying new products because that's just what was left on shelves.

Sara Lebow (08:06):

They also were all sharing themselves trying new products on social media, which has been huge for private label.

Arielle Feger(08:11):

Yeah, I'm just wondering, I mean, it's a little bit of conjecture, but I wonder if there's going to be a little bit, something similar where people are a little more willing to go outside of their comfort zone to save a few bucks, or if something is out of stock.

Sara Lebow (08:24):

I mean, if things get more expensive, if we see product shortages, those are the kinds of things that make people willing to experiment with new brands. So, it could be a high time for private label.

(08:36):

Is there a private label for everything? Is there any category that private label has struggled to penetrate?

Sky Canaves (08:42):

Oh, beauty is a big one. There still are not a lot of beauty brands made, created by retailers in the US, and but there is potential. Like one of the biggest beauty brands in the UK is No7, which is from the Boots pharmacy. It actually became so big that after Boots and Walgreens merged-

Arielle Feger(09:06):

Did they sell that in Walgreens here?

Sky Canaves (09:06):

They spun it off. Well, first they spun off Boots as its own brand, maybe potentially to look at a sale of that brand, as the bigger company had other issues, but it's also gone international and expanded internationally. So yeah, it's sold not only at Walgreens in the US but at places like Target and Walmart, maybe even Amazon. And just this past weekend I was watching TV, and a No7 ad popped up, and I was surprised to see that kind of advertising for a private label brand, because that's been very rare. But it does show how much a private label brand can expand, even in a category that's been considered resistant to private label.

Sara Lebow (09:51):

Yeah, I do feel like beauty is a really challenging area because you have a lot of brand loyalty there because people need to trust brands because putting it on their face. But also, you have really cheap dupe brands already like Elf or Mix, so it's hard to undercut those and it's hard to dupe better than the dupes have already duped.

Arielle Feger(10:10):

Duped dupes. Pet food's actually another area where there's kind of lower penetration, which I think makes sense. It's something that I think I would also assume, I think baby food is along similar lines, where you want to trust the food that you're feeding to your pet, to your child, and maybe the trust just isn't there with private label brands. But I think there could be possibilities.

Sky Canaves (10:38):

Yeah, and I think that's changing a lot because in the beauty space, for example, I know I've bought dupes at Trader Joe's of a certain sunscreen that was recommended on social media. And maybe because I trust Trader Joe's to begin with, I will trust that brand. And I'll also say that with pet food, we joined Costco as members finally, because we realized our cost savings on pet food if we switched to the Kirkland brand would more than offset the Costco membership. Of course, it doesn't offset all the extra stuff that we buy when we go to Costco, but that's another story.

Sara Lebow (11:13):

Well, yeah, I'm talking about private labels like people don't have as much trust of them as national brands, but that's not necessarily true. I mean, people definitely trust big retailers, and when I think about what I buy private label, I'll buy ibuprofen or Advil private label, 99.9% of the time it's much cheaper. And that's a pharmaceutical, so clearly I do trust whatever pharmacy I'm at to deliver on that.

Arielle Feger(11:37):

Yeah, it's interesting that Sky brought up Costco. 67% of consumers say they trust, I think it's the Kirkland brand, and so I think that's just a really good point. Maybe it varies from retailer to retailer, how much you trust that retailer is kind of then how much you trust the private label brands that they're selling and what products you would buy.

Sara Lebow (11:57):

Okay. So I want to close out this episode with something we love doing on the podcast, completely arbitrary awards. They're not completely arbitrary, we'll say unofficial. We came up with five awards for what we consider to be five interesting private label players. I'm going to deliver the awards and we'll chat a little about why we assigned these awards.

(12:18):

So let's start with our niche category innovator. We gave the niche category innovator award to Good Little Garden by Target. Ariel, what is Good Little Garden?

Arielle Feger(12:30):

It's, Good Little Garden is Target's, "First standalone floral owned brand."

Sara Lebow (12:35):

I did not know that you would have the quote right there ready.

Arielle Feger(12:39):

I came prepared. Yeah, so it's a private label flower brand, which I find kind of interesting.

Sara Lebow (12:48):

So, I thought that the flowers that they have at the grocery store were sort of already generic private label. So this just puts branding on it? What's the difference?

Arielle Feger(12:58):

Yeah, I am not entirely clear on that, so I don't know. But I definitely think that it is a little bit strange to think about the differences in flowers. Are they going to have a separate section with the flowers they already carry? And what makes Target's branded flowers different? I think they're going to have to do some marketing work there to really make up for a category that's a very occasion driven category too.

Sara Lebow (13:27):

But it makes sense that Target is making itself known as a flower provider, that's not, as a florist, ahead of Mother's Day, which is what, the number one flower holiday?

Sky Canaves (13:38):

Yeah. So the timing is great for their marketing and they're going to launch in-store activations or events around it, which I think is really critical to successful private label brand launches, getting people into stores, showcasing the private label in a unique and fun way that can appeal to more consumers.

Sara Lebow (13:56):

Next up, we have our vertical integrator. We're sort of using vertical integrator as a loose term here. This award goes to Loud Mouth BBQ by Ace Hardware. Sky, I'll leave it up to you to explain what this is.

Sky Canaves (14:11):

Sure. So it's kind of like the retailer's brand extension into a totally different category, because your hardware store doesn't typically sell barbecue sauce, or they may, but it would be kind of like an accessory. So they decided to take this into their own hands, rather than working with a vendor, they developed this in-house. And they gave it a fun name, Loud Mouth, that has a bit of personality. I find one of my critiques of private label brands is that sometimes their names can be a little bland or hard to remember. And they've really launched these in stores kind of to capture barbecue season and interest in their products. And I think they also were doing in-store activations with block parties where they're grilling and showcasing the sauces. So, it's just a fun twist on what we usually think of private label brands having to fit into a retailer's core categories, and going a little beyond that.

Sara Lebow (15:07):

Yeah, I mean, if you sell grills and you sell charcoal, then why wouldn't you sell barbecue sauce?

Arielle Feger(15:13):

I mean, it makes sense, but I think it's-

Sara Lebow (15:15):

Next up, they should have beer.

Arielle Feger(15:17):

Yeah, they should.

Sara Lebow (15:17):

The Ace Hardware beer.

Arielle Feger(15:18):

Oh, yeah. I think it's-

Sky Canaves (15:19):

Right by the cash register.

Arielle Feger(15:21):

It's just such an interesting play. I mean, it obviously is a very different type of, like you said, Sky, a very different private label play than Walmart adding something or Target adding something, because you're not necessarily going to Ace Hardware every week or even every month, necessarily.

Sara Lebow (15:41):

You don't know the dads that I know.

Arielle Feger(15:43):

That's true. I mean, I'm not a dad, so I cannot speak to the dads. I do think it's just such a fun offering that it really kind of wins me over.

Sara Lebow (15:51):

Yeah. Okay, next up we have our premium player. This is going to Better Goods by Walmart, which is a more premium private label brand that Walmart launched last year, a couple years ago?

Arielle Feger(16:03):

Last year.

Sara Lebow (16:04):

In order to sort of fill out this good, better, best kind of tier.

Arielle Feger(16:09):

Better Goods, it grew really fast. Numerator data, it grew 200% in the 12 months adding December 31st, 2024. Though take that with a caveat, because it was introduced in April 2024.

Sara Lebow (16:23):

Yeah, it's impossible for it not to grow.

Arielle Feger(16:24):

So, obviously it was going to grow, but it does currently I think hold a 20.6% household penetration rate. So I think it took off really fast, and I think that Walmart consumers obviously have an appetite for things that are more premium, or-

Sara Lebow (16:41):

Do Walmart consumers have an appetite for things that are more premium?

Arielle Feger(16:44):

Well, according to the data, I think they do, but that's-

Sky Canaves (16:48):

And according to Walmart, because they've noted a lot of growth in more affluent consumers, households earning more than 100,000 a year have really been turning to Walmart for more of their groceries in particular, and that's who this line might appeal to. A lot of their products I think are mostly priced under $5, which is a really strong price point for a premium type of food product that competes with a lot of those, what we call shoppy-shop brands, those direct to consumer Shopify brands that make fancy olive oils or nuts and things like that.

Sara Lebow (17:24):

Yeah, I mean, what Better Goods does offer is, I'm going to sound like a Walmart ad. It has premium branding, all the lowercase, it's really chic, it has bright colors, but it doesn't have premium prices. Walmart, you can take that copy.

Arielle Feger(17:37):

The branding does it.

Sky Canaves (17:40):

Yeah, the packaging is very eye-catching and bright and kind of unique, it stands out. More than its name though, I wanted to buy one of their products when I was placing an online order and I just couldn't remember the name because it seems to have the same kind of name as, it's a little bland. Like Target's Good and Gather, and we were just talking about the Good Little Garden. I guess it's-

Arielle Feger(18:03):

Yeah, it's [inaudible 00:18:04].

Sky Canaves (18:03):

... being suggestive. Yes, these products are good, we get that

Arielle Feger(18:08):

They're really trying to lay it on thick, but I guess it's working, so I don't know.

Sara Lebow (18:13):

Yeah, when I Google Better Goods, Walmart comes up first, but a bunch of other brands called Better Goods also come up.

(18:20):

Okay. Next up we have our collaborating king. This goes to a product I've mentioned many times since the start of this podcast, Costco's Kirkland Beer, which collaborated with Deschutes.

Arielle Feger(18:34):

Yeah, Deschutes Brewery in Bend, Oregon. I think that's really smart. It seems like this brewery seems to have a really good reputation amongst beer drinkers.

Sara Lebow (18:47):

You say that like you've never had a beer.

Arielle Feger(18:47):

I know, that was awkward.

Sara Lebow (18:47):

I've seen you have a beer.

Arielle Feger(18:53):

I love... Well, I've never had a Deschutes beer, so I can't personally speak to it. No, I think pairing, collaborating with a local brewery that's known for its beer and just being able to put that Kirkland logo on it is a really smart move.

Sky Canaves (19:10):

Yeah, and the co-branding is interesting because you rarely see private label products with another brand on them. But I think the Kirkland brand is already so aspirational, and then the Deschutes kind of takes it to another level, but the value is still there. So I think the pricing is several dollars less than what you'd pay for a case of a competing beer, and they have some special releases too.

Sara Lebow (19:35):

When did the Kirkland branding become so aspirational? Is this recent or has this always been the case?

Arielle Feger(19:41):

That's a good question, I feel like... I don't know

Sara Lebow (19:43):

Because when I was drinking Costco beer in college, it was sort of quirky that we were doing... We were like, this is our Kirkland beer and people would be like, "Is that Kirkland Beer?" And now I feel like it's-

Arielle Feger(19:53):

I do think it's-

Sara Lebow (19:54):

... a product, yeah.

Arielle Feger(19:54):

... a little more recent, but.

Sara Lebow (19:54):

Yeah.

Sky Canaves (19:56):

Yeah. I think it's the past couple of years as their product selection and assortment has expanded and people come to know that there is real quality there. And Costco itself I think is kind of an aspirational retailer, because it's the average incomes of its consumers are pretty high, like in the 120,000 range and they tend to be college educated. To shop at Costco, you need to pay for the membership, you need to be able to buy things in bulk.

Sara Lebow (20:22):

This is-

Sky Canaves (20:22):

So paying ahead for your groceries and also have the space to store them.

Sara Lebow (20:29):

This is why I was drinking my Kirkland beer in college.

Arielle Feger(20:32):

There you go.

Sara Lebow (20:33):

I definitely was not paying for a Costco membership, and I don't know who was.

Arielle Feger(20:37):

Don't tell Costco.

Sara Lebow (20:39):

Okay, next up is our viral social award. This one goes to, I don't think anyone will be surprised by this, Trader Joe's. We can't really talk about private label without talking about Trader Joe's, which is its own sort of vertically integrated private label company, I think that's what you would call it. They sell other products in Trader Joe's now, but not a ton. And Trader Joe's has a cult following, they're the social brand to beat.

Arielle Feger(21:05):

Yeah. I do think in this conversation when we were coming up with the awards, I think one of the things, one of the reasons we decided on this was because of the tote bag craze, which I think is kind of hilarious. So this year for the second time, Trader Joe's brought back these mini tote bags. They're like $3, everyone loves them, there were crazy lines. And I think it's just a really interesting thing that Trader Joe's, which already we said has this kind of cult following, somehow created this frenzy around a tote bag, which-

Sara Lebow (21:42):

[inaudible 00:21:42], yeah.

Arielle Feger(21:41):

... is not what you would think of when you would think of a private labeled good. You know?

Sara Lebow (21:46):

Yeah, although the appeal of my Trader Joe's tote bag is how big it is. So I don't want the mini.

Arielle Feger(21:51):

These are tiny, yeah.

Sara Lebow (21:53):

I can fit everything in the Big Trader Joe's tote.

Sky Canaves (21:54):

Yeah, this is just, I think, kind of one of those social media or TikTok trends that has really taken off. Trader Joe's doesn't really do marketing or advertising, so it's kind of purely organic and it's taken on a life of its own. They just encourage it by then producing more bags and releasing them and getting people to line up for them.

Sara Lebow (22:14):

They don't do advertising, but they definitely do branding, they definitely do packaging, they definitely do curated aesthetics, and that's what's working.

Arielle Feger(22:23):

Yeah, absolutely.

Sara Lebow (22:23):

I do think that Trader Joe's needs to make sure it stays ahead on viral social. I mean, we see Walmart and other competitors definitely investing in having creators show up with their brands.

Sky Canaves (22:36):

Yeah, and all of the big retailers have existing brand fandoms online. People who go to their stores and can pick up the private label products, tell you what they're dupes of, review them, give them your quality assessments. So it's important for retailers to really tap into those existing audiences, the creators who are already making videos showing what's new at Trader Joe's this week or come shopping with me at Aldi and have a look around, and people are watching those. So it would be a lot, a miss not to engage with those and work with them to kind of get the word out about their private label brands and new products.

Sara Lebow (23:19):

Williamsburg, Brooklyn is getting a Lidl. Is it pronounced Lidl or Lidl?

Arielle Feger(23:20):

I think it's Lidl. Is it Lidl?

Sky Canaves (23:24):

Yeah.

Sara Lebow (23:25):

We're getting one, and get ready for my come shopping with me at Lidl video.

Arielle Feger(23:25):

Can't wait.

Sky Canaves (23:29):

I can't wait.

Sara Lebow (23:30):

Whenever that actually happens.

(23:32):

Okay. Well, that is all we have time for today. Thank you for being here, Sky.

Sky Canaves (23:36):

Thanks for having me again.

Sara Lebow (23:38):

Thank you, Ariel.

Arielle Feger(23:39):

Thank you.

Sara Lebow (23:40):

Thank you to our listeners and to our team that edits the podcast. There are no substitutes for them. We'll be back next Wednesday with another episode of Reimagining Retail. And On Friday, join Marcus for another episode of The Behind the Numbers Show, an EMARKETER podcast made possible by Rokt.