Where is Private Label Going in 2010?

National brand manufacturers have been growing increasingly nervous about private label. Throughout the recession there has been a constant stream of articles and predictions about the growth in PL sales (especially in consumer packaged goods, but also in many categories of durables) and about where the future might lead.

In the food category, PL growth this past year was more than double that of branded products, and "a reasonable estimate is that private label accounts for roughly 20% to 25% of food sales across categories for most retailers (more in retailers that emphasize store brands)." To make things worse for the brand manufacturers, the stores that are showing the greatest growth, the discounters and limited assortment stores such as Save-A-Lot and Aldi, are the ones that emphasize private label, with Wal-Mart and Target having redesigned and expanded their Great Values and Up&Up lines in 2009.

Now an industry pundit, Phil Lempert, has predicted that 2010 will see branded food manufacturers producing co-branded private label products with key retailers. I'll be honest; I'm not sure what "co-branded private label" means, canned peaches at Wal-Mart being sold under the 'Great Values by Del Monte' label?

I don't see what Del Monte would gain. Yes, they would get some incremental sales, but they could get that by providing ordinary private-labeling services to stores, as many brand manufacturers have been doing for years. But I can sure see what they lose, their brand name soon would be worth little.

However, as you'll see in the article, while they agree it's a bad idea, industry observers think that some brand name suppliers will go for the quick buck.

Another approach to private label is being taken by Meijer. The Midwestern supercenter chain is re-launching its Meijer Gold line with eighty new products, focusing on smaller manufacturers who can provide innovative recipes such as Sugar-Free Maple-Praline Syrup, Smokey Mozzarella Cheese Spread, Porcini Truffle Tortellini, Crab Puff Pastries, Biscotti Munch Chocolate Caramel Cookies and Michigan Apple Cheesecake.

The new Meijer Gold products, released Nov. 15 at all 190 Meijer stores, are original recipe items either made by a local company within the Meijer footprint or by a family owned business. The line also features interesting foods endemic to a particular place or country. That cocoa I loved comes from a Pacific Northwest family known for producing luscious chocolate recipes. There is also lemonade from an original family recipe in France, mustard from an age-old German recipe by a long-time Midwestern company, salsa from an acclaimed family-owned southern California producer, and cream pasta sauces from the legendary Chicago restaurateurs, the Mugnolo family.

This approach may represent an even bigger threat to manufacturers of brand name products. Until recently PL products were copycats, and the brands could stay ahead by innovating; and until recently, PL products were generally inferior. But now many stores offer products under their own name that are roughly at parity with the brands, and some of the retailers are beginning to innovate.

The threat of private label is one that has been talked about for years, but thus far I haven't seen a solid strategy for overcoming it. The growth of private label has come unevenly, speeding up during recessions and easing a bit when times are good. But the ever-increasing concentration of the retail marketplace means that the growth will continue, good times or bad. How will suppliers respond?