Private-label grocery brands boomed during inflation. Prices are down, but store-brand items keep going higher

• Walmart, Kroger, Albertsons, Target and other major grocers saw increased sales of private-label brands during record inflation as more consumers became budget-conscious, and there are now more retailers with private brands across more categories in stores than ever before in the U.S..
• They took coveted shelf space away from national brand giants like Procter & Gamble, Kraft Heinz, and Coca-Cola, as well as smaller food and beverage companies jockeying for retail real estate.
• Walmart, which already dominates the private brand grocery business with its Great Value marque on more than 1,000 food and beverage products, says the gains continue to increase.

Private brands — also called store brands and private-label brands — of foods and beverages have shared shelf space with national brands for years. For example, Walmart, the world's largest grocery retailer, sells its Great Value Raisin Bran alongside similar cereals from Kellogg's and Post, and usually at a considerably lower price. The same goes for Kroger, Albertsons, Target and other major grocers, not only across cereal options, but dozens of other product categories.

Historically, private brands have been the choice of budget-conscious shoppers, especially during tough economic times. So over the past few years, as high inflation and manufacturers' price hikes sent grocery prices soaring to their highest level in decades, it was no surprise that private brands saw an uptick in sales. Gradually, they've taken coveted shelf space, and consumers, away from established national brands sold by Procter & Gamble, Kraft Heinz, Coca-Cola and other industry heavyweights, as well as smaller food and beverage companies jockeying for retail real estate.

But now that inflation is cooling off — the latest consumer price index is at its lowest level since February 2021 — private brands are at a crossroads. Will sales retreat to their typical market share compared to national brands, an average of around 18-20%? Or will grocery retailers innovate, market, manufacture and stock their own brands as a way to capture more market share among a wider swath of shoppers, improve their already-thin margins and differentiate themselves from competitors? Recent retail data, consumer surveys, retailers' comments and expert analyses point to the latter scenario.

"Retailers and our member manufacturers continue to keep up with the trends, but they invest in products that aren't flash in the pan, so that over time they grow their business to a point where it's the preferred brand for the shopper versus an alternative to what they typically buy," said Peggy Davies, president of the Private Label Manufacturers Association, which represents nearly 5,000 international producers of private brands for a wide range of retailers.

In 2023, sales of private brand food and beverages in the U.S. rose to $152 billion from $142.4 billion a year earlier, a 6.7% increase, according to data from the market-research firm Circana. The unit share on grocers' shelves vs. national brands rose to 26% from 25%. One percentage point might not seem like much, but retailers generally make more money selling private brands, the benefit of avoiding the production, pricing and logistics infrastructure built around national brands.

Consider Target's assessment of its improved second-quarter revenue, up 2.7% year-over-year to $25.5 billion, in part buoyed by its private brands such as Good & Gather and Favorite Day. "Because of our industry-leading design and sourcing capabilities, we are better positioned to remove unnecessary steps in the process, which allows us to reduce costs and increase speed to market," Rick Gomez, executive vice president and chief commercial officer, told Wall Street analysts.

Sally Lyons Wyatt, global executive vice president and chief advisor at Circana, said the growth in private brands has reached an apex, with accessibility one of the driving factors. "There are more retailers with more private brands across more categories in stores than ever before in the U.S.," she said.

Walmart, Kroger increase focus on store-brands

Walmart already dominates the private brand grocery business — primarily with its Great Value marque, which includes more than 1,000 food and beverage products — and is taking it up a notch. "We're seeing private brand penetration continue to increase," said CFO John David Rainey in August, when the company released its second quarter earnings, "and we're highly encouraged by customer uptake of our new food brand, Bettergoods."

The big-box retailer introduced Bettergoods in April, comprising items within various categories, including frozen foods, dairy and snacks, most priced under $5. The brand is designed to carve out a distinct niche, Scott Morris, senior vice president of private brands, food and consumables for Walmart U.S., told Store Brands magazine.

"Unlike some of our own private brands and national brand offerings, Bettergoods is not primarily a direct comparison to items existing in the market," he said. "In fact, many items may not have a market comparison, inside or outside our stores."

Kroger is following suit. The grocery giant — which operates about 2,700 stores, under its brand name and affiliated chains, including Ralphs, King Scoopers and Metro Market, and is still pursuing a $25-billion merger with fellow behemoth Albertsons currently being challenged in court on antitrust grounds by the government — has expanded its so-called Our Brands portfolio, adding to its eponymous label Simple Truth, Private Selection, Smart Way, and Field & Vine, a fresh produce line grown by farmers in California, Florida and several other states.

Kroger noted in its most recent earnings report on Sept. 12 that store brands' sales growth outpaced national brand sales growth in the most recent quarter, with more than 90% of customer households purchasing Our Brands products. Kroger said it has launched 600 new items under private-label brands this year.

Customer shopping habits are changing for good

In the past, the value proposition of private brands was driven primarily by lower prices. But consumer attitudes are evolving, according to a recent survey by the Food Industry Association, which represents both food retailers and producers. Value and price remain the top reasons consumers have been buying more private brands, the report found, but quality and taste are increasing as key drivers, along with attributes such as meeting meal solution and health needs, and more appealing packaging.

"In the past you felt like you were kind of getting what you paid for," Lyons Wyatt said. "You would get it at a lower price, but it might not exactly have the same flavor or the same quality as a branded item. They've raised the quality bar [on private brands], getting taste and texture profiles to a level where consumers find that they're not bad alternatives."

While competition between private and national brands benefits consumers, according to Doug Baker, vice president of industry relations at Food Industry Association, it also allows a retailer to create a point of differentiation to other retailers. "You can only get that brand from me," he said.

Those competitive triggers are, in turn, building customer loyalty to one store versus another, Baker said. The recent survey found that in 2016, private brands influenced store choice for about a third of shoppers, but by 2023 and 2024, that share grew to more than half of shoppers. Specifically, the survey found that 55% of shoppers increased their purchase of private brands over the past year, compared to only 28% who bought more national brands. And 46% said they expect to buy private brands somewhat or much more, compared to 27% saying that for national brands.

Increasingly, those shoppers are millennials and Gen Zers, who are forming their own relationships with brands and retailers, distinct from Gen Xers and baby boomers, said Steve Zurek, vice president of advanced analytics thought leadership at consumer-research firm NIQ, also known as NielsenIQ.

"Gen Z and young millennials are talking about the experiences they're having with store brands, and there's not necessarily the same brand allegiance that is being passed down from their parents to them," Zurek said. "They're trying to strike out on an independent path and find their own things. And so social influencers are important, their friends are important."

That's a trend Walmart has also highlighted, with Morris noting that across all its private brands, Walmart is seeing younger, brand-agnostic customers make the switch, which he says is proof of their value and quality. "While we see growth across all demographics, the growth is especially apparent among Gen Z and higher-income groups," he told Store Brands magazine.

Food industry experts anticipate that private brands will continue to flourish alongside national brands, but no one expects them to reach the lofty levels seen in Western Europe, where the market share is 36%, according to NIQ. European consumers have long been accustomed to purchasing private brands from discount retailers like Aldi and Lidl, which specialize in such products. In fact, as those brands expanded within the U.S. in recent years, alongside the growth of domestic store-brand success story Trader Joe's, they've been a key reason for the increased focus on private label from the supermarket chains.

But the overall market is not going to flip to majority store-brand, according to the Food Industry Association. "In the U.S., the market for private brands as an industry to eclipse national brands is not something we'll see," Baker said. "That's primarily because of competition in retail stores and brands in general. The consumer will benefit by having competitive products to buy, so both [private and national] brands will continue to realize good gains in their businesses."