Private labels are steadily gaining ground, and this growth presents both challenges and opportunities for brand manufacturers. As retailers expand their private label offerings, often at competitive price points, brands may experience increased pressure on margins and heightened competition for shelf space. However, this evolution also offers unique opportunities for brands to stand out by emphasizing their strengths, such as consumer loyalty, quality, and innovation.
At Simon-Kucher, we have decades of experience working with leading brands in pricing, marketing, and strategy. We’ve helped manufacturers across industries navigate the rise of private labels, turning market challenges into opportunities for growth. The key to thriving in this environment? Getting closer to the consumer and becoming a brand they won’t forget.
Key trends and market dynamics driving private labels
More and more consumers are adopting private label goods
Private labels are no longer solely budget-friendly alternatives; they have become strategic assets for retailers aiming to attract a broad consumer base and foster brand loyalty. Retailers are responding by dedicating more shelf space to their own store-branded goods, promoting them through loyalty programs and targeted campaigns.
This shift spans various product lines, from food and beverage to household items, making private labels a growing force in multiple categories. Interestingly, private label sales captured 38% of the European grocery market in 2023, with prominent shifts in in Spain (47%) and Germany (41%). An impressive 96% of consumers purchase private label products.
Let's also take a look at France, where the overall average number of items per shopping basket has decreased from 12 to 11. Meanwhile, the basket share for private labels has grown from 46.7% to 47.8%, marking an increase of 1.1 percentage points. For almost every national brand product removed from the basket, a private label item has taken its place.
Private labels drive price competition
With the growth of private label sales, price competition is intensifying across product categories. Retailers often use cost-plus pricing models to offer private label products at more affordable price points compared to national brands. This trend is particularly visible in high-penetration categories like food and beverage, where manufacturers face significant margin pressure.
In markets where private labels are more established, brands often face challenges aligning their price points without compromising their unique value. However, this competitive environment also opens the door for brands to strengthen their pricing strategy and reinforce the value they bring to the table. Identifying an optimum price premium compared to private labels is crucial for brands seeking to balance consumer appeal with profitability.
Private labels: Competition or catalyst?
Private labels drive competition in the market by providing viable alternatives to national brands. This dynamic benefits consumers by ensuring all players—private labels and national brands alike—are working harder to meet their needs. Private label brands study the market to anticipate and push innovation, and that’s a good thing.
However, let's look at what happens if manufacturers fail to take action. Retailers producing their own private label goods would gain more negotiating power, pushing manufacturers to lower price points and even delisting certain products.
When national brands are pushed out of the market, it reduces the variety of products available. This could lead to a more commoditized shopping experience, where differentiation between products becomes harder to discern. Meanwhile, manufacturers face even higher marketing costs as they compete to maintain visibility and market share. In this scenario, the proliferation of private labels could end up stifling innovation and limiting consumer choice.
Innovation is in a brand manufacturer’s DNA. They have the expertise, creativity, resources, and responsibility to deliver products that stand out in the market. While many private labels still focus on operational excellence, they excel at offering something unique—whether it's superior quality, cutting-edge features, or addressing unmet consumer needs.
Here are four strategies that brands use to respond effectively to private label competition.
How manufacturers maintain relevance amid the growth of private labels
Getting closer to consumers and emphasizing unique value
Some brands focus on becoming more consumer centric, going beyond price to understand what their consumers want—whether that’s sustainable packaging, better quality, or unique benefits that store-branded goods can’t offer. By building this connection, brands can ensure that they remain an integral part of consumers’ lives and secures a strong retail presence.
And remember, price points matter, but they aren’t everything. It's about being smart with your pricing and making sure it reflects the value you deliver. Brands must focus on showing consumers why their products are worth more. High-quality goods that meet consumer demands will always find their place in the market.
Optimizing product offerings
Today’s consumers are more discerning than ever. They don’t want an overwhelming number of choices—they want the right options that meet their needs. To truly optimize the product line, brands can start by identifying the products that resonate most with their target audience. Focusing on the best-sellers, the products that are driving consumer loyalty and revenue, is key. On the other hand, they can consider cutting underperforming products that are eating into their margins without answering a specific consumer need.
Streamlining your product portfolio isn’t just about reducing SKUs—it’s about improving efficiency, boosting profitability, and making room for innovation. A leaner assortment allows brands to invest more in what matters—whether that’s enhancing the quality of their top products or launching new ones that tap into emerging consumer trends. This approach strengthens the brand’s positioning and helps consumers easily navigate their offerings, reducing decision fatigue.
Building consumer loyalty through targeted programs
Fostering brand loyalty is one of the most powerful tools. Loyal consumers don’t just buy products—they believe in the brand and what it represents. That connection is something private labels often can’t replicate.
Brand loyalty programs have proven efficient for several manufacturers by rewarding repeat purchases and strengthening consumer connection. They think beyond discounts—consider personalized offers, early access to new products, or special experiences that reflect their brand’s unique value. Loyalty programs should make consumers feel valued and understood, turning everyday transactions into long-term relationships. The more personal the connection, the more likely consumers are to stick with the brand, further differentiating it from private labels.
Loyalty programs also give brands access to detailed consumer behavior data, including purchase patterns, frequency, preferences, and engagement levels. This allows them to build a clear picture of who their consumers are, what products they buy, and what drives their purchasing decisions. This enables more targeted product development and marketing strategies aligning closely with consumer expectations.
Leveraging private label dynamics in negotiations
Most manufacturers are familiar with the growing trend toward international net price comparisons within buying groups. These alliances put on additional pressure to match the lowest price point found in the market. However, take a closer look at private labels and you will find that they also often exhibit differentiated pricing across countries—for the exact same products. We’ve observed price differences reaching up to 39% on items like cereals.
Here's where private labels can become a brand’s powerful negotiation tool. Understanding where the differences lie has helped manufacturers navigate price alignment requests from retailers and ensured they are not undercut by private label pricing. By highlighting significant price misalignments on the private label side, they secure better terms and defend their own pricing strategy.
Considerations for manufacturers exploring their own private labels production
Some manufacturers are exploring the possibility of producing private label products for retailers. This strategy offers several benefits, but it also comes with significant challenges.
Producing private label products for retailers offers manufacturers a new revenue stream, closer retailer relationships, filling production gaps, and provides opportunities for growth. However, the downsides may include lower margins, potential brand dilution, increased retailer dependency, and the risk of cannibalizing their own branded products.
This strategy may suit manufacturers focused on scale and efficiency but may conflict with premium brand positioning and innovation goals. Therefore, it’s crucial for manufacturers to weigh the long-term impact on the brand before deciding if private label production aligns with their overall business goals.
How Simon-Kucher can help
At Simon-Kucher, we specialize in helping consumer packaged goods manufacturers navigate complex challenges like the rise of private labels. With our expertise in pricing, marketing, and strategy, we offer unique, data-driven insights tailored to your specific business needs. Whether it’s optimizing your product portfolio, strengthening your negotiation position, or creating loyalty programs that resonate, we provide actionable solutions that position your brand for long-term success.
Ready to strengthen your brand in the face of growing private label competition? Contact us today to see how we can help you turn the challenges into opportunities.
