Why More Retailers are Increasing the Number of Private Label Brands

13th February 2019
From Séverine Tourpin

Due to factors such as low price points and uninspiring packaging, it’s no secret that in the past, Private Label products have often been perceived as being the lower quality choice compared to branded products. However, this is no longer the case.

Retailers have responded to the increasing demands of the consumer by ensuring their Private Label products are more innovative, diverse and therefore more appealing than ever before. Consequently, by establishing a much better balance of quality and affordability, Private Label goods have skyrocketed in popularity, resulting in far greater opportunities than ever before for these products.

In the UK, for example, consumers are increasingly opting for Private Label products, due to factors such as post-Brexit uncertainty. Retail Economics [1]evidenced this in some recent research, where 48% of 2,000 customers questioned said they’d switch to cheaper own-label alternatives if their weekly food shopping bills rose.

So why are retailers increasingly stocking up on Private Label goods? Take a look at these few examples below:

Competitive Pricing

In the highly competitive retail market, implementing an effective price strategy has proven to be one of the most effective ways to draw in the crowds. As ‘own brands’ offer retailers higher profit margins with each sale, Private Label products can therefore be priced more competitively.

German supermarket chain Aldi is a prime example of a retailer reaping the benefits of its low price points. Similar to Lidl, the bulk of Aldi’s product offering are its own label goods, benefitting the retailer by giving them more scope to set their own price points and marketing strategies. Having faced initial criticism for being perceived as substandard, Aldi has achieved monumental Private Label success by focusing on improving design, taste and price. With over 10,000 stores in 18 countries and with a combined turnover of €50 billion [2], it’s clear that they are onto a winner.

This has also been evidenced by pharmacy brand CVS, who claim that Private Label brands are not only more profitable for the chain, they are also 20% to 30% less expensive for consumers than national brands. They have therefore been key to reviving its retail business.

Simplifying the Choice Overload

But low prices aren’t the only reason why consumers are increasingly opting for Private Label options. It’s largely due to the fact that retailers offering high quality own brand products have helped to minimize the amount of choices consumers have to make during their path to purchase. Vast numbers of brands/products and different options on the shelves can be somewhat overwhelming and confusing, which can ultimately reduce customers’ likelihood to actually make a purchase. It can also affect their levels of satisfaction post purchase.

Barry Schwartz, author of The Paradox of Choice: Why More Is Less, highlights this in a Harvard Business Review article citing academic research, stating that “These studies and others have shown not only that excessive choice can produce ‘choice paralysis,’ but also that it can reduce people’s satisfaction with their decisions, even if they made good ones.”

Retailers like Lidl have successfully responded to this by predominantly filling their shelves with Private Label products and giving people fewer products/brands to choose from. This in turn minimises decision-making time and unnecessary anxiety, thus providing the customer with greater satisfaction once they’ve made their choice.

Exclusivity

It’s highly unlikely that national brands will ever be removed from the shelves, due to such high demand and strong brand recognition. However, as national brands are available in a broad range of competing retailers, Private Label products immediately have competitive advantage as they are one of a kind and can’t be found anywhere else. By offering exclusivity and achieving differentiation through a well-designed, reasonably-priced and trustworthy Private Label image, there is no doubt that the retailer will attract new customers and promote customer loyalty.

In a nutshell, as more and more shoppers embrace the high quality of Private Label, there is no reason why retailers won’t continue to increase the number of own brand products on the shelves. Having a suitable mix of national and Private Label products is ultimately a highly effective way for retailers to maximize their sales and profits.

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