brands on the red carpetDespite some market watchers’ predictions that private label is set to take over the world, its share of the packaged-food market has been relatively flat since 2008, and it stopped gaining in other categories in 2011. This leveling off suggests that food brands are able to withstand the private label competition.  Yet, we’ve found the story is more complex.

The first clue is obvious to retailers: there is enormous variation in private label share at the category level. In some categories, such as milk, private label has 60 percent or more market share. In others, such as RTD coffee, canned ham and toaster pastries, private label has only 1 or 2 percent share. 

Private Label Share of Packaged Food 

 private label brand shares

The numbers belie reports about how beautifully private label is performing overall and reveal, instead, how the culture of brand shapes consumer receptivity by category.

Hartman Strategys analysis of private label reveals four competitive segments in the private label food marketplace – but they do not necessarily predict the future:

  1. Private label growth engines tend to come from the fresh-food perimeter, where brands for the most part have not entered (chilled pizza, chilled ready-to-eat meals, prepared salads), and from dinner ingredients like cheese and olive oil. “Private label options are increasingly viable for dinner ingredients, because the cultural stakes tied to buying any single ingredient are lower,” said James Richardson, Senior Vice President of Hartman Strategy. In those areas, brands are either just getting into the game after years of dominance by retailers, or in the case of ingredients, they have been there so long they are often stale and unable to justify higher prices.
  2. Private label has its roots in a world of processed commodities – frozen potatoes, canned tomatoes and fruit, frozen vegetables, butter, chilled soup – where many consumers see little differentiation between private label and legacy brands. “These categories are on the wrong side of long-term trends in American food culture,” Richardson said. “Producers in these categories need to either head upmarket or focus on consolidating their market share or both.”
  3. The private label battleground is around frozen pizza, chilled lunch kits, fresh pasta, chips, canned soup and table sauces. Brands in this arena are willing to slash prices to compete, and there are deep cultural ties to certain branded products. “A trusted brand stands in for the legitimacy of the ‘home cook’ in value-added, dinner-oriented categories, creating a much higher hurdle for private label,” Richardson said. However, private label share is on the rise in this segment, because retailers have offered better-quality snack innovations at lower prices and entered categories with relatively weak brands, such as frozen pizza and cooking sauces.
  4. The areas where private label has not done well and is losing ground, Hartman Strategy calls “the branded fortress.” These are categories such as frozen ready-to-eat meals, yogurt, dips, breakfast cereal, margarine and dinner mixes – places with strong brand heritage and relatively low price points. Some are in decline, but that hasn’t meant a boon for private label. “This is the power of history and culture to determine the fate of private label in ways that many people underestimate,” Richardson said.

That snapshot of private label does not necessarily portend future successes or challenges. It’s impossible to predict how much retailers will expand the private label model in coming years or the growth of premium innovation in private label products – or “control labels,” which simulate name brands but actually belong to retailers.

Retailers and CPG companies should analyze their portfolios for exposure in the “battleground” segment, where market and cultural forces threaten CPG bottom lines and offer more opportunities for retailers. Retailers are most threatened in the “growth engine” categories, including the fresh perimeter, where CPG could take hold.

To read the full report, use this link to download your free copy of The Future of Private Label Food, where we explore the category-specific dynamics of private label, how culture is a key variable in explaining them, and the key uncertainties that could alter the power dynamic between private label and brand moving forward.

Hartbeat EXEC is a quarterly report from Hartman Strategy written for executives at major U.S. food and beverage companies. Free copies of Hartbeat EXEC can be downloaded from Hartman Strategy’s website. 

About Hartman Strategy

Hartman Strategy partners with senior leaders in the food and beverage industry to help them align their portfolios to existing and emerging consumer demand.  A strategic adviser to major retail and packaged-goods companies, it drives growth with a range of customizable solutions: portfolio innovation strategy, market-trend and global food culture analysis, M&A/investment advisory services.