As you scroll through goods on Amazon or stroll through another favorite store, you may notice an increase in the number of products with short names, plain packaging and little embellishment. Or it’s possible that you may not notice these products; the packaging is distinctly more subtle and subdued than that of many name-brand products featuring splashy logos, bright colors and in-your-face designs and marketing.
Major companies from Amazon to Walmart increasingly are introducing their own “private label brands,” using a third party to manufacture a product that is sold under that retailer’s name. With food products especially, these private labels take a marketing approach that’s similar to that of the old “generics” by using no-frills packaging. But private labels offer an important distinction: To gain and keep customer loyalty, private labels offer higher quality than the predecessor generic brands. Typical of the private label group is a newcomer called Good & Gather, from Target, which says the label’s products “prioritize taste, quality ingredients and ease, at a great value.”1
Sales of private label products have increased by nearly $14 billion since 2015.2 The niche resonates with many consumers, and seems to especially draw millennials, the largest U.S. generation and a group that tends to drive trends regarding how Americans shop and eat. Millennials do not necessarily have excess disposable income for shopping, and private labels offer affordability even if they aren’t as cheap as the old generics. At the same time, consumers like the reliable quality of private label brands. In a 2019 survey, respondents told Information Resources Inc. that they turn to private label brands for better value and not just price.3
From a store’s standpoint, offering select private label items at somewhat lower prices can increase overall sales and keep shoppers returning to their stores — not just for those items but for all sales. In a study of specific products at Costco and Trader Joe’s, market intelligence firm Numerator found that consumers buying two private label items tend to be heavy shoppers at their respective retailers and remain more loyal to those stores.4 And the Information Resources Inc. study indicates that private label brands are key factors in how in shoppers choose where to shop from all stores.3 The private label lure appears to be a key reason for a wide range of retailers announcing their own, new private labels in recent years.
The emergence of private label brands may also be tied in part to an increase in transparency about everything we buy. Websites and online reviews provide critiques and feedback from consumers that older brands did not face. Thanks to companies such as Amazon, Yelp and Angie’s List that launched online reviews, information on product quality is just a few clicks away. A study by Search Engine Land5 found that 88 percent of consumers trust online reviews as much as they trust personal recommendations. With so many reviews available, companies are increasingly compelled to ensure their products will keep customers will returning to buy again and again.
The best news in this private label landscape? Shoppers have more choice and can keep their costs down while still having the satisfaction of purchasing good-quality products.
1 Target Unveils Good & Gather
2 The Rise of Premium Private Label and its Impact on Discount Retailers
3 Beyond Price, Consumers Find Value in Private Brands
4 Private Label, Public Favorites
5 88% Of Consumers Trust Online Reviews as Much as Personal Recommendations
D.A. Davidson & Co. is a registered broker-dealer and registered investment adviser that does not provide tax or legal advice. Information contained herein has been obtained by sources we consider reliable, but is not guaranteed and we are not soliciting any action based upon it. Any opinions expressed are based on our interpretation of the data available to us at the time of the original article. These opinions are subject to change at any time without notice. Copyright D.A. Davidson & Co., 2019. All rights reserved. Member SIPC.